<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, 1999
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
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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
Class Outstanding at April 26, 1999
- ------------ -----------------------------
Common Stock 4,000,000
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
FORM 10-QSB
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QUARTERLY REPORT
----------------
For the Nine Months Ended March 31, 1999
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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........................................4-5
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)
-----------
March 31, 1999
--------------
ASSETS
CURRENT ASSETS:
Accounts receivable (no allowance for
doubtful accounts) $ 598,110
Inventories 4,320,612
Prepaid expenses and other current
assets 29,907
-----------
Total current assets 4,948,629
PROPERTY AND EQUIPMENT, net 1,435,039
OTHER ASSETS 43,203
-----------
$ 6,426,871
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,658,448
Note payable 200,000
Income taxes payable 135
-----------
Total current liabilities 4,858,583
-----------
DEFERRED TAX LIABILITY 9,000
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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, $.0001 par value;
authorized 10,000,000 shares; 5,000,000
issued and outstanding 500
Additional paid-in capital 3,145,441
Accumulated deficit (1,587,053)
-----------
1,559,288
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$ 6,426,871
===========
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SUPERIOR SUPPLEMENTS, INC.
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STATEMENTS OF OPERATIONS
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(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 3,787,854 $ 5,584,256 $ 1,314,026 $ 2,341,636
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 4,359,148 4,892,571 1,559,817 2,230,060
Selling, general and administrative 527,394 571,926 200,371 213,266
----------- ----------- ----------- -----------
4,886,542 5,464,497 1,760,188 2,443,326
----------- ----------- ----------- -----------
OPERATING (LOSS) INCOME (1,098,688) 119,759 (446,162) (101,690)
----------- ----------- ----------- -----------
OTHER:
Interest, net 12,622 12,529 4,000 3,915
Dividend income (128) (1,047) (40) (7)
Gain on sale of investments -- (28,497) -- (14,820)
----------- ----------- ----------- -----------
12,494 (17,015) 3,960 (10,912)
----------- ----------- ----------- -----------
(LOSS) EARNINGS BEFORE
PROVISION FOR INCOME TAXES (1,111,182) 136,744 (450,122) (90,778)
INCOME TAX PROVISION (BENEFIT) 3,600 20,200 -- (38,000)
----------- ----------- ----------- -----------
NET (LOSS) EARNINGS $(1,114,782) $ 116,574 $ (450,122) $ (52,778)
=========== =========== =========== ===========
(LOSS) EARNINGS PER
COMMON SHARE $ (.28) $ .03 $ (.11) $ (.01)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,000,000 4,000,000 4,000,000 4,000,000
=========== =========== =========== ===========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
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STATEMENTS OF CASH FLOWS
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(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 31,
----------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $(1,114,782) $ 116,574
----------- -----------
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operations:
Depreciation and amortization 181,137 152,356
Gain on sale of marketable securities -- (28,497)
Deferred income tax provision -- 6,200
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 307,369 862,853
Inventories (246,338) (3,404,750)
Prepaid expenses and other current assets 31,174 (4,977)
Other assets 27,433 34,663
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 869,097 1,695,104
Income taxes payable (1,865) 12,506
----------- -----------
Total adjustments 1,168,007 (674,542)
----------- -----------
Net cash provided by (used in) operating activities 53,225 (557,968)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (849,774)
Purchase of property and equipment (90,206) (642,651)
Proceeds from sale of investments -- 1,637,479
----------- -----------
Net cash (used in) provided by investing activities (90,206) 145,054
----------- -----------
Net decrease in cash and cash equivalents (36,981) (412,914)
Cash and cash equivalents at beginning of period 36,981 412,914
----------- -----------
Cash and cash equivalents at end of period $ -- $ --
=========== ===========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
NINE MONTHS ENDED MARCH 31, 1999
--------------------------------
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, 1999 and 1998. 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 nine and three months
ended March 31, 1999 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.
3. Inventories:
Inventories, consisting principally of raw materials and work in process,
at March 31, 1999 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 March 31,
1999.
5. Stockholders' Equity:
(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.
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NINE MONTHS ENDED MARCH 31,1999
-------------------------------
(Continued)
6. Commitments:
The Company is party to an amended supply agreement with PDK Labs Inc.
("PDK"). The agreement, which expires in May 2000, 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. The Company has
packaged approximately 954,000 bottles for PDK for the nine months ended March
31, 1999.
