<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, 1997
OR
[ ] 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: 0-22133
SUPERIOR SUPPLEMENTS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 11-3320172
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(State or other jurisdiction of (State or I.R.S. Employer
incorporation of organization) Identification Number)
270 Oser Avenue
Hauppauge, New York
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(Address of principal executive offices)
11788
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(Zip Code)
(516) 231-0783
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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 November 6, 1997
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Common Stock 4,000,000
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SUPERIOR SUPPLEMENTS, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended September 30, 1997
TABLE OF CONTENTS
Page to Page
Financial Statements:
Balance sheet ..............................................................1
Statements of Operations....................................................2
Statements of cash flows....................................................3
Notes to financial statements...............................................4-5
Management's discussion and analysis
of financial condition and results
of operations...............................................................6-7
Legal proceedings...........................................................8
Signatures..................................................................9
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SUPERIOR SUPPLEMENTS, INC.
BALANCE SHEET
(Unaudited)
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,673
Investment in marketable securities,
at fair value 529,027
Accounts receivable (no allowance for
doubtful accounts) 1,093,986
Inventories 1,043,778
Prepaid expenses and other current
assets 81,220
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Total current assets 2,756,684
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PROPERTY AND EQUIPMENT, net 1,172,792
OTHER ASSETS 98,593
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$ 4,028,069
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,078,622
Note Payable 200,000
Income Taxes Payable 18,106
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TOTAL CURRENT LIABILITIES 1,296,728
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DEFERRED TAX LIABILITY 9,800
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STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value;
authorized 25,000,000 shares;
4,000,000 issued and outstanding 400
Preferred stock, $.0001 par value;
authorized 10,000,000 shares; 5,000,000
issued and outstanding 500
Additional paid-in capital 3,145,441
Unrealized gain on available for sale investments 12,562
Accumulated deficit (437,362)
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2,721,541
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$4,028,069
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SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1997 1996
----------- -----------
NET SALES $ 1,531,385 $ 770,954
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COSTS AND EXPENSES:
Cost of sales 1,320,955 670,464
Selling, general and
administrative 110,001 123,123
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1,430,956 793,587
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OPERATING INCOME (LOSS) 100,429 (22,633)
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OTHER:
Interest, net 4,460 14,450
Dividend Income (648) --
Gain on sale of investment (5,552) --
----------- -----------
(1,740) 14,450
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EARNINGS/(LOSS) BEFORE
PROVISION FOR INCOME TAXES 102,169 (37,083)
PROVISION FOR INCOME TAXES 16,000 --
----------- -----------
NET EARNINGS/(LOSS) $ 86,169 $ (37,083)
=========== ===========
NET EARNINGS/(LOSS) PER SHARE $ .02 $ (.01)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,000,000 3,500,000
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SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 86,169 $ (37,083)
----------- -----------
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operations:
Depreciation and amortization 42,901 18,816
Gain on sale of marketable securities (5,552) --
Deferred income tax provision -- (2,400)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 73,599 (93,780)
Inventories 601,205 (314,037)
Prepaid expenses and other current assets (35,593) (14,124)
Other assets 39,505 (177,307)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (1,297,415) 673,849
Income taxes payable 14,506 (12,700)
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Total adjustments (566,844) 78,317
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Net cash (used in) provided by operating activities (480,675) 41,234
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (296,440) --
Purchase of property and equipment (175,861) (500,982)
Proceeds from sale of investments 548,735 --
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Net cash provided by (used in) investing activities 76,434 (500,982)
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Net decrease in cash and cash equivalents (404,241) (459,748)
Cash and cash equivalents at beginning of period 412,914 594,175
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Cash and cash equivalents at end of period $ 8,673 $ 134,427
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</TABLE>
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997
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 September 30, 1997 and 1996. 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 June 30, 1997. The results of operations for the three months ended
September 30, 1997 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 Standards Board Statement
No. 105 ("FASB 105"), consists primarily of trade accounts receivable. Wholesale
distributors of dietary supplements and over-the-counter pharmaceuticals account
for all the Company's trade receivables. The risk associated with this
concentration is limited due to their geographic dispersion.
3. Investment in Marketable Securities:
Available-for-sale securities are carried at fair value with the
unrealized holding gain (loss) included in stockholders' equity. A decline in
the market value of any available-for-sale security below cost that is deemed
other than temporary is charged to earnings resulting in the establishment of a
new cost basis for the security.
Investments in available-for-sale securities at September 30, 1997
consist of U. S. Treasury notes.
4. Inventories:
Inventories, consisting principally of finished goods, at September 30,
1997 have been estimated using the gross profit method.
5. Notes Payable:
On June 26, 1996, the Company borrowed $200,000 from its founder. This
note bears interest at 8% per annum. Principal and accrued interest is due on
June 25, 1998.
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SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997
(Continued)
6. Revolving Credit Agreement:
In May 1996, the Company entered into a revolving credit agreement,
pursuant to which the Company can borrow up to $200,000 for a period of
twenty-four (24) months at an interest rate of fifteen percent (15%) per annum.
As of September 30, 1997, the Company had no outstanding balance under the
facility.
7. Stockholders' Equity
Net earnings/(loss) per share is computed by dividing the net
earnings/(loss) by the weighted average number of common shares and equivalents
outstanding during the period.
8. Commitments:
The Company is party to an amended supply agreement with PDK Labs
Inc. ("PDK"). The agreement, which expires in May 1999, provides for PDK to
purchase certain products at specified prices. In the event that PDK fails to
purchase a minimum amount ($2,500,000) of products in any given year, the
Company will be paid up to $100,000, on a pro-rata basis, as liquidated damages.
