<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, 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.
------------------------------------------------------
(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
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(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 February 2, 1998
- ------------ -------------------------------
Common Stock 4,000,000
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
FORM 10-QSB
-----------
QUARTERLY REPORT
----------------
For the Six Months Ended December 31, 1997
------------------------------------------
TABLE OF CONTENTS
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Page
----
Financial Statements:
Balance sheet ................................................................1
Statements of operations......................................................2
Statements of cash flows......................................................3
Notes to financial statements...............................................4-6
Management's discussion and analysis
of financial condition and results
of operations...............................................................7-8
Legal proceedings.............................................................9
Signatures...................................................................10
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
BALANCE SHEET
-------------
(Unaudited)
-----------
December 31, 1997
-----------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 91,957
Accounts receivable (no allowance for
doubtful accounts) 329,276
Inventories 4,483,364
Prepaid expenses and other current
assets 69,546
-----------
Total current assets 4,974,143
-----------
INVESTMENT IN MARKETABLE SECURITIES,
at fair value 278,187
PROPERTY AND EQUIPMENT, net 1,533,622
OTHER ASSETS 110,986
-----------
$ 6,896,938
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,826,274
Note Payable 200,000
Income Taxes Payable 55,106
-----------
TOTAL CURRENT LIABILITIES 4,081,380
-----------
DEFERRED TAX LIABILITY 14,000
-----------
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
Unrealized gain on available for sale investments 9,396
Accumulated deficit (354,179)
-----------
2,801,558
-----------
$ 6,896,938
===========
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
December 31, December 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 3,242,620 $ 1,406,493 $ 1,711,235 $ 635,539
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,662,511 1,291,862 1,341,556 621,398
Selling, general and
administrative 358,660 284,462 248,659 161,339
----------- ----------- ----------- -----------
3,021,171 1,576,324 1,590,215 782,737
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 221,449 (169,831) 121,020 (147,198)
----------- ----------- ----------- -----------
OTHER:
Interest, net 8,614 21,705 4,154 7,255
Dividend Income (1,040) -- (392) --
(Gain)/loss on sale of investments (13,677) 382,500 (8,125) 382,500
----------- ----------- ----------- -----------
(6,103) 404,205 (4,363) 389,755
----------- ----------- ----------- -----------
EARNINGS/(LOSS) BEFORE
PROVISION FOR INCOME TAXES 227,552 (574,036) 125,383 (536,953)
PROVISION FOR INCOME TAXES 58,200 -- 42,200 --
----------- ----------- ----------- -----------
NET EARNINGS/(LOSS) $ 169,352 $ (574,036) $ 83,183 $ (536,953)
=========== =========== =========== ===========
EARNINGS/(LOSS) PER
COMMON SHARE $ .04 $ (.16) $ .02 $ (.15)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,000,000 3,500,000 4,000,000 3,500,000
=========== =========== =========== ===========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 169,352 $ (574,036)
----------- -----------
Adjustments to reconcile net earnings (loss) to net
cash used in operations:
Depreciation and amortization 96,221 74,704
(Gain)/loss on sale of marketable securities (13,677) 382,500
Deferred income tax provision 5,200 10,800
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 838,309 324,639
Inventories (2,838,381) (882,062)
Prepaid expenses and other current assets (23,919) (21,201)
Notes receivable -- (315,325)
Other assets 26,863 (147,587)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,450,237 700,654
Income taxes payable 51,506 (24,000)
----------- -----------
Total adjustments (407,641) 103,122
----------- -----------
Net cash used in operating activities (238,289) (470,914)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (296,510) --
Purchase of property and equipment (589,761) (704,983)
Proceeds from sale of investments 803,603 595,000
----------- -----------
Net cash used in investing activities (82,668) (109,983)
----------- -----------
Net decrease in cash and cash equivalents (320,957) (580,897)
Cash and cash equivalents at beginning of period 412,914 594,175
----------- -----------
Cash and cash equivalents at end of period $ 91,957 $ 13,278
=========== ===========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
SIX MONTHS ENDED DECEMBER 31, 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 six and three month
periods ended December 31, 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 six and three
months ended December 31, 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 December 31, 1997
consist of U. S. Treasury notes.
4. Inventories:
-----------
Inventories, consisting principally of finished goods and work in
process, at December 31, 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
-----------------------------
SIX MONTHS ENDED DECEMBER 31,1997
---------------------------------
(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 December 31, 1997, the Company had no outstanding balance under the
facility.
7. 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 six
and three month periods ended December 31, 1996.
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 $2,468,000 for the six month period ended December 31, 1997.
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 December 31,
1997, the Company sold approximately 366,000 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.
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
--------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SIX MONTHS ENDED DECEMBER 31,1997
---------------------------------
(Continued)
9. Major Customer:
--------------
Sales to a major customer approximated 76% of total sales for the six
month period ended December 31, 1997
10. Income Taxes:
------------
The Company's tax provision for the six month period ended December 31,
1997 gives effect to the estimated utilization of a net operating loss
carryforward of approximately $40,000.
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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 six and three month periods ended December 31, 1997 were
approximately $3,243,000 and $1,711,000 respectively, as compared to $1,406,000
and $636,000 for the corresponding periods in 1996. 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 six and
three month periods ended December 31, 1997 approximated $580,000 (18% of sales)
and $370,000 (22% of sales) respectively, as compared to $115,000 (8% of sales)
and $14,000 (2% of sales).
Selling, general and administrative expenses approximated $359,000 and $249,000
for the six and three month periods ended December 31, 1997, respectively. As a
percentage of sales, these amounts represent 11% and 15% respectively, as
compared to 20% and 25% 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 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.
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.
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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 December 31, 1997, the Company had working capital of approximately
$893,000.
The Company's statement of cash flows reflects cash used in operating activities
of approximately ($238,000), primarily due to increases in operating assets such
as inventories ($2,838,000) and prepaid expenses and other current assets
($24,000) offset by net earnings of approximately ($169,000), decreases in
operating assets such as accounts receivable ($838,000), increases in accounts
payable and accrued expenses ($1,450,000), income taxes payable ($52,000) and an
adjustment for depreciation and amortization expense of ($96,000).
The statement also reflects net cash used in investing activities of
approximately ($83,000) which is attributable to the purchase of marketable
securities ($297,000) and the acquisition of property and equipment ($590,000)
offset by proceeds from the sale of investments ($804,000).
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.
-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.
SUPERIOR SUPPLEMENTS, INC.
Dated: February 5, 1998 By: /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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 91,957
<SECURITIES> 0
<RECEIVABLES> 329,276
<ALLOWANCES> 0
<INVENTORY> 4,483,364
<CURRENT-ASSETS> 4,974,143
<PP&E> 1,750,122
<DEPRECIATION> 216,500
<TOTAL-ASSETS> 6,896,938
<CURRENT-LIABILITIES> 4,081,380
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 2,800,658
<TOTAL-LIABILITY-AND-EQUITY> 6,896,938
<SALES> 3,242,620
<TOTAL-REVENUES> 3,242,620
<CGS> 2,662,511
<TOTAL-COSTS> 2,662,511
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,614
<INCOME-PRETAX> 227,552
<INCOME-TAX> 58,200
<INCOME-CONTINUING> 169,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,352
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
