<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 March 31, 1998
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.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-3320172
- ------------------------------- --------------------------
(State or other jurisdiction of (State or I.R.S. Employer
incorporation of organization) Identification Number)
270 Oser Avenue
Hauppauge, New York
-------------------------------------
(Address of principal executive offices)
11788
-------------------
(Zip Code)
(516) 231-0783
--------------------------------------------
(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 May 6, 1998
- ------------ ---------------------------
Common Stock 4,000,000
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Nine Months Ended March 31, 1998
TABLE OF CONTENTS
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
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
BALANCE SHEET
(Unaudited)
MARCH 31, 1998
ASSETS
------
CURRENT ASSETS:
Accounts receivable (no allowance for
doubtful accounts) $ 304,732
Inventories 5,049,733
Prepaid expenses and other current
assets 50,604
-----------
Total current assets 5,405,069
-----------
PROPERTY AND EQUIPMENT, net 1,530,625
OTHER ASSETS 102,937
-----------
$7,038,631
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $4,071,141
Note Payable 200,000
Income Taxes Payable 16,106
-----------
Total current liabilities 4,287,247
-----------
DEFERRED TAX LIABILITY 12,000
-----------
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
Accumulated deficit (406,957)
-----------
2,739,384
-----------
$7,038,631
===========
-1-
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
------------------ -------------------
1998 1997 1998 1997
---- ---- ---- -----
<S> <C> <C> <C> <C>
NET SALES $ 5,584,256 $ 2,606,611 $ 2,341,636 $ 1,200,118
------------ ------------ ------------ -----------
COSTS AND EXPENSES:
Cost of sales 4,892,571 2,355,670 2,230,060 1,063,808
Selling, general and
administrative 571,926 392,689 213,266 108,227
------------ ------------ ------------ ------------
5,464,497 2,748,359 2,443,326 1,172,035
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 119,759 (141,748) (101,690) 28,083
------------ ------------ ------------ ------------
OTHER:
Interest, net 12,529 23,456 3,915 1,751
Dividend Income (1,047) - (7) -
(Gain)/loss on sale of investments (28,497) 450,000 (14,820) 67,500
------------ ------------ ------------ ------------
(17,015) 473,456 (10,912) 69,251
------------ ------------ ------------ ------------
EARNINGS/(LOSS) BEFORE
PROVISION FOR INCOME TAXES 136,774 (615,204) (90,778) (41,168)
INCOME TAX PROVISION/(BENEFIT) 20,200 - (38,000) -
------------ ------------ ------------ ------------
NET EARNINGS/(LOSS) $ 116,574 $ (615,204) $ (52,778) $ (41,168)
============ ============ ============ ============
EARNINGS/(LOSS) PER
COMMON SHARE $ .03 $ (.15) $ (.01) $ (.01)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,000,000 4,000,000 4,000,000 4,000,000
============ ============ ============ ============
</TABLE>
-2-
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 116,574 $ (615,204)
------------- -------------
Adjustments to reconcile net earnings (loss) to net
cash used in operations:
Depreciation and amortization 152,356 89,609
(Gain)/loss on sale of marketable securities (28,497) 450,000
Deferred income tax provision 6,200 10,800
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 862,853 (580,763)
Inventories (3,404,750) (954,720)
Prepaid expenses and other current assets (4,977) (18,783)
Other assets 34,663 (66,086)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,695,104 943,659
Income taxes payable 12,506 (24,000)
------------- -------------
Total adjustments (674,542) (150,284)
------------- -------------
Net cash used in operating activities (557,968) (765,488)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (849,774) (1,247,963)
Purchase of property and equipment (642,651) (749,347)
Proceeds from sale of investments 1,637,479 700,000
------------- -------------
Net cash provided by (used in) investing activities 145,054 (1,297,310)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering - 1,834,461
Repayment of bridge note - (300,000)
------------- -------------
Net cash provided by financing activities - 1,534,461
------------- -------------
Net decrease in cash and cash equivalents (412,914) (528,337)
Cash and cash equivalents at beginning of period 412,914 594,175
------------- -------------
Cash and cash equivalents at end of period $ - $ 65,838
============= =============
</TABLE>
-3-
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1998
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 and three
month periods ended March 31, 1998 and 1997. 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 nine and
three months ended March 31, 1998 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"), consist 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. Inventories:
Inventories, consisting principally of finished goods and work in
process, at March 31, 1998 have been estimated using the gross profit method.
