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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 333-48675
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(Name of small business issuer in its charter)
Texas 73-1537206
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(state of incorporation) (IRS Employer I.D. Number)
414 East Loop 281, Suite 7
Longview, TX 75605
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(Address principal executive offices)
Issuer's telephone number: 800-522-7841
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: None.
Name of each exchange on which registered: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
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State issuer's revenues for its most recent fiscal year: $185,921.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: $9,026,173, computed by
reference to the $2.50 price at which shares of the Company's Common Stock were
sold in December 1998.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,406,694 shares of Common
Stock, $0.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (3) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The list documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990). None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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TABLE OF CONTENTS
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Item 1. Description of Business ........................................................................ 1
Business Development ........................................................................... 1
Principal Products ............................................................................. 2
Distribution Methods ........................................................................... 3
Competition .................................................................................... 4
Raw Materials and Suppliers .................................................................... 5
Dependence on Major Customers .......................................................... 5
Patents, Trademarks and Licenses ............................................................... 5
Government Approval of Principal Products ...................................................... 6
Government Regulations ......................................................................... 7
Seasonality .................................................................................... 7
Research and Development ............................................................... 8
Environmental Controls ......................................................................... 8
Year 2000 Computer Problem ..................................................................... 8
Number of Employees .................................................................... 8
Item 2. Properties ..................................................................................... 8
Office Facilities .............................................................................. 8
Item 3. Legal Proceedings .............................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders ............................................ 9
Item 5. Market for Common Equity and Related Stockholder
Matters ............................................................................... 9
Item 6. Management's Discussion and Analysis ........................................................... 10
Overview ....................................................................................... 10
Results of operations .......................................................................... 11
Sales .......................................................................................... 11
Gross margin ................................................................................... 11
Operating expenses ............................................................................. 11
Net income (loss) .............................................................................. 12
Liquidity and capital resources ................................................................ 12
Outlook ........................................................................................ 12
Item 7. Financial Statements ........................................................................... 13
Item 8. Changes in and Disagreements with Accountants on
Financial Disclosure .................................................................. 26
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of
the Exchange Act ...................................................................... 26
Item 10. Executive Compensation ......................................................................... 28
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Item 11. Security Ownership of Certain Beneficial Owners and
Management ............................................................................ 28
Item 12. Certain Relationships and Related Transactions ................................................. 29
Parents of the Company ......................................................................... 30
Item 13. Exhibits and Reports on Form 8-K ............................................................... 30
Signatures .............................................................................................. 31
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ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT.
The Company is affiliated with Moonlighting Distribution Corporation, a
closely held Texas corporation ("Moonlighting"). Moonlighting is under the 52.5
percent ownership and control of B. Keith Parker and his spouse, Paula Parker,
who are directors and, respectively, the chief executive officer and vice
president for shareholder relations of the Company. Moonlighting develops and
markets health and well-being products designed to improve the quality of an
individual's life and also markets other products.
In 1993, before the Company was organized, the Parkers and Moonlighting
began to assess several products developed by BioGenesis Enterprises, Inc. of
Springfield, Virginia ("BioGenesis"). BioGenesis develops and manufactures
industrial products that are environmentally safe - generally, products that are
biodegradable and nontoxic. By middle 1997, the Parkers and Moonlighting
concluded that BioGenesis' products merited commercial exploitation. A trip to
the Philippines was planned to determine if a fire suppressant product of
BioGenesis could be marketed there through personal contacts the Parkers had
there. A license was obtained from BioGenesis to market the fire suppressant.
The named licensee was "B. Keith Parker and Moonlighting Distribution
Corporation dba Moonlighting International." Moonlighting International was a
trade name to be used by Moonlighting for any overseas marketing business.
The trip to the Philippines resulted in the organization by local
businessmen there of Moonlighting International Philippines, a company not
affiliated with the Parkers' company, Moonlighting Distribution Corporation
("Moonlighting"). Moonlighting determined that the scope of activities that
should be undertaken for the fire suppressant product exceeded the capabilities
or business plan of Moonlighting, and a company named Summit Technologies, Inc.
(with whom the Company merged on December 2, 1998) was incorporated in August
1997 to organize, finance, and direct the marketing of BioGenesis' fire
suppressant product and other products for which marketing licenses could be
obtained and for which marketing expenses could be raised.
After the organization of Summit Technologies, Moonlighting licensed to
Summit Technologies the exclusive right to market a product newly developed by
Moonlighting and tested for marketing - Stressex(TM) and Poder 24(TM) - and the
non-exclusive right to market BioGenesis' fire suppressant product - FirePower
911(TM) and FlameOut(TM) - for which Moonlighting had earlier obtained certain
distribution rights. Later, in April 1998 Summit Technologies entered into an
agreement with BioGenesis which would enable Summit Technologies to obtain
ownership of all patent and other intellectual property rights associated with
the fire suppressant upon the payment by November 15, 1998 of $1 million cash
and 750,000 shares of Common Stock of Summit Technologies. Then, on November 2,
1998 Summit Technologies and BioGenesis amended their April 1998 agreement as
follows:
o BioGenesis assigned to Summit Technologies the fire
suppressant's patent and other intellectual property rights.
