<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, 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
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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 9, 1998
- ------------ -------------------------------
Common Stock 4,000,000
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SUPERIOR SUPPLEMENTS, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended September 30, 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
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SUPERIOR SUPPLEMENTS, INC.
BALANCE SHEET
(Unaudited)
September 30, 1998
ASSETS
CURRENT ASSETS:
Accounts receivable (no allowance for
doubtful accounts) $ 421,907
Inventories 4,521,317
Prepaid expenses and other current
assets 40,137
-----------
Total current assets 4,983,361
PROPERTY AND EQUIPMENT, net 1,505,034
OTHER ASSETS 54,140
-----------
$ 6,542,535
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,818,060
Note payable 200,000
Income taxes payable 1,606
-----------
Total current liabilities 4,019,666
-----------
DEFERRED TAX LIABILITY 9,000
-----------
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 (632,472)
-----------
2,502,869
-----------
$ 6,542,535
===========
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SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 1,728,989 $ 1,531,385
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COSTS AND EXPENSES:
Cost of sales 1,757,610 1,320,955
Selling, general and administrative 122,683 110,001
----------- -----------
1,880,293 1,430,956
----------- -----------
OPERATING (LOSS) INCOME (151,304) 100,429
----------- -----------
OTHER:
Interest, net 4,443 4,460
Dividend income (46) (648)
Gain on sale of investments - (5,552)
----------- -----------
4,397 (1,740)
----------- -----------
(LOSS) EARNINGS BEFORE
PROVISION FOR INCOME TAXES (155,701) 102,169
INCOME TAX PROVISION 4,500 16,000
----------- -----------
NET (LOSS) EARNINGS $ (160,201) $ 86,169
=========== ===========
(LOSS) EARNINGS PER
COMMON SHARE $ (.04) $ .02
=========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,000,000 4,000,000
=========== ===========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (160,201) $ 86,169
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Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operations:
Depreciation and amortization 58,748 42,901
Gain on sale of marketable securities - (5,552)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 679,540 73,599
Inventories (447,043) 601,205
Prepaid expenses and other current assets 20,944 (35,593)
Other assets 16,496 39,505
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (167,259) (1,297,415)
Income taxes payable (394) 14,506
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Total adjustments 161,032 (566,844)
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Net cash provided by (used in) operating activities 831 (480,675)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - (296,440)
Purchase of property and equipment (37,812) (175,861)
Proceeds from sale of investments - 548,735
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Net cash provided by (used in) investing activities (37,812) 76,434
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Net decrease in cash and cash equivalents (36,981) (404,241)
Cash and cash equivalents at beginning of period 36,981 412,914
------------- -----------
Cash and cash equivalents at end of period $ - $ 8,673
============= ===========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 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 three month periods
ended September 30, 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, 1998. The results of operations for the three months ended
September 30, 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 September 30, 1998 have been estimated using the gross profit
method.
4. Notes Payable:
The Company borrowed $200,000 from its founder. This note bearing
interest at 8% per annum, was due on June 25, 1998. The note was unpaid as of
September 30, 1998.
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SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30,1998
(Continued)
5. Stockholders' Equity:
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 128, "Earnings Per Share." (Loss)/earnings per common share is
computed by dividing the net (loss)/earnings 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.
Earnings per share was retroactively restated to reflect FASB No. 128 for the
three month period ended September 30, 1997.
6. 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.
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 September 30,
1998, the Company has packaged approximately 2,169,000 bottles to PDK.
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.
7. Major Customer:
Sales to PDK approximated $1,620,000 and $1,245,000 for the three
months ended September 30, 1998 and 1997, respectively. Included in accounts
receivable at September 30, 1998 is approximately $196,000 due from PDK.
8. Income Taxes:
Income taxes for the three month periods ended September 30, 1998 and
1997 include state taxes on capital.
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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, 1998 were approximately
$1,729,000, as compared to $1,531,000 in the corresponding period in the prior
year. The increase in sales volume is principally attributable to the expansion
of the Company's product line. Cost of sales for the three months ended
September 30, 1998 reflects costs associated with the training of Company staff
in the production and development of new products. The direct labor component of
cost of sales was disproportionately high due to the start up of new products.
Gross profit for the three month period ended September 30, 1997 was
$210,000 (14% of sales).
Selling, general and administrative expenses approximated $123,000 (7% of sales)
and $110,000 (7% of sales) for the three month periods ended September 30, 1998
and 1997, respectively.
The Company is operating under a supply agreement with PDK Labs Inc., ("PDK"),
which expires in May 1999 and 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. Sales to PDK approximated $1,620,000
and $1,245,000 for the three months ended September 30, 1998 and 1997,
respectively.
The Company also operates under a packaging agreement with PDK, which provides
for the Company to package certain products for PDK. The agreement expires in
November 1999 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 September 30, 1998, the Company has packaged
approximately 2,169,000 for PDK.
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.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
Company has engaged computer consultants and is establishing processes for
evaluating and managing the risks and costs associated with this problem. In the
opinion of management, the cost of addressing this problem will not materially
affect the financial position of the Company.
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
As of September 30, 1998, the Company had working capital of approximately
$964,000.
The Company's statement of cash flows reflects cash provided by operating
activities of approximately $1,000, primarily due to decreases in operating
assets such as accounts receivable ($680,000), prepaid expenses and other
current assets ($21,000), other assets ($16,000) and an adjustment for
depreciation and amortization ($59,000) offset by a net loss of $160,000 and an
increase in inventory ($447,000).
The statement also reflects net cash used in investing activities of
approximately $38,000 which is attributable to the acquisition of property and
equipment.
The Company expects to meet its cash requirements from operations.
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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.
-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: November 11, 1998 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
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 421,907
<ALLOWANCES> 0
<INVENTORY> 4,521,317
<CURRENT-ASSETS> 4,983,361
<PP&E> 1,890,854
<DEPRECIATION> 385,820
<TOTAL-ASSETS> 6,542,535
<CURRENT-LIABILITIES> 4,019,666
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 2,512,969
<TOTAL-LIABILITY-AND-EQUITY> 6,542,535
<SALES> 1,728,989
<TOTAL-REVENUES> 1,728,989
<CGS> 1,757,610
<TOTAL-COSTS> 1,757,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,443
<INCOME-PRETAX> (155,701)
<INCOME-TAX> 4,500
<INCOME-CONTINUING> (160,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,201)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
