<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, 1999
[ ] 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: 0-27804
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 9, 1999
------------- -----------------------------
Common Stock 4,914,845
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COMPARE GENERIKS, INC.
FORM 10-QSB
THREE MONTHS ENDED JUNE 30, 1999
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............................................7-8
PART II - OTHER INFORMATION
Item 1. Legal proceedings..........................................9
SIGNATURES .................................................................10
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COMPARE GENERIKS, INC.
BALANCE SHEET
(Unaudited)
JUNE 30, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 306,216
Accounts receivable, net of $10,000 allowance
for doubtful accounts 2,607,346
Inventories 9,885,888
Prepaid expenses and other current assets 112,557
-----------
Total current assets 12,912,007
PROPERTY AND EQUIPMENT, net 51,055
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 60,000
INTANGIBLE ASSETS, net 518,746
DEFERRED TAX ASSET 106,400
OTHER ASSETS 198,966
-----------
$13,847,174
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 81,381
Due to affiliate 9,192,270
Dividend payable 49,000
Income tax payable 53,161
-----------
Total current liabilities 9,375,812
-----------
LICENSE FEE PAYABLE 125,000
-----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, authorized
25,000,000 shares; 4,914,845 issued and
outstanding 491
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; 900,000 issued
and outstanding 90
Additional paid-in capital 6,273,202
Accumulated deficit (1,922,921)
------------
4,351,362
Less stock subscription receivable (5,000)
-----------
4,346,362
-----------
$13,847,174
===========
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COMPARE GENERIKS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
NET SALES $10,701,627 $ 6,656,543
----------- -----------
COSTS AND EXPENSES:
Cost of sales 8,852,237 5,473,623
Selling, general and administrative 1,743,158 1,106,708
----------- -----------
10,595,395 6,580,331
----------- -----------
OPERATING INCOME 106,232 76,212
INTEREST INCOME/(EXPENSE), net (90) (74)
----------- -----------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 106,142 76,138
PROVISION FOR INCOME TAXES 48,000 2,300
----------- -----------
NET EARNINGS $ 58,142 $ 73,838
=========== ===========
NET EARNINGS PER SHARE $ .01 $ .02
=========== ===========
WEIGHTED AVERAGE
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING 4,545,928 3,890,000
=========== ===========
</TABLE>
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<PAGE>
COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 58,142 $ 73,838
---------- ---------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization and depreciation 81,480 81,483
Non-cash license fee 125,000 125,000
Deferred income tax benefit (12,400) (5,000)
Changes in operating assets and liabilities:
(Increase)/decrease in assets:
Accounts receivable (585,488) (937,736)
Inventories (2,135,606) (913,524)
Prepaid expenses and other current assets (24,486) (3,673)
Other assets (83,333) 10,000
Increase/(decrease) in liabilities:
Accounts payable and accrued expenses (86,790) 286,529
Due to affiliate 2,868,628 1,316,795
Income taxes payable 42,400 -
---------- ---------
Total adjustments 189,405 (40,126)
---------- ---------
Net cash provided by operating activities 247,547 33,712
---------- ---------
Net increase in cash and cash equivalents 247,547 33,712
CASH AND CASH EQUIVALENTS, beginning of period 58,669 107,334
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 306,216 $ 141,046
========== =========
</TABLE>
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<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1999
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 periods
ended June 30, 1999 and 1998. 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, 1999. The results of operations for the three months ended June
30, 1999 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, 1999
have been estimated using the gross profit method.
4. Investment in Available-For-Sale Securities:
At June 30, 1999, 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. The investment has been recorded at its estimated
realizable value.
-4-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1999
(Continued)
5. Income Taxes:
Net deferred income tax asset (liability) is composed of the following
at June 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Unrealized holding gain on available-for-sale securities $ 404,000
Intangible assets 274,000
Other (8,000)
Valuation allowance (563,600)
-------------
$ 106,400
</TABLE>
6. Stockholders' Equity:
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 128, "Earnings Per Share." Earnings per common share is computed
by dividing net earnings 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.
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 periods ended June 30, 1999 and 1998
totaled $19,000 and $15,000, respectively.
