<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 September 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.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-3289396
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
60 Davids Drive
Hauppauge, New York
----------------------------------------
(Address of principal executive offices)
11788
----------
(Zip Code)
(800) 342-6555
---------------------------------------------------
(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 October 25, 1999
------------ -------------------------------
Common Stock 4,914,845
<PAGE>
COMPARE GENERIKS, INC.
FORM 10-QSB
SIX MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
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
<PAGE>
COMPARE GENERIKS, INC.
BALANCE SHEET
(Unaudited)
SEPTEMBER 30, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 281,809
Accounts receivable, net of $10,000 allowance
for doubtful accounts 2,400,535
Inventories 10,353,056
Prepaid expenses and other current assets 285,705
------------
Total current assets 13,321,105
PROPERTY AND EQUIPMENT, net 48,237
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 60,000
INTANGIBLE ASSETS, net 440,081
DEFERRED TAX ASSET 112,400
OTHER ASSETS 148,444
------------
$ 14,130,267
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 95,201
Due to affiliate 9,201,347
Dividend payable 76,000
Income tax payable 130,686
------------
Total current liabilities 9,503,234
------------
LICENSE FEE PAYABLE 250,000
------------
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 (1,892,250)
------------
4,382,033
Less stock subscription receivable (5,000)
------------
4,377,033
------------
$ 14,130,267
============
-1-
<PAGE>
COMPARE GENERIKS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 19,547,695 $ 14,614,706 $ 8,846,068 $ 7,958,163
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 17,529,684 13,058,327 7,670,661 7,140,187
Selling, general and administrative 1,779,068 1,390,270 1,042,696 728,079
------------ ------------ ------------ ------------
19,308,752 14,448,597 8,713,357 7,868,266
------------ ------------ ------------ ------------
OPERATING INCOME 238,943 166,109 132,711 89,897
INTEREST INCOME/(EXPENSE), net (1,130) (632) (1,040) (558)
------------ ------------ ------------ ------------
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 237,813 165,477 131,671 89,339
PROVISION FOR INCOME TAXES 122,000 3,665 74,000 1,365
------------ ------------ ------------ ------------
NET EARNINGS $ 115,813 $ 161,812 $ 57,671 $ 87,974
============ ============ ============ ============
NET EARNINGS PER SHARE $ .02 $ .03 $ .01 $ .02
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES
OF COMMON STOCK
OUTSTANDING 4,735,298 3,890,000 4,914,845 3,890,000
============ ============ ============ ============
</TABLE>
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<PAGE>
COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 115,813 $ 161,812
----------- -----------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization and depreciation 162,963 162,965
Non-cash license fee 250,000 250,000
Deferred income tax benefit (18,400) 2,000
Changes in operating assets and liabilities:
(Increase)/decrease in assets:
Accounts receivable (378,677) (553,426)
Inventories (2,602,774) (5,071,201)
Prepaid expenses and other current assets (197,634) (26,773)
Other assets (32,811) 6,000
Increase/(decrease) in liabilities:
Accounts payable and accrued expenses (72,970) 34,430
Due to affiliate 2,877,705 5,038,218
Income taxes payable 119,925 --
----------- -----------
Total adjustments 107,327 (157,787)
----------- -----------
Net cash provided by operating activities 223,140 4,025
----------- -----------
Net increase in cash and cash equivalents 223,140 4,025
CASH AND CASH EQUIVALENTS, beginning of period 58,669 107,334
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 281,809 $ 111,359
=========== ===========
</TABLE>
-3-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 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 six month periods ended
September 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 six months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the full year. Certain reclassifications have been made to the prior periods
financial statements to conform with the classifications used for the six months
ended September 30, 1999.
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 September 30, 1999
have been estimated using the gross profit method.
4. Investment in Available-For-Sale Securities:
At September 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)
SIX MONTHS ENDED SEPTEMBER 30, 1999
(Continued)
5. Income Taxes:
Net deferred income tax asset (liability) is composed of the following at
September 30, 1999:
Unrealized holding gain on available-for-sale securities $ 396,000
Intangible assets 289,000
Other (7,900)
Valuation allowance (564,700)
---------
$ 112,400
=========
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 six month periods ended September 30, 1999 and 1998 totaled $46,000 and
$30,000 respectively.
Net earnings available to common shareholders was computed as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net earnings $ 115,813 $ 161,812 $ 57,671 $ 87,974
Dividends 46,000 30,000 27,000 15,000
---------- ---------- ---------- ----------
Earnings available to
common shareholders $ 69,813 $ 131,812 $ 30,671 $ 72,974
---------- ---------- ---------- ----------
Weighted average number
of shares 4,735,298 3,890,000 4,914,845 3,890,000
---------- ---------- ---------- ----------
Earnings per common
share $ .02 $ .03 $ .01 $ .02
========== ========== ========== ==========
</TABLE>
-5-
<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30, 1999
(Continued)
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 $250,000 and $250,000 of this license fee for the six months ended
September 30, 1999 and 1998, respectively.
-6-
<PAGE>
COMPARE GENERIKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the six and three month periods ended September 30, 1999 were
approximately $19,548,000 and $8,846,000, respectively, as compared to
$14,615,000 and $7,958,000 in the corresponding periods of the prior year. The
sales growth reflects significant increases in sales of the "Max Brand" product
line. Gross profit for the six and three month period ended September 30, 1999
approximated $2,018,000 (10% of sales) and $1,175,000 (13% of sales),
respectively as compared to $1,556,000 (11% of sales) and $818,000 (10% of
sales) in the corresponding periods of the prior year.
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 $1,779,000 (9% of
sales) and $1,043,000 (12% of sales) for the six and three month periods ended
September 30, 1999, respectively,. as compared to $1,390,000 (10% of sales) and
$728,000 (9% of sales) for the corresponding periods in 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 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 completed the assessment of its IT
systems and non-IT systems and satisfactorily tested and implemented remedial
changes to its existing software. 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 September 30, 1999, the Company had working capital of approximately
$3,818,000.
The Company's statement of cash flows reflects net cash provided by
operating activities of approximately $223,000 primarily due to (i) net income
of $116,000, (ii) increases in liabilities such as due to affiliate
($2,878,000), and income taxes payable ($120,000 ), (iii) adjustments for
depreciation and amortization expense ($163,000) and a noncash license fee
($250,000), offset by (iv) increases in operating assets such as accounts
receivable ($379,000), inventories ($2,603,000), and other assets ($33,000).
-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: October 27, 1999
By: /s/ Thomas A. Keith
-------------------------------
Thomas A. Keith
President and Chief Executive Officer
Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 281,809
<SECURITIES> 0
<RECEIVABLES> 2,410,535
<ALLOWANCES> 10,000
<INVENTORY> 10,353,056
<CURRENT-ASSETS> 13,321,105
<PP&E> 79,482
<DEPRECIATION> 31,245
<TOTAL-ASSETS> 14,130,267
<CURRENT-LIABILITIES> 9,503,234
<BONDS> 0
0
590
<COMMON> 491
<OTHER-SE> 4,375,952
<TOTAL-LIABILITY-AND-EQUITY> 14,130,267
<SALES> 19,547,695
<TOTAL-REVENUES> 19,547,695
<CGS> 17,529,684
<TOTAL-COSTS> 17,529,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,130
<INCOME-PRETAX> 237,813
<INCOME-TAX> 122,000
<INCOME-CONTINUING> 115,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,813
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