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o The remaining $800,000 owed for the purchase is to be paid on
an installment basis as follows: $200,000 by February 1, 1999
(which has been paid); $300,000 by April 1, 1999; and $300,000
by August 1, 1999.
o The 750,000 shares of stock were to be, and were, delivered
the first business day after the February 1, 1999 payment was
made.
On December 2, 1998, Summit Technologies was merged into the Company.
PRINCIPAL PRODUCTS. The Company distributes and markets or has
initiated activities to distribute and market the following licensed
products. All of the products are manufactured by the licensors of the
products.
FirePower 911(TM) and FlameOut(TM). These products are fire
suppressants developed and manufactured by BioGenesis. They were developed by
BioGenesis to be a replacement for Halon 1211. Halon 1211 was a widely used fire
suppression and explosion protection agent. It is applied primarily as a wetting
agent and was the fire extinguishing agent of choice for many uses, such as most
fire extinguishers. Its production was halted in 1994 by the Environmental
Protection Agency ("EPA") primarily because Halon 1211 has one of the higher
ozone depletion potentials of any compound. Halon 1211 is still approved for
certain, limited mission-critical uses (such as ship- and shore-based crash,
fire and rescue), but existing installations of Halon 1211 that are not mission
critical must switch to an approved, acceptable alternative.
In March 1994 the first alternative to Halon 1211 was approved
by the EPA - BioGenesis's Surfactant Blend A. This product is marketed under
several trade names by companies licensed by BioGenesis. Two of these trade
names are FirePower 911(TM) and FlameOut(TM).
The EPA has now approved at least eleven other accepted
substitutes to Halon 1211. Three of these are water, foam and carbon dioxide.
Other than these three, BioGenesis's Surfactant Blend A is approved for all
wetting agent uses and is the only substitute approved for residential use. Some
of the substitutes were approved only for a limited time and then must be phased
out. Flameout(TM) was certified in May 1997 by Underwriter Laboratories (listing
number 7P21).
FirePower 911(TM) and FlameOut(TM) contain the same Surfactant
Blend A formula. FlameOut(TM) is marketed at three percent strength for use in
fire extinguishers to fight, generally, Class A fires (wood, cloth, paper,
rubber and plastics) and is marketed at six percent strength for suppression of
Class B fires (combustible liquids, gases and greases). Surfactant Blend A is
also effective at ten percent strength in suppressing Class D fires (metals) but
has not yet been submitted to Underwriters Laboratory for certification for
Class D fire suppression.
FirePower 911(TM) and FlameOut(TM) suppress and extinguish
fire quickly. They reduce toxic smoke by encapsulating poisonous hydrocarbons,
reduce heat approximately 70 percent faster than water does, prevent reflash,
are safe to store and handle, leave virtually no residue, are biodegradable and
otherwise are environmentally safe. They are nontoxic
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but may irritate the eyes. They store at between 25 degrees and 120 degrees
Fahrenheit for prolonged periods.
Stressex(TM) and Poder 24(TM).
These are the same products. Stressex(TM) is the
English-language brand name and Poder 24(TM) is the Spanish-speaking brand name.
The product combines six herbs - saw palmetto, sarsaparilla, nettle leaf,
damiana, buckthorn and avena sativa - in tablets marketed to women and
substitutes Yohimbe for damiana in the capsules marketed to men. The Company
markets the product as one that increases energy, alleviates stress and promotes
hormonal balance and libido.
Trim-Away(TM).
This product was recently developed by Moonlighting
Distribution Corporation, an affiliate of the Company. Its main ingredient is
Chitosan, which is mixed with aloe vera, aminophylline, and other botanical
ingredients to make a topical product. Chitosan is a fat absorbent agent. It is
non-caloric and indigestible. After absorbing fat - up to ten times its weight -
it passes through the body. Aloe vera is a transportation agent, enabling the
topically applied Trim-Away(TM) ointment to penetrate the fat reserve beneath
the skin. Aminophylline signals the body to release fat reserves for the
Chitosan to absorb.
Chitosan is made from chitin. The most abundant source of
chitin is the shells of shellfish such as crab and shrimp. Chitosan is made by
cooking chitin in alkali. Chitosan binds fat to itself and acts like a "fat
sponge." Being indigestible and non-absorbable by the human body, it passes
through the body carrying with it any fat it has absorbed.