-5-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1999
(Continued)
6. Stockholders' Equity: (Continued)
Net earnings available to common shareholders was computed as follows:
Three Months Ended
------------------
June 30,
--------
(Unaudited)
1999 1998
---- ----
Net earnings $ 58,142 $ 73,838
Dividends 19,000 15,000
---------- ----------
Earnings available to
common shareholders $ 39,142 $ 58,838
---------- ----------
Weighted average number
of shares $4,545,928 $3,890,000
---------- ----------
Earnings per common
share $ .01 $ .02
========== ==========
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. Under
the payment terms of this Agreement, the purchase price of the products was set
at a (i) base price plus (ii) the difference between 93% of the sales price to
the Company's customers and the base price. The Agreement also prohibits PDK
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 or preferred stock. In May 1999, the Company issued to
PDK 714,286 shares of common stock and 400,000 shares of Series B preferred
stock to satisfy the 1999 fee. Included in selling, general and administrative
expenses is $125,000 of this license fee for the three months ended June 30,
1999.
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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, 1999 and 1998 were
approximately $10,702,000 and $6,657,000, respectively. The sales growth
reflects significant increases in sales of the "Max Brand" product line. Gross
profit for the three month period ended June 30, 1999 and 1998 approximated
$1,849,000 (17% of sales) and $1,183,000 (18% of sales), respectively.
The Company is operating under an Exclusive Supply and Licensing
Agreement with PDK Labs Inc. ("PDK"), whereby PDK granted the Company an
exclusive license to use the trademarks "MaxBrand" and Heads Up" brands of OTCs
and the exclusive right to distribute products bearing such names. The payment
terms of the agreement provides for the purchase price of products and an annual
license fee of $500,000 payable to PDK. The license fee is payable, at the
option of the Company, either in cash or in shares of the Company's common or
preferred stock.
Selling, general and administrative expenses approximated $1,743,000
and $1,107,000 for the three month periods ended June 30, 1999 and 1998,
respectively. As a percentage of sales, these amounts represent 16% and 17%
respectively.
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 developed a plan to ensure that its systems are compliant with the
requirements to process transactions in the Year 2000. The plan consists of four
phases: assessment, remediation, testing and implementation, and encompasses
internal information technology (IT) systems and non-IT systems, as well as
third party exposures. The Company has tested and implemented its IT systems and
non-IT systems. In addition, the Company has requested from a majority of its
principal suppliers and vendors written statements regarding their plan for
meeting Year 2000 requirements. To date, the Company has not received adequate
response to such requests.
Liquidity and Capital Resources
As of June 30, 1999, the Company had working capital of approximately
$3,536,000.
The Company's statement of cash flows reflects net cash provided by
operating activities of approximately $248,000, primarily due to (i) net income
of $58,000, (ii) increases in liabilities such as due to affiliate ($2,869,000),
and income taxes payable ($42,000), (iii) adjustments for depreciation and
amortization expense ($81,000) and a noncash license fee ($125,000), offset by
(iv) increases in operating assets such as accounts receivable ($585,000),
inventories ($2,136,000), and other assets ($83,000), and (v) decreases in
liabilities such as accounts payable ($87,000).
-7-
<PAGE>
COMPARE GENERIKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In May 1999, the Company issued 714,286 shares of common stock and
400,000 shares of Series B preferred stock to satisfy an outstanding obligation
of $500,000.
The Company expects to meet its cash requirements from operations and
current cash reserves.
This report on Form 10-QSB contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations and business of the
Company. All of these forward looking statements, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed upon such estimates and statements.
-8-
<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, 1999.
-9-
<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 11, 1999
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-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 306,216
<SECURITIES> 0
<RECEIVABLES> 2,617,346
<ALLOWANCES> 10,000
<INVENTORY> 9,885,888
<CURRENT-ASSETS> 12,912,007
<PP&E> 79,482
<DEPRECIATION> 28,427
<TOTAL-ASSETS> 13,847,174
<CURRENT-LIABILITIES> 9,375,812
<BONDS> 0
0
590
<COMMON> 491
<OTHER-SE> 4,345,281
<TOTAL-LIABILITY-AND-EQUITY> 13,847,174
<SALES> 10,701,627
<TOTAL-REVENUES> 10,701,627
<CGS> 8,852,237
<TOTAL-COSTS> 8,852,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 106,142
<INCOME-TAX> 48,000
<INCOME-CONTINUING> 58,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,142
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>