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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, 2000
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
60 Davids Drive
Hauppauge, New York
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(Address of principal executive offices)
11788
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(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
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Class Outstanding at August 9, 2000
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Common Stock 4,914,845
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COMPARE GENERIKS, INC.
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FORM 10-QSB
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THREE MONTHS ENDED JUNE 30, 2000
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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Page
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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.
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BALANCE SHEET
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(Unaudited)
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JUNE 30, 2000
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 134,217
Accounts receivable, net of $10,000 allowance
for doubtful accounts 2,952,334
Inventories 7,654,550
Prepaid expenses and other current assets 259,115
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Total current assets 11,000,216
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 60,000
PROPERTY AND EQUIPMENT, net 39,786
INTANGIBLE ASSETS, net 211,027
DEFERRED TAX ASSET 217,900
OTHER ASSETS 150,961
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$ 11,679,890
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 75,577
Due to affiliate 6,821,477
License Fee Payable 125,000
Income Tax Payable 54,638
Dividend payable 36,000
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Total current liabilities 7,112,692
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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;
liquidation preference of $900,000;
authorized 1,000,000 shares; 900,000 issued
and outstanding 90
Additional paid-in capital 6,273,202
Accumulated deficit (1,702,085)
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4,572,198
Less stock subscription receivable (5,000)
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4,567,198
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$ 11,679,890
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</TABLE>
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COMPARE GENERIKS, INC.
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STATEMENTS OF OPERATIONS
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(Unaudited)
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Three Months Ended
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June 30,
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2000 1999
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NET SALES $10,957,982 $10,701,627
COSTS AND EXPENSES:
Cost of sales 9,923,832 9,859,024
Selling, general and administrative 875,872 736,461
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10,799,704 10,595,485
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 158,278 106,142
PROVISION FOR INCOME TAXES 41,000 48,000
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NET EARNINGS $ 117,278 $ 58,142
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NET EARNINGS PER SHARE $ .02 $ .01
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WEIGHTED AVERAGE NUMBER
OF SHARES OF COMMON
STOCK OUTSTANDING 4,914,845 4,545,928
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COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
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June 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 117,278 $ 58,142
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Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization and depreciation 78,878 81,480
Non-cash license fee 125,000 125,000
Deferred income tax benefit (74,900) (12,400)
Changes in operating assets and liabilities:
(Increase)/decrease in assets:
Accounts receivable (136,765) (585,488)
Inventories 1,240,963 (2,135,606)
Prepaid expenses and other current assets 60,094 (24,486)
Other assets (52,953) (83,333)
Increase/(decrease) in liabilities:
Accounts payable and accrued expenses 16,004 (86,790)
Due to affiliate (743,745) 2,868,628
Income taxes payable (48,712) 42,400
License fee payable (500,000) -
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Total adjustments (36,136) 189,405
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Net cash provided by operating activities 81,142 247,547
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Net increase in cash and cash equivalents 81,142 247,547
CASH AND CASH EQUIVALENTS, beginning of period 53,075 58,669
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CASH AND CASH EQUIVALENTS, end of period $ 134,217 $ 306,216
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</TABLE>
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COMPARE GENERIKS, INC.
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NOTES TO FINANCIAL STATEMENTS
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(Unaudited)
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THREE MONTHS ENDED JUNE 30, 2000
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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, 2000 and 1999. 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, 2000. The results of operations for the three months ended June 30, 2000 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 three months ended
June 30, 2000.
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, 2000
have been estimated using the gross profit method.
4. Investment in Available-For-Sale Securities:
At June 30, 2000, investment in available-for-sale securities consists
of 500,000 shares of common stock of Superior Supplements, Inc. ("Superior").
The investment has been recorded at its estimated realizable value.
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COMPARE GENERIKS, INC.
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NOTES TO FINANCIAL STATEMENTS
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(Unaudited)
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THREE MONTHS ENDED JUNE 30, 2000
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(Continued)
5. Income Taxes:
Net deferred income tax asset (liability) is composed of the following
at June 30, 2000.
Investment in available-for-sale securities $ 396,000
Intangible assets 331,000
Other 49,400
Valuation allowance (558,500)
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$ 217,900
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6. Stockholders' Equity:
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, 2000 and 1999
totaled $27,000 and $19,000, respectively.
Net earnings available to common shareholders was computed as follows:
Three Months Ended
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June 30,
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(Unaudited)
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2000 1999
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Net earnings $ 117,278 $ 58,142
Dividends 27,000 19,000
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Earnings available to
common shareholders $ 90,278 $ 39,142
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Weighted average number
of shares 4,914,845 4,545,928
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Earnings per common
share $ .02 .01
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COMPARE GENERIKS, INC.
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NOTES TO FINANCIAL STATEMENTS
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(Unaudited)
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THREE MONTHS ENDED JUNE 30, 2000
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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 were set at (i) a
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 June 2000, the Company paid PDK
$500,000 to satisfy its outstanding fee. Included in selling, general and
administrative expenses is $125,000 of license fees for each of the three months
ended June 30, 2000 and 1999, respectively.
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COMPARE GENERIKS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
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Net sales for the three month periods ended June 30, 2000 and 1999 were
approximately $10,958,000 and $10,702,000, respectively. The sales growth
reflects significant increases in sales of the "Max Brand" product line and
sales of a new product line. Gross profit for the three month periods ended June
30, 2000 and 1999 approximated $1,034,000 (9% of sales) and $843,000 (8% 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 $876,000 (8%
of sales) and $736,000 (7% of sales) for the three month periods ended June 30,
2000 and 1999, respectively.
The Company has satisfactorily implemented a plan to ensure that its
systems are compliant with the requirements to process transactions in the Year
2000. To date, the Company has not experienced any adverse effects related to
the Year 2000.
Liquidity and Capital Resources
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As of June 30, 2000, the Company had working capital of approximately
$3,888,000.
The Company's statement of cash flows reflects net cash provided by
operating activities of approximately $81,000, primarily due to net income of
$117,278, decreases in operating assets such as inventories ($1,241,000) and
prepaid expenses and other current assets ($60,000), adjustments for
depreciation and amortization expense ($79,000) and deferred income tax benefit
($75,000), offset by increases in operating assets such as accounts receivable
($137,000) and other assets ($53,000) and decreases in liabilities such as
license fee payable ($500,000), due to affiliate ($744,000) and income taxes
payable ($49,000).
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COMPARE GENERIKS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Liquidity and Capital Resources - (cont'd)
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The Company expects to meet is cash requirements from operations.
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.
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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, 2000.
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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 10, 2000 By: /s/ Thomas A. Keith
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Thomas A. Keith
President and Chief Executive
Officer
Chief Financial Officer
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