<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 33-80659
COMPARE GENERIKS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 11-3289396
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
60 Davids Drive
Hauppauge, New York
----------------------------------------
(Address of principal executive offices)
11788
----------
(Zip Code)
(800) 342-6555
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(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Class Outstanding at August 5, 1998
------------ -----------------------------
Common Stock 3,890,000
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COMPARE GENERIKS, INC.
FORM 10-QSB
THREE MONTHS ENDED June 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Balance sheet.................................................... 1
Statements of operations......................................... 2
Statements of cash flows......................................... 3
Notes to financial statements.................................. 4-6
Item 2. Management's discussion and analysis
of financial condition and results of
operations.................................................... 7
PART II - OTHER INFORMATION
Item 1. Legal proceedings................................................ 8
SIGNATURES .................................................................. 9
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COMPARE GENERIKS, INC.
BALANCE SHEET
(Unaudited)
June 30, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 141,046
Accounts receivable, net of $10,000 allowance
for doubtful accounts 2,045,496
Inventories 2,727,030
Prepaid expenses and other current assets 189,012
Deferred tax asset 99,000
-----------
Total current assets 5,201,584
PROPERTY AND EQUIPMENT, net 62,326
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 459,000
INTANGIBLE ASSETS, net 833,402
OTHER ASSETS 216,000
===========
$ 6,772,312
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,677,821
Dividend payable 50,000
-----------
Total current liabilities 2,727,821
-----------
LICENSE FEE PAYABLE 625,000
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, authorized
25,000,000 shares; 3,890,000 issued and
outstanding 389
Preferred stock, Class A, $.0001 par value;
authorized 10,000,000 shares; 5,000,000 issued
and outstanding 500
Preferred stock, Class B, $.0001 par value;
authorized 10,000,000 shares; 500,000 issued
and outstanding 50
Additional paid-in capital 5,273,344
Accumulated deficit (1,849,792)
------------
3,424,491
Less stock subscription receivable (5,000)
------------
$ 3,419,491
------------
$ 6,772,312
============
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COMPARE GENERIKS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 6,656,543 $ 2,291,846
------------ ------------
COSTS AND EXPENSES:
Cost of sales 5,473,623 1,053,463
Selling, general and administrative 1,106,708 1,174,585
------------ ------------
6,580,331 2,228,048
------------ ------------
OPERATING INCOME 76,212 63,798
INTEREST INCOME/(EXPENSE), net (74) 6,938
------------ ------------
EARNINGS BEFORE
PROVISION FOR INCOME TAXES 76,138 70,736
PROVISION FOR INCOME TAXES 2,300 2,300
------------ ------------
NET EARNINGS $ 73,838 $ 68,436
============ ============
NET EARNINGS PER SHARE $ .02 $ .01
============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES
OF COMMON STOCK
OUTSTANDING 3,890,000 3,890,000
=========== ===========
</TABLE>
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COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 73,838 $ 68,436
------------ -------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Amortization and depreciation 81,483 99,299
Deferred income tax benefit (5,000) -
Changes in operating assets and liabilities:
(Increase)/decrease in assets:
Accounts receivable (937,736) (393,725)
Inventories (913,524) (581,825)
Prepaid expenses and other current assets (3,673) 16,214
Other assets 10,000 (3,500)
Increase in liabilities:
Accounts payable and accrued expenses 1,603,324 488,444
License fee payable 125,000 -
Total adjustments (40,126) (375,093)
------------ -------------
Net cash provided by (used in) operating activities 33,712 (306,657)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment - (3,462)
Net cash used in investing activities - (3,462)
------------ -------------
Net increase (decrease) in cash and cash equivalents 33,712 (310,119)
------------ -------------
CASH AND CASH EQUIVALENTS, beginning of period 107,334 890,485
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 141,046 $ 580,366
============ =============
</TABLE>
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<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1998
1. Basis of Presentation:
The interim financial statements furnished reflect all adjustments
which are, in the opinion of management, necessary to present a fair statement
of the financial position and results of operations for the three month period
ended June 30, 1998 and 1997. The financial statements should be read in
conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's Form 10-KSB for the fiscal year
ended March 31, 1998. The results of operations for the three months ended June
30, 1998 are not necessarily indicative of the results to be expected for the
full year.
2. Concentration of Credit Risk:
Financial instruments which potentially expose the Company to credit
risk, as defined by Statement of Financial Accounting Standard No. 105 ("FAS
105"), consists primarily of trade accounts receivable. Wholesale distributors
of dietary supplements and over-the-counter pharmaceuticals account for a
substantial portion of trade receivables. The risk associated with this
concentration is limited due to the large number of distributors and their
geographic dispersion.
3. Inventories:
Inventories, consisting principally of finished goods at June 30, 1998
have been estimated using the gross profit method.
4. Investment in Available-For-Sale Securities:
At June 30, 1998, investment in available-for-sale securities consists
of 500,000 shares of common stock of Superior Supplements, Inc. ("Superior").
The shares were acquired in 1996 for $100,000 cash and the issuance of 200,000
shares of Common stock.
