<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, 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 February 7, 2000
- -------------------- -------------------------------
Common Stock 4,000,000
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
FORM 10-QSB
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QUARTERLY REPORT
----------------
For the Six Months Ended December 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
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(Unaudited)
-----------
December 31, 1999
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ASSETS
------
CURRENT ASSETS:
Cash and cash equivalent $ 4,807
Accounts receivable (no allowance for
doubtful accounts) 23,135
Due from affiliate 358,542
Inventories 1,598,504
Prepaid expenses and other current
assets 35,853
---------------
Total current assets 2,020,841
PROPERTY AND EQUIPMENT, net 1,250,685
OTHER ASSETS 28,911
---------------
$ 3,300,437
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,905,122
Note payable 200,000
--------------
Total current liabilities 3,105,122
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 (2,951,026)
--------------
195,315
$ 3,300,437
==============
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SUPERIOR SUPPLEMENTS, INC.
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STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 3,154,145 $ 2,473,828 $ 2,006,531 $ 744,839
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 3,526,853 2,799,331 2,136,047 1,041,721
Selling, general and administrative 339,609 327,023 152,870 204,340
----------- ----------- ----------- -----------
3,866,462 3,126,354 2,288,917 1,246,061
----------- ----------- ----------- -----------
OPERATING LOSS (712,317) (652,526) (282,386) (501,222)
----------- ----------- ----------- -----------
OTHER:
Interest, net 8,888 8,622 4,166 4,179
Dividend income - (88) - (42)
----------- ----------- ----------- -----------
8,888 8,534 4,166 4,137
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (721,205) (661,060) (286,552) (505,359)
INCOME TAX PROVISION (BENEFIT) - 3,600 - (900)
----------- ----------- ----------- -----------
NET LOSS $ (721,205) $ (664,660) $ (286,552) $ (504,459)
============ ============ ============ ============
LOSS PER COMMON SHARE $ (.18) $ (.17) $ (.07) $ (.13)
============ ============ ============ ============
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)
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<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31,
-------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (721,205) $ (664,660)
---------- ----------
Adjustments to reconcile net loss to net
cash (used in) provided by operations:
Depreciation and amortization 122,962 119,745
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 812 (120,433)
Due from affiliate (37,246) 772,002
Inventories 1,102,502 (820,459)
Prepaid expenses and other current assets 3,893 33,064
Other assets 9,582 21,433
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (504,229) 713,827
Income taxes payable - (1,294)
---------- ----------
Total adjustments 698,276 717,885
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Net cash (used in) provided by operating activities (22,929) 53,225
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (90,206)
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Net cash used in investing activities - (90,206)
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Net decrease in cash and cash equivalents (22,929) (36,981)
Cash and cash equivalents at beginning of period 27,736 36,981
---------- ----------
Cash and cash equivalents at end of period $ 4,807 $ -
========== ==========
</TABLE>
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SUPERIOR SUPPLEMENTS, INC.
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NOTES TO FINANCIAL STATEMENTS
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SIX MONTHS ENDED DECEMBER 31, 1999
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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, 1999 and 1998. The Company's financial statements for
the six and three month periods ended December 31, 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 six and three month periods ended December 31, 1999, the Company
incurred a net loss of $721,000 from operations and generated a negative gross
profit due to inefficiencies related to operating levels remaining below
production capacities. In addition, as of December 31, 1999 the Company
reflected a working capital deficit of $1,084,000. 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 six
and three months ended December 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 December 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
December 31, 1999.
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SUPERIOR SUPPLEMENTS, INC.
--------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SIX MONTHS ENDED DECEMBER 31,1999
---------------------------------
(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.
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 63% and 91% of total sales for the six months
ended December 31, 1999 and 1998, respectively. Sales to a second major customer
approximated 25% and 1% of total sales for the six months ended December 31,
1999 and 1998, respectively.
8. Income Taxes:
-------------
Income taxes for the six month period ended December 31, 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 $721,000 from operations for the
six month period ended December 31, 1999. In addition, the Company has a working
capital deficit of $1,084,000 at December 31, 1999. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Net sales for the six and three month period ended December 31, 1999
were approximately $3,154,000, and $2,007,000 respectively, as compared to
$2,474,000 and $745,000 in the corresponding periods in the prior year. The
Company has realized an increase in sales due to the introduction of a new
product line. Cost of sales for the six months ended December 31, 1999 reflects
fixed overhead costs and inefficient direct labor rates as a result of operating
below production capacities.
Selling, general and administrative expenses approximated $340,000 and
$153,000 for the six and three month periods ended December 31, 1999,
respectively. As a percentage of sales, these amounts represent 11% and 8%
respectively, as compared to 13% and 27% in the corresponding periods of 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 $1,980,000 and $2,256,000 for the six months ended December 31,1999
and 1998, respectively.
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SUPERIOR SUPPLEMENTS, INC.
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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 has satisfactorily implemented a plan to ensure that its
systems are compliant with the requirements to process transactions in the Year
2000. To date, the Company has not experienced any adverse effects related to
the Year 2000.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1999 the Company had a working capital deficit of
approximately $1,084,000.
The Company's statement of cash flows reflects cash used in operating
activities of approximately ($23,000), primarily due to (i) a net loss of
$721,000 and a decrease in accounts payable and accrued expenses of $504,000,
offset by (ii) a decrease in operating assets, such as inventory ($1,103,000),
and an adjustment for depreciation and amortization of $123,000.
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-
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PART II - OTHER INFORMATION
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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 8, 2000 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 4,807
<SECURITIES> 0
<RECEIVABLES> 23,135
<ALLOWANCES> 0
<INVENTORY> 1,598,504
<CURRENT-ASSETS> 2,020,841
<PP&E> 1,943,249
<DEPRECIATION> (692,564)
<TOTAL-ASSETS> 3,300,437
<CURRENT-LIABILITIES> 3,105,122
<BONDS> 0
0
500
<COMMON> 400
<OTHER-SE> 194,415
<TOTAL-LIABILITY-AND-EQUITY> 3,300,437
<SALES> 3,154,145
<TOTAL-REVENUES> 3,154,145
<CGS> 3,526,853
<TOTAL-COSTS> 3,526,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,888
<INCOME-PRETAX> (721,205)
<INCOME-TAX> 0
<INCOME-CONTINUING> (721,205)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (721,205)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