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 $3,332,000 and $4,480,000 for the nine months
ended March 31, 1999 and 1998, respectively. There was no accounts receivable
balance for PDK at March 31, 1999.
8. Income Taxes:
Income taxes for the nine month periods ended March 31, 1999 and 1998
include state taxes on capital.
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Forward-looking Statements
- --------------------------
This report on Form 10-QSB contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations and business of the
Company. All of these forward looking statements, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed upon such estimates and statements.
Results of Operations
- ---------------------
Net sales for the nine and three month period ended March 31, 1999 were
approximately $3,788,000, and $1,314,000 respectively, as compared to $5,584,000
and $2,342,000 in the corresponding periods in the prior year. The Company has
realized a decline in sales to customers which outsource a portion of their
business to supplement their own capacities. Efforts are being made to replace
these revenues. Cost of sales for the nine months ended March 31, 1999 reflects
fixed overhead costs and increased direct labor rates as a result of lower
production volume due to the decline in sales.
Selling, general and administrative expenses approximated $527,000 and
$200,000 for the nine and three month periods ended March 31, 1999 respectively.
As a percentage of sales, these amounts represent 14% and 15% respectively, as
compared to 10% and 9% in the corresponding periods in the prior year.
The Company is operating under a supply agreement with PDK Labs Inc.,
("PDK"), which expires in May 2000 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 $3,332,000 and $4,480,000 for the nine months ended March 31,1999
and 1998, 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. The Company packaged approximately 954,000 bottles for
PDK for the nine months ended March 31, 1999.
-6-
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
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 the 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 as to the availability and
integrity of financial systems and reliability of operational systems. The
Company is developing a plan to ensure that its systems are compliant with the
requirements to process transactions in the Year 2000. The plan consists of four
phases: assessment, remediation, testing and implementation, and encompasses
internal information technology (IT) systems and non-IT systems, as well as
third party exposures. The Company has completed the assessment of its IT
systems and non-IT systems and is in the process of making remedial changes to
its existing software. In addition, the Company has requested from a majority of
its principal suppliers and vendors written statements regarding their plan for
meeting Year 2000 requirements. To date, the Company has not received adequate
response to such requests.
Management of the Company believes that it is working on an effective
program to resolve the Year 2000 issue in a timely manner and that the costs of
implementing this program will not materially affect the financial position of
the Company. The Company has not yet completed all necessary phases of the Year
2000 program. In the event that the Company does not complete any additional
phases, the Company could experience business interruptions. In addition,
disruptions in the economy generally resulting from the Year 2000 issues could
also have a material adverse effect on the Company. The amount of potential
liability and lost revenue cannot be reasonably estimated at this time.
Liquidity and Capital Resources
- -------------------------------
As of March 31, the Company had working capital of approximately $90,000.
The Company's statement of cash flows reflects cash provided by operating
activities of approximately $53,000, primarily due to decreases in operating
assets such as accounts receivable ($307,000), an increase in accounts payable
and accrued expenses ($869,000), and an adjustment for depreciation and
amortization ($181,000) offset by a net loss of $1,115,000 and an increase in
inventory ($246,000).
The statement also reflects net cash used in investing activities of
approximately $90,000 which is attributable to the acquisition of property and
equipment.
The Company frequently has not been able to make timely payments to its
trade creditors. Deferred payment terms have been negotiated with most vendors.
No customer orders have been canceled to date. However, if significant volumes
of orders were to be canceled, the Company's ability to continue to operate
would be jeopardized.
-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: April 29, 1999 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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 598,110
<ALLOWANCES> 0
<INVENTORY> 4,320,612
<CURRENT-ASSETS> 4,948,629
<PP&E> 1,943,249
<DEPRECIATION> 508,210
<TOTAL-ASSETS> 6,426,871
<CURRENT-LIABILITIES> 4,858,583
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 1,558,388
<TOTAL-LIABILITY-AND-EQUITY> 6,426,871
<SALES> 3,787,854
<TOTAL-REVENUES> 3,787,854
<CGS> 4,359,148
<TOTAL-COSTS> 4,359,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,622
<INCOME-PRETAX> (1,111,182)
<INCOME-TAX> 3,600
<INCOME-CONTINUING> (1,114,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,114,782)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
