<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, 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.
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(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 2, 1999
- ------------ -------------------------------
Common Stock 4,000,000
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SUPERIOR SUPPLEMENTS, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended September 30, 1999
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, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalent $ 4,992
Accounts receivable (no allowance for
doubtful accounts) 23,059
Due from affiliate 54,560
Inventories 2,386,033
Prepaid expenses and other current
assets 30,066
-------------
Total current assets 2,498,710
PROPERTY AND EQUIPMENT, net 1,312,122
OTHER ASSETS 38,493
-------------
$ 3,849,325
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,095,358
Note payable 200,000
Due to affiliate 1,072,100
-------------
Total current liabilities 3,367,458
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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 (2,664,474)
-------------
481,867
-------------
$ 3,849,325
=============
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SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
------------------
1999 1998
---- ----
NET SALES $ 1,147,614 $1,728,989
----------- ----------
COSTS AND EXPENSES:
Cost of sales 1,390,806 1,757,610
Selling, general and administrative 186,739 122,683
----------- ----------
1,577,545 1,880,293
----------- ----------
OPERATING LOSS (429,931) (151,304)
----------- ----------
OTHER:
Interest, net 4,722 4,443
Dividend income - (46)
----------- ----------
4,722 4,397
----------- ----------
LOSS BEFORE PROVISION
FOR INCOME TAXES (434,653) (155,701)
INCOME TAX PROVISION - 4,500
----------- ----------
NET LOSS $ (434,653) $ (160,201)
=========== ==========
LOSS PER COMMON SHARE $ (.11) $ (.04)
=========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,000,000 4,000,000
=========== ==========
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SUPERIOR SUPPLEMENTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (434,653) $ (160,201)
---------- ------------
Adjustments to reconcile net loss to net
cash (used in) provided by operations:
Depreciation and amortization 61,525 58,748
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 888 679,540
Due from affiliate 266,736 -
Inventories 314,972 (447,043)
Prepaid expenses and other current assets 9,680 20,944
Other assets - 16,496
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (72,648) (167,259)
Due to affiliate (169,244) -
Income taxes payable - (394)
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Total adjustments 411,909 161,032
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Net cash (used in) provided by operating activities (22,744) 831
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (37,812)
---------- ------------
Net cash (used in) investing activities - (37,812)
---------- ------------
Net decrease in cash and cash equivalents (22,744) (36,981)
Cash and cash equivalents at beginning of period 27,736 36,981
---------- ------------
Cash and cash equivalents at end of period $ 4,992 $ -
========== ============
</TABLE>
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 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 three month periods
ended September 30, 1999 and 1998. The Company's financial statements for the
year ended September 30, 1999 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments during the normal course of business. During the three month period
ended September 30, 1999, the Company experienced a significant decline in
revenues resulting from the loss of certain customer product lines. As a result,
the Company incurred a net loss of $435,000 from operations and generated a
negative gross profit during the period, and reflected a working capital deficit
of $869,000 as of September 30, 1999. 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, 1999. The results of operations for the three months ended
September 30, 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 September 30, 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
September 30, 1999.
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SUPERIOR SUPPLEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30,1999
(Continued)
5. Stockholders' Equity:
Loss per common share is computed by dividing the net loss by the
average number of common shares outstanding during the period. Common stock
equivalents were excluded from the calculation as the effect is antidilutive.
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. As of September 30,
1999, the Company has packaged approximately 1,032,000 bottles 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.
7. Major Customer:
Sales to PDK approximated 66% and 94% for the three months ended
September 30, 1999 and 1998, respectively. Sales to a second major customer
approximated 13% and 0% for the three months ended September 30, 1999 and 1998,
respectively.
8. Income Taxes:
Income taxes for the three month period ended September 30, 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
The Company has incurred a net loss of $435,000 from operations for the
three month period ended September 30, 1999. In addition, the Company has a
working capital deficit of $869,000 at September 30, 1999. These factors raise
substantial doubt about the company's ability to continue as a going concern.
Net sales for the three month period ended September 30, 1999 were
approximately $1,148,000, as compared to $1,729,000 in the corresponding period
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 three
months ended September 30, 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 $187,000 and
$123,000 for the three month periods ended September 30, 1999 and 1998,
respectively. As a percentage of sales, these amounts represent 16% and 7%
respectively.
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 $756,000 and $1,620,000 for the three months ended September
30,1999 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. As of September 30, 1999 the Company packaged
approximately 1,032,000 bottles for PDK.
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<PAGE>
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 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 developed 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 IT systems
and non-IT systems and satisfactorily tested and implemented 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.
Liquidity and Capital Resources
As of September 30, 1999 the Company had a working capital deficit of
approximately $(869,000).
The Company's statement of cash flows reflects cash used in operating
activities of approximately ($23,000), primarily due to (i) decreases in
operating assets such as due from affiliate ($267,000), and inventories
($315,000), (ii) a decrease in accounts payable and accrued expenses ($73,000),
and due to affiliate ($169,000), (iii) an adjustment for depreciation and
amortization ($62,000), offset by (iv) a net loss of $435,000.
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.
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<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 5, 1999 By: /s/ Lawrence Simon
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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-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 4,992
<SECURITIES> 0
<RECEIVABLES> 23,059
<ALLOWANCES> 0
<INVENTORY> 2,386,033
<CURRENT-ASSETS> 2,498,710
<PP&E> 1,943,249
<DEPRECIATION> 631,127
<TOTAL-ASSETS> 3,849,325
<CURRENT-LIABILITIES> 3,367,458
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 480,967
<TOTAL-LIABILITY-AND-EQUITY> 3,849,325
<SALES> 1,147,614
<TOTAL-REVENUES> 1,147,614
<CGS> 1,390,806
<TOTAL-COSTS> 1,390,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,722
<INCOME-PRETAX> (434,653)
<INCOME-TAX> 0
<INCOME-CONTINUING> (434,653)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (434,653)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