4. 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.
5. 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 March 31, 1998, the Company had no outstanding balance under the
facility.
-4-
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31,1998
(Continued)
6. Stockholders' Equity:
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 128, "Earnings Per Share." Earnings/(loss) per common share is
computed by dividing the net earnings/(loss) by the average number of common
shares and common stock equivalents outstanding during the period. Common
stock equivalents are excluded from the calculation as the effect is
antidilutive. The loss per share was retroactively restated to reflect FASB
No. 128 for the nine and three month periods ended March 31, 1997.
7. 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 $4,480,000 for the nine month period ended
March 31, 1998.
On November 30, 1997, the Company entered into a packaging agreement
(the "agreement") with PDK, which provides for the Company to package certain
products for PDK. 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. As of March
31, 1998, the Company sold approximately 980,000 bottles to PDK.
The Company purchased approximately $250,000 in machinery and
equipment and acquired approximately $2,045,000 in inventory in connection
with 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.
8. Income Taxes:
The Company's tax provision for the nine month period ended March 31,
1998 gives effect to the utilization of a net operating loss carryforward of
approximately $37,000.
-5-
<PAGE>
SUPERIOR SUPPLEMENTS, 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 March 31, 1998 were
approximately $5,584,000 and $2,342,000 respectively, as compared to
$2,607,000 and $1,200,000 in the corresponding periods in the prior year. The
increase in sales volume is principally attributable to the expansion of the
Company's product line and further development of the Company's customer base.
Gross profit for the nine and three month periods ended March 31, 1998
approximated $692,000 (12% of sales) and $112,000 (5% of sales) respectively,
as compared to $251,000 (10% of sales) and $136,000 (11% of sales).
Selling, general and administrative expenses approximated $572,000 and
$213,000 for the nine and three month periods ended March 31, 1998,
respectively. As a percentage of sales, these amounts represent 10% and 9%
respectively, as compared to 15% and 9% in the corresponding periods in the
prior year. 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 Labs Inc., ("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 November 30, 1997, the Company entered into a packaging agreement (the
"agreement") with PDK, which provides for the Company to package certain
products for PDK. 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. In connection
with this agreement, PDK transferred approximately $2,045,000 of inventory to
the Company. In addition, the Company purchased machinery and equipment from
PDK for proceeds of $232,000.
-6-
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
As of March 31, 1998, the Company had working capital of approximately
$1,118,000.
The Company's statement of cash flows reflects cash used in operating
activities of approximately ($558,000), primarily due to an increase in
inventories ($3,405,000) offset by net earnings of ($117,000), decreases in
operating assets such as accounts receivable ($863,000), increases in accounts
payable and accrued expenses ($1,695,000), and income taxes payable ($13,000)
and an adjustment for depreciation and amortization expense of ($152,000).
The statement also reflects net cash provided by investing activities of
approximately ($145,000) which is attributable to proceeds from the sale of
investments ($1,637,000) offset by the purchase of marketable securities
($850,000) and the acquisition of property and equipment ($643,000).
The Company expects to meet its cash requirements from operations and its
existing financing arrangements.
-7-
<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.
-8-
<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: May 11, 1998 By: /Lawrence Simon/
---------------------
Lawrence Simon
President
-9-
<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 financial
statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 304,732
<ALLOWANCES> 0
<INVENTORY> 5,049,733
<CURRENT-ASSETS> 5,405,069
<PP&E> 1,803,011
<DEPRECIATION> 272,386
<TOTAL-ASSETS> 7,038,631
<CURRENT-LIABILITIES> 4,287,247
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 2,738,484
<TOTAL-LIABILITY-AND-EQUITY> 7,038,631
<SALES> 5,584,256
<TOTAL-REVENUES> 5,584,256
<CGS> 4,892,571
<TOTAL-COSTS> 4,892,571
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,529
<INCOME-PRETAX> 136,774
<INCOME-TAX> 20,200
<INCOME-CONTINUING> 116,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,574
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
