<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 December 31, 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 Identification Number)
incorporation or organization)
60 Davids Drive
Hauppauge, New York
-------------------
(Address of principal executive offices)
11788
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(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
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Class Outstanding at February 7, 2000
------------ -------------------------------
Common Stock 4,914,845
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COMPARE GENERIKS, INC.
FORM 10-QSB
NINE MONTHS ENDED DECEMBER 31, 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
<PAGE>
COMPARE GENERIKS, INC.
BALANCE SHEET
(Unaudited)
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,341
Accounts receivable, net of $10,000 allowance
for doubtful accounts 2,957,664
Inventories 11,627,510
Prepaid expenses and other current assets 252,401
------------
Total current assets 14,839,916
PROPERTY AND EQUIPMENT, net 45,420
INVESTMENT IN AVAILABLE FOR SALE SECURITIES 60,000
INTANGIBLE ASSETS, net 361,415
DEFERRED TAX ASSET 150,400
OTHER ASSETS 265,007
------------
$ 15,722,158
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 170,947
Due to affiliate 10,505,333
Dividend payable 36,000
Income tax payable 206,686
------------
Total current liabilities 10,918,966
------------
LICENSE FEE PAYABLE 375,000
------------
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 (1,841,091)
------------
4,433,192
Less stock subscription receivable (5,000)
------------
4,428,192
------------
$ 15,722,158
------------
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COMPARE GENERIKS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 29,556,710 $ 22,687,943 $ 10,009,015 $ 8,073,237
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 26,255,326 20,291,109 8,725,642 7,232,782
Selling, general and administrative 2,945,582 2,154,217 1,166,514 763,947
------------ ------------ ------------ ------------
29,200,908 22,445,326 9,892,156 7,996,729
------------ ------------ ------------ ------------
OPERATING INCOME 355,802 242,617 116,859 76,508
INTEREST INCOME/(EXPENSE), net (1,830) (1,076) (700) (444)
LOSS ON IMPAIRMENT OF
MARKETABLE SECURITIES -- (349,000) -- (349,000)
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE PROVISION
FOR INCOME TAXES 353,972 (107,459) 116,159 (272,936)
PROVISION FOR INCOME TAXES 160,000 5,326 38,000 1,661
------------ ------------ ------------
NET EARNINGS (LOSS) $ 193,972 $ (112,785) $ 78,159 $ (274,597)
============ ============ ============ ============
NET EARNINGS (LOSS) PER SHARE $ .03 $ (.04) $ .01 $ (.07)
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES
OF COMMON STOCK
OUTSTANDING 4,795,364 3,961,146 4,914,845 4,102,665
============ ============ ============ ============
</TABLE>
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COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 193,972 $ (112,785)
----------- -----------
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Amortization and depreciation 244,446 244,448
Non-cash license fee 375,000 375,000
Deferred income tax benefit (56,400) 9,000
Loss on impairment of marketable securities - 349,000
Changes in operating assets and liabilities:
(Increase)/decrease in assets:
Accounts receivable (935,806) (1,259,103)
Inventories (3,877,228) (6,710,571)
Prepaid expenses and other current assets (164,330) (2,800)
Other assets (149,374) 10,275
Increase in liabilities:
Accounts payable and accrued expenses 2,776 227,650
Due to affiliate 4,181,691 6,827,552
Income taxes payable 195,925 -
----------- -----------
Total adjustments (183,300) 70,451
----------- -----------
Net cash provided by (used in) operating activities 10,672 (42,334)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (67,000) (65,000)
----------- -----------
Net cash used in financing activities (67,000) (65,000)
----------- -----------
Net decrease in cash and cash equivalents (56,328) (107,334)
CASH AND CASH EQUIVALENTS, beginning of period 58,669 107,334
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,341 $ -
=========== ===========
</TABLE>
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 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 nine month periods ended
December 31, 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 nine months ended
December 31, 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 nine
months ended December 31, 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 December 31, 1999
have been estimated using the gross profit method.