Sales to PDK approximated $1,245,000 for the three month period ended September
30, 1997. Included in accounts receivable at September 30,1997 is approximately
$819,000 due from PDK.
The Company is also party to a supply agreement with Compare
Generiks, Inc. ("CGI"). Terms of this agreement are similar to the agreement
with PDK, except there are no minimum purchase requirements. As of September 30,
1997, there have been no sales under this agreement.
The Company is also obligated under a Management Agreement with PDK,
which provides for PDK to supply the Company with certain management services in
consideration for the payment by the Company of a management fee of $10,000 per
month.
9. Income Taxes:
The Company's tax provision for the three month period ended
September 30, 1997 gives effect to the estimated utilization of a net operating
loss carryforward of approximately $40,000.
10. Subsequent Event
The Company entered into a packaging agreement (the "agreement") with
PDK. Effective November 30, 1997, the Company shall package product for PDK in
the "Futurebiotics" product range. The agreement has a term of two years and
provides for a minimum annual packaging amount of 1,000,000 bottles. In the
event that PDK fails to purchase the minimum annual packaging amount, the
Company will be paid up to $100,000 on a pro-rata basis, as liquidated damages.
The Company has purchased approximately $250,000 in machinery and
equipment in connection with this agreement.
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three month period ended September 30, 1997 were
approximately $1,531,000. Approximately 81% of these sales were derived from PDK
Labs Inc., ("PDK"). Net sales for the three month period ended September 30,
1996 approximated $771,000. The increase in sales volume is a result of the
completion of the Company's manufacturing facility, further development of the
Company's customer base and an expansion of the Company's product line. Gross
profit for the three month periods ended September 30, 1997 and 1996
approximated $210,000 (14% of sales) and $100,000 (13% of sales), respectively.
Selling, general and administrative expenses approximated $110,000 (7%
of sales) and $123,000 (16% of sales) for the three month periods ended
September 30, 1997 and 1996, respectively. The overall decrease as a percentage
of sales is attributable to the Company's growth in sales without incurring any
significant additional expenses.
On May 14, 1996, the Company entered into a three year Supply Agreement
with PDK, which provides for the Company to supply PDK with vitamins and dietary
supplements in bulk tablet form. The agreement, as amended, provides for PDK to
purchase certain products at specified prices. PDK agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per year during the term of
the agreement. In the event that PDK fails to purchase the minimum amount of
products in any year, the Company will be paid up to $100,000 on a pro-rated
basis as liquidated damages.
On May 31, 1996, the Company agreed to supply Compare Generiks, Inc.,
("CGI") with vitamins in bulk tablet form at the Company's cost plus 15 percent.
As of September 30, 1997, there have been no sales to CGI.
On July 21, 1997, the Company entered into a Management Agreement with
PDK, which provides for PDK to supply the Company with certain management
services in consideration for the payment by the Company of a management fee of
$10,000 per month.
The Company entered into a packaging agreement (the "agreement") with
PDK. Effective November 30, 1997, the Company shall package product for PDK in
the "Futurebiotics" product range. The agreement has a term of two years and
provides for a minimum annual packaging amount of 1,000,000 bottles. In the
event that PDK fails to purchase the minimum annual packaging amount, the
Company will be paid up to $100,000 on a pro-rata basis, as liquidated damages.
Liquidity and Capital Resources
As of September 30, 1997, the Company had working capital of
approximately $1,460,000.
The Company's statement of cash flows reflects cash used in operating
activities of approximately $480,000 primarily due to net earnings of
approximately ($86,000), a decrease in accounts payable and accrued expenses
($1,297,000) offset by decreases in operating assets such as accounts receivable
($74,000), inventories ($601,000), other current assets ($40,000) and an
adjustment for depreciation and amortization expense of ($43,000).
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The statement also reflects net cash provided by investing activities
of approximately $76,000 which is attributable to the purchase of marketable
securities ($296,000) and the acquisition of property and equipment ($176,000)
offset by proceeds from the sale of investments ($549,000).
The Company intends to use approximately $1,000,000 of the net proceeds
from its initial public offering to expand its manufacturing activities by
acquiring additional production equipment and implementing sales and marketing
plans which include promotional materials, trade shows and advertising through
magazines.
The Company expects to meet its cash requirements from operations,
available-for-sale securities, current cash reserves, and its existing financing
arrangements.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
There is no material litigation pending or threatened against the
Company nor are there any such proceedings to which the Company is a party.
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<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.
SUPERIOR SUPPLEMENTS, INC.
Dated: November 10, 1997 By: /s/ Lawrence Simon
------------------------
Lawrence Simon
President
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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 financials
statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 8,673
<SECURITIES> 529,027
<RECEIVABLES> 1,093,986
<ALLOWANCES> 0
<INVENTORY> 1,043,778
<CURRENT-ASSETS> 2,756,684
<PP&E> 1,336,222
<DEPRECIATION> 163,430
<TOTAL-ASSETS> 4,028,069
<CURRENT-LIABILITIES> 1,296,728
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 2,720,641
<TOTAL-LIABILITY-AND-EQUITY> 4,028,069
<SALES> 1,531,385
<TOTAL-REVENUES> 1,531,385
<CGS> 1,320,955
<TOTAL-COSTS> 1,320,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,460
<INCOME-PRETAX> 102,169
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 86,169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,169
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
