<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, 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.
------------------------
(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
(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 November 9, 2000
------------ ----------------------------------
Common Stock 4,914,845
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COMPARE GENERIKS, INC.
FORM 10-QSB
SIX MONTHS ENDED SEPTEMBER 30, 2000
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)
SEPTEMBER 30, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,572,678
Accounts receivable (less allowance
for doubtful accounts of $10,000) 1,834,948
Inventories (Note 3) 7,877,677
Prepaid expenses and other current assets 381,143
Deferred tax asset (Note 4) 30,000
------------
Total current assets 15,696,446
PROPERTY, PLANT AND EQUIPMENT, net 36,970
INTANGIBLE ASSETS, net 134,967
DEFERRED TAX ASSET (Note 4) 181,000
OTHER ASSETS 228,761
------------
$ 16,278,144
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 71,627
License fee payable 250,000
Due to Affiliate 11,330,215
Dividend payable 9,000
Income tax payable 58,115
------------
Total current liabilities 11,718,957
------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY: (Note 5)
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 (1,710,096)
------------
4,564,187
Less stock subscription receivable (5,000)
------------
4,559,187
$ 16,278,144
============
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COMPARE GENERIKS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 19,643,941 $ 19,547,695 $ 8,685,959 $ 8,846,068
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 17,656,632 17,529,684 7,732,800 7,670,660
Selling, general and administrative 1,704,210 1,779,068 829,166 1,042,697
------------ ------------ ------------ ------------
19,360,842 19,308,752 8,561,966 8,713,357
------------ ------------ ------------ ------------
OPERATING INCOME 283,099 238,943 123,993 132,711
------------ ------------ ------------ ------------
OTHER EXPENSE:
Loss on impairment of marketable
securities (28,750) -- (28,750) --
Interest expense (2,082) (1,130) (1,254) (1,040)
------------ ------------ ------------ ------------
(30,832) (1,130) (30,004) (1,040)
------------ ------------ ------------ ------------
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 252,267 237,813 93,989 131,671
INCOME TAX PROVISION 116,000 122,000 75,000 74,000
------------ ------------ ------------ ------------
NET INCOME $ 136,267 $ 115,813 $ 18,989 $ 57,671
============ ============ ============ ============
INCOME PER COMMON SHARE $ .02 $ .02 $ (.00) $ .01
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OF COMMON STOCK
OUTSTANDING 4,914,845 4,735,298 4,914,845 4,914,845
============ ============ ============ ============
</TABLE>
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COMPARE GENERIKS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 136,267 $ 115,813
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and depreciation 157,755 162,963
Non-cash license fee 250,000 250,000
Loss on impairment of marketable securities 28,750 --
Deferred income tax benefit (68,000) (18,400)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 980,621 (378,677)
Inventories 1,017,836 (2,602,774)
Prepaid expenses and other current assets (61,934) (197,634)
Other assets (99,504) (32,811)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 12,054 (72,970)
License fee payable (500,000) --
Due to affiliate 3,764,993 2,877,705
Income taxes payable (45,235) 119,925
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Total adjustments 5,437,336 107,327
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Net cash provided by operating activities 5,573,603 223,140
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (54,000) --
----------- -----------
Net cash used in financing activities (54,000) --
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Net increase in cash and cash equivalents 5,519,603 223,140
CASH AND CASH EQUIVALENTS, beginning of period 53,075 58,669
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CASH AND CASH EQUIVALENTS, end of period $ 5,572,678 $ 281,809
=========== ===========
</TABLE>
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30, 2000
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, 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 six months ended
September 30, 2000 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 September 30,
2000 have been estimated using the gross profit method.
4. Income Taxes:
-------------
Net deferred income tax asset is composed of the following at September
30, 2000:
Unrealized holding gain on available-for-sale securities $ 422,200
Intangible assets 373,400
Other 24,300
Valuation allowance (608,900)
---------
$ 211,000
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
5. 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 period ended September 30, 2000 and 1999
totaled $54,000 and $46,000, 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)
----------- -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 136,267 $ 115,813 $ 18,989 $ 57,671
Dividends 54,000 46,000 27,000 27,000
----------- ----------- ----------- -----------
Income/(Loss) available to
common shareholders $ 82,267 $ 69,813 $ (8,011) $ 30,671
----------- ----------- ----------- -----------
Weighted average number
of shares 4,914,845 4,735,298 4,914,845 4,914,845
----------- ----------- ----------- -----------
Income/(Loss) per common share $ .02 $ .02 $ (.00) $ .01
=========== =========== =========== ===========
</TABLE>
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COMPARE GENERIKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
6. 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) base price plus (ii) the
difference between 93% of the sales price to the Company's customers and the
base price. 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 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
$250,000 of this license fee for the six months ended September 30, 2000.
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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, 2000
were approximately $19,644,000 and $8,686,000, respectively as compared to
$19,548,000 and $8,846,000 in the corresponding periods of the prior year. Gross
profit for the six and three month periods ended September 30, 2000 approximated
$1,987,000 (10% of sales) and $953,000 (11% of sales) respectively, as compared
to $2,018,000 (10% of sales) and $1,175,000 (13% 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 $1,704,000
and $829,000 for the six and three month periods ended September 30, 2000,
respectively. As a percentage of sales, these amounts represent 9% and 10%
respectively, as compared to 9% and 12% in the corresponding periods in the
prior years.
Liquidity and Capital Resources
As of September 30, 2000, the Company had working capital of
approximately $3,977,000.
The Company's statement of cash flows reflects net cash provided by
operating activities of approximately $5,574,000, primarily due to net income of
$136,000, adjustments for amortization and depreciation expense ($158,000),
decreases in operating assets such as accounts receivable ($981,000) and
inventories ($1,108,000), offset by increases in operating assets such as other
assets ($100,000), license fee payable ($500,000) and due to affiliate
($3,765,000).
The Company expects to meet its cash requirements from operations and
current cash reserves.
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.
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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: November 10, 2000 By: /s/ Thomas A. Keith
------------------------------
Thomas A. Keith
President and Chief
Executive Officer
Chief Financial Officer
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