-4-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1998
(Continued)
5. Income Taxes:
At June 30, 1998, the Company had net operating loss carryforwards
("NOLs") of approximately $578,000 available to offset against future Federal
income tax liabilities.
Net deferred income tax asset (liability) is composed of the following
at June 30, 1998.
Net operating loss carryforward $ 210,000
Unrealized holding gain on available-for-sale securities 251,000
Intangible assets 196,000
Other (9,000)
Valuation allowance (549,000)
---------
$ 99,000
=========
6. Stockholders' Equity:
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 128, "Earnings Per Share." Earnings/(loss) per common share is
computed by dividing net earnings/(loss) less dividends on Series B preferred
shares by the weighted average number of common stock outstanding during the
period. The effect of common stock equivalents on the computation of earnings
per share is anti-dilutive. Earnings per share was retroactively restated to
reflect FASB No. 128 for the three month period ended June 30,1997.
Series B preferred stockholders are entitled to cumulative annual
dividends at $.12 per share, payable one year from the date of issuance.
Dividends earned for the three month period ended June 30, 1998 totaled
$15,000.
-5-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1998
(Continued)
6. Stockholders' Equity: (Continued)
Net earnings available to common shareholders was computed as follows:
Three Months Ended
June 30,
(Unaudited)
1998 1997
---- ----
Net earnings $ 73,838 $ 68,436
Dividends 15,000 15,000
----------- ----------
Earnings available to common
shareholders $ 58,838 $ 53,436
----------- ----------
Weighted average number
of shares 3,890,000 3,890,000
----------- ----------
Earnings per common share $ .02 $ .01
=========== ==========
7. Commitments:
The Company is party to an exclusive supply and licensing agreement
with PDK Labs Inc. ("PDK"), pursuant to which PDK granted the Company an
exclusive license to use the trademarks "Max Brand" and "Heads Up" brands of
OTCs and the exclusive right to distribute products bearing such names. In
April, 1998, the payment terms of this Agreement were amended wherein the
purchase price of the products were set at a (i) specified cost plus (ii) the
difference between 93% of the sales price to the Company's customers and a
specified cost. The amendment also prohibits the Company from supplying certain
products to convenience stores. In consideration for this agreement, the Company
agreed to pay an annual license fee of $500,000 to PDK. This fee is payable, at
the option of the Company, either in cash or in shares of the Company's Common
stock. Included in selling, general and administrative expenses is $125,000 of
this license fee for the three months ended June 30, 1998.
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<PAGE>
COMPARE GENERIKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three month periods ended June 30, 1998 and 1997 were
$6,657,000 and $2,292,000, respectively which primarily reflects an increase in
sales of the "Max Brand" product line. Gross profit for the three month periods
ended June 30, 1998 and 1997 approximated $1,183,000 (18% of sales) and
$1,238,000 (54% of sales), respectively. The decrease is attributable to the
Company amending the payment terms of its Supply Agreement with PDK Labs Inc.
covering the purchase of products in the "Max Brand" and "Heads Up" product
ranges.
Selling, general and administrative expenses approximated $1,107,000
and $1,175,000 for the three month periods ended June 30, 1998 and 1997,
respectively. As a percentage of sales, these amounts represent 17% and 51%
respectively. The overall decrease is a result of the Company experiencing sales
growth without incurring additional selling, general and administrative
expenses. In addition, the Company terminated its marketing agreement with a
non-affiliated pharmaceutical distributor effective April 30, 1998.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
Company has engaged computer consultants and is establishing processes for
evaluating and managing the risks and costs associated with this problem. In the
opinion of management, the cost of addressing this problem will not materially
affect the financial position of the Company.
Liquidity and Capital Resources
As of June 30, 1998, the Company had working capital of approximately
$2,474,000.
The Company's statement of cash flows reflects net cash provided by
operating activities of approximately $34,000, primarily due to net income of
$74,000, an increase of accounts payable ($1,603,000), an increase in license
fee payable ($125,000) and an adjustment for depreciation and amortization
expense of ($81,000), offset by increases in operating assets such as accounts
receivable ($938,000) and inventories ($914,000).
The Company expects to meet its cash requirements from operations and
current cash reserves.
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<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Reference is made to Item 3 in the Company's Form 10-KSB for the year
ended March 31, 1998.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPARE GENERIKS, INC.
Dated: August 5, 1998 By: /s/ Thomas A. Keith
---------------------------
Thomas A. Keith
President and Chief
Executive Officer
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 141,046
<SECURITIES> 0
<RECEIVABLES> 2,055,496
<ALLOWANCES> 10,000
<INVENTORY> 2,727,030
<CURRENT-ASSETS> 5,201,584
<PP&E> 79,482
<DEPRECIATION> 17,156
<TOTAL-ASSETS> 6,772,312
<CURRENT-LIABILITIES> 2,727,821
<BONDS> 0
0
550
<COMMON> 389
<OTHER-SE> 3,418,552
<TOTAL-LIABILITY-AND-EQUITY> 6,772,312
<SALES> 6,656,543
<TOTAL-REVENUES> 6,656,543
<CGS> 5,473,623
<TOTAL-COSTS> 5,473,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 76,138
<INCOME-TAX> 2,300
<INCOME-CONTINUING> 73,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,838
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
