<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, 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
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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 February 5, 1999
- ------------ -------------------------------
Common Stock 4,000,000
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
FORM 10-QSB
-----------
QUARTERLY REPORT
----------------
For the Six Months Ended December 31, 1998
------------------------------------------
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
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(Unaudited)
December 31, 1998
-----------------
ASSETS
------
CURRENT ASSETS:
Accounts receivable (no allowance for
doubtful accounts) $ 311,640
Inventories 4,894,733
Prepaid expenses and other current
assets 28,017
-----------
Total current assets 5,234,390
PROPERTY AND EQUIPMENT, net 1,496,431
OTHER ASSETS 49,203
-----------
$ 6,780,024
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,560,908
Note payable 200,000
Income taxes payable 706
-----------
Total current liabilities 4,761,614
-----------
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 (1,136,931)
-----------
2,009,410
-----------
$ 6,780,024
===========
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 2,473,828 $ 3,242,620 $ 744,839 $ 1,711,235
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,799,331 2,662,511 1,041,721 1,341,556
Selling, general and administrative 327,023 358,660 204,340 248,659
----------- ----------- ----------- -----------
3,126,354 3,021,171 1,246,061 1,590,215
----------- ----------- ----------- -----------
OPERATING (LOSS) INCOME (652,526) 221,449 (501,222) 121,020
----------- ----------- ----------- -----------
OTHER:
Interest, net 8,622 8,614 4,179 4,154
Dividend income (88) (1,040) (42) (392)
Gain on sale of investments -- (13,677) -- (8,125)
----------- ----------- ----------- -----------
8,534 (6,103) 4,137 (4,363)
----------- ----------- ----------- -----------
(LOSS) EARNINGS BEFORE
PROVISION FOR INCOME TAXES (661,060) 227,552 (505,359) 125,383
INCOME TAX PROVISION (BENEFIT) 3,600 58,200 (900) 42,200
----------- ----------- ----------- -----------
NET (LOSS) EARNINGS $ (664,660) $ 169,352 $ (504,459) $ 83,183
=========== =========== =========== ===========
(LOSS) EARNINGS PER
COMMON SHARE $ (.17) $ .04 $ (.13) $ .02
=========== =========== =========== ===========
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>
Six Months Ended
----------------
December 31,
-------- ---
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (664,660) $ 169,352
----------- -----------
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operations:
Depreciation and amortization 119,745 96,221
Gain on sale of marketable securities -- (13,677)
Deferred income tax provision -- 5,200
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 593,839 838,309
Inventories (820,459) (2,838,381)
Prepaid expenses and other current assets 33,064 (23,919)
Other assets 21,433 26,863
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 771,557 1,450,237
Income taxes payable (1,294) 51,506
----------- -----------
Total adjustments 717,885 (407,641)
----------- -----------
Net cash provided by (used in) operating activities 53,225 (238,289)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (296,510)
Purchase of property and equipment (90,206) (589,761)
Proceeds from sale of investments -- 803,603
----------- -----------
Net cash used in investing activities (90,206) (82,668)
----------- -----------
Net decrease in cash and cash equivalents (36,981) (320,957)
Cash and cash equivalents at beginning of period 36,981 412,914
----------- -----------
Cash and cash equivalents at end of period $ -- $ 91,957
=========== ===========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
SIX MONTHS ENDED DECEMBER 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 six and three month
periods ended December 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, 1998. The results of operations for the six and three
months ended December 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.
3. Inventories:
------------
Inventories, consisting principally of raw materials and work in
process, at December 31, 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
December 31, 1998.
-4-
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SIX MONTHS ENDED DECEMBER 31,1998
---------------------------------
(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
six and three month period ended December 31, 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. The Company has
packaged approximately 593,000 bottles for PDK for the six months ended December
31, 1998.
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 $2,256,000 and $2,468,000 for the six months
ended December 31, 1998 and 1997, respectively. There was no accounts receivable
balance for PDK at December 31, 1998.
8. Income Taxes:
-------------
Income taxes for the six month periods ended December 31, 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 six and three month period ended December 31, 1998
were approximately $2,474,000, and $745,000 respectively, as compared to
$3,243,000 and $1,711,000 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 six months ended December 31, 1998
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 $327,000 and
$204,000 for the six and three month periods ended December 31, 1998
respectively. As a percentage of sales, these amounts represent 13% and 27%
respectively, as compared to 11% and 15% 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 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 $2,256,000 and $2,468,000 for the six months ended December 31,
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. The Company packaged approximately 593,000 bottles for
PDK for the six months ended December 31, 1998.
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.
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
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.
Liquidity and Capital Resources
- -------------------------------
As of December 31, the Company had working capital of approximately
$473,000. .
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 ($594,000), prepaid expenses and
other current assets ($33,000), other assets ($21,000) and an adjustment for
depreciation and amortization ($120,000) offset by a net loss of $665,000 and an
increase in inventory ($820,000).
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.
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.
-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: February 9, 1999 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-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 311,640
<ALLOWANCES> 0
<INVENTORY> 4,894,733
<CURRENT-ASSETS> 5,234,390
<PP&E> 1,943,249
<DEPRECIATION> 446,818
<TOTAL-ASSETS> 6,780,024
<CURRENT-LIABILITIES> 4,761,614
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 2,008,510
<TOTAL-LIABILITY-AND-EQUITY> 6,780,024
<SALES> 2,473,828
<TOTAL-REVENUES> 2,473,828
<CGS> 2,799,331
<TOTAL-COSTS> 2,799,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,622
<INCOME-PRETAX> (661,060)
<INCOME-TAX> 3,600
<INCOME-CONTINUING> (664,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (664,660)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