4. Investment in Available-For-Sale Securities:
At December 31, 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-
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1999
(Continued)
5. Income Taxes:
Net deferred income tax asset (liability) is composed of the following at
December 31, 1999:
Unrealized holding gain on available-for-sale securities $ 396,000
Intangible assets 307,000
Other (6,600)
Valuation allowance (546,000)
-----------
$ 150,400
===========
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 nine month periods ended December 31, 1999 and 1998 totaled $73,000 and
$45,000 respectively.
Net earnings/(loss) available to common shareholders was computed as
follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
(Unaudited) (Unaudited)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $ 193,972 $ (112,785) $ 78,159 $ (274,597)
Dividends 73,000 45,000 27,000 15,000
----------- ----------- ----------- -----------
Earnings (loss) available to
common shareholders $ 120,972 $ (157,785) $ 51,159 $ (289,597)
----------- ----------- ----------- -----------
Weighted average number
of shares 4,795,364 3,961,146 4,914,845 4,102,665
----------- ----------- ----------- -----------
Earnings (loss) per common
share $ .03 $ (.04) $ .01 $ (.07)
=========== =========== =========== ===========
</TABLE>
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<PAGE>
COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 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 $375,000 of this license fee for each of the nine months ended
December 31, 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 nine and three month periods ended December 31, 1999 were
approximately $29,557,000 and $10,009,000, respectively, as compared to
$22,688,000 and $8,073,000 in the corresponding periods of the prior year. The
sales growth reflects a significant increase in sales of the "Max Brand" product
line and sales of a new product line. Gross profit for the nine and three month
period ended December 31, 1999 approximated $3,301,000 (11% of sales) and
$1,283,000 (13% of sales), respectively as compared to $2,397,000 (11% of sales)
and $840,000 (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 $2,946,000 (10%
of sales) and $1,167,000 (12% of sales) for the nine and three month periods
ended December 31, 1999, respectively, as compared to $2,154,000 (9% of sales)
and $764,000 (9% of sales) for the corresponding periods in 1998.
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.
-7-
<PAGE>
COMPARE GENERIKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1999, the Company had working capital of approximately
$3,921,000.
The Company's statement of cash flows reflects net cash provided by
operating activities of approximately $11,000 primarily due to (i) net income of
$194,000, (ii) increases in liabilities such as due to affiliate ($4,181,000),
and income taxes payable ($196,000 ), (iii) adjustments for depreciation and
amortization expense ($244,000) and a noncash license fee ($375,000), offset by
(iv) increases in operating assets such as accounts receivable ($936,000),
inventories ($3,877,000), prepaid expenses and other current assets ($164,000)
and other assets ($149,000). Net cash used in financing activities approximated
$67,000 representing payment of cash dividends.
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.
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: February 9, 2000
By:/s/ Thomas A. Keith
-------------------
Thomas A. Keith
President and Chief Executive
Officer
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<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 statement.
</LEGEND>
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 2,341
<SECURITIES> 0
<RECEIVABLES> 2,967,664
<ALLOWANCES> 10,000
<INVENTORY> 11,627,510
<CURRENT-ASSETS> 14,839,916
<PP&E> 79,482
<DEPRECIATION> 34,062
<TOTAL-ASSETS> 15,722,158
<CURRENT-LIABILITIES> 10,918,966
<BONDS> 0
0
590
<COMMON> 491
<OTHER-SE> 4,427,111
<TOTAL-LIABILITY-AND-EQUITY> 15,722,158
<SALES> 29,556,710
<TOTAL-REVENUES> 29,556,710
<CGS> 26,255,326
<TOTAL-COSTS> 26,255,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,830
<INCOME-PRETAX> 353,972
<INCOME-TAX> 160,000
<INCOME-CONTINUING> 193,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193,972
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