The Company will market Trim-Away(TM) on the basis both of
testimonials of persons who have used it and of scientific literature that
supports the proposition that chitosan binds fat to itself.
Moonlighting is developing a Chitosan-based chewable tablet to
be marketed as a dietary supplement for weight loss. When developed, the Company
will market it.
Industrial Chemicals and Cleaners.
The Company distributes BioGenesis's industrial chemicals and
cleaners. BioGenesis concentrates its activities on developing and then
manufacturing, for marketing by other companies, industrial-use products that
are environmentally safe. BioGenesis has developed several industrial chemicals
and cleaners that the Company proposes to market as soon as funds are available
to launch marketing efforts.
DISTRIBUTION METHODS.
The Company markets products primarily through the efforts of Keith
Parker, its chief executive officer, and of five regional sales directors. A
sales director for its sixth region has not yet been selected. It also is
preparing to launch sales efforts through infomercials and radio "spots" and
through direct advertising. Internationally, it markets products
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through a network of persons and companies who contract with the Company
for distribution rights.
The Company markets FlameOut(TM) in the Philippines through a joint
venture with FlameOut Philippines. Neither the Company nor the Texas-based
Moonlighting Distribution Corporation ("Moonlighting") has any ownership
interest in FlameOut Philippines, but the Company has a 40 percent net revenue
interest in the joint venture.
FlameOut Philippines is under the direction, ownership, and control of
experienced Philippine marketers. It has obtained the approval and endorsement
of the Philippine National Bureau of Fire Protection for FlameOut(TM).
Surfactant Blend A is shipped, f.o.b. point of U.S. origin, to the Philippines
in concentrated form. It is there mixed with water and placed in fire
extinguishers.
The Company is preparing to launch an infomercial campaign to sell
FirePower 911(TM) in the U.S.
Prior to the organization of the Company, Moonlighting commenced
marketing Poder 24(TM) through K-MEX, a Spanish-speaking radio station in the
Los Angeles area and in Mexico. The Company is preparing a prime-time
infomercial campaign through Hispanic Television Network to be aired in 450
markets.
Sales of FirePower 911(TM) have been made to Home Depot for it to test
market this product in its Northeast U.S. Region.
FirePower 911(TM) has been accepted by Wal-Mart Corporation as a
product for sale in Wal-Mart stores. Initial orders have been received by the
Company to deliver the product to Wal-Mart stores in Florida, Georgia and
Mississippi.
COMPETITION.
BioGenesis has granted to other companies distribution rights of its
Surfactant Blend A fire suppressant for various parts of the world and under two
other trade names. The Company will potentially be in competition with these
companies. To the extent that any of these companies fails to meet periodic
sales requirements, the Company will acquire from BioGenesis the expired
licenses. However, effective November 2, 1998 the Company acquired from
BioGenesis all patent and other intellectual property rights associated with the
fire suppressant, and the other companies which have licenses to market the fire
suppressant are now distributors for the Company. See "- Patents, Trademarks and
Licenses."
The demise of the former fire suppressant of choice, Halon 1211, is a
consequence of the 1992 Geneva Peace Conference, which mandated the phaseout of
Halon 1211 in all United Nations countries participating in the Conference.
The Company believes that FirePower 911(TM) and FlameOut(TM) are the
finest fire suppressants in existence today.
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In the Spanish-speaking countries in the Western Hemisphere, the
Company is in direct competition with Unispan with respect to the Company's
Poder 24(TM) product. Unispan is a large and well-capitalized marketing company
based in Mexico. Moonlighting contracted with Unispan in 1996 to test market
Poder 24(TM) in Mexico through infomercials. Following a successful test (33,000
bottles sold in a seven-week market test), Unispan attempted to duplicate Poder
24(TM) and sells it under a similar brand name. The Company and Moonlighting
have served notice on Unispan that the Company will sue Unispan for these
activities when the Company can afford such litigation.
Competition is intense throughout the world in the markets for diet
programs and industrial chemicals and cleaners. The Company's Trim-Away(TM)
topical fat reducer and BioGenesis' industrial chemicals and cleaners will be
in competition with products marketed by large companies with established
products with well-known brands. The Company is unable at this time to predict
the degree of market acceptance of these products or its ability to successfully
compete with the companies already established in these markets.
RAW MATERIALS AND SUPPLIERS.
The Company buys from BioGenesis its FirePower 911(TM) and FlameOut(TM)
products. By virtue of the Company's purchase agreement for the patent rights
for these products, BioGenesis manufactures FlameOut(TM) and FirePower(TM) for
the Company at BioGenesis' cost plus ten percent.
The Company buys its Stressex(TM), Poder 24(TM) and Trim-Away(TM)
products from its affiliate, Moonlighting, which developed the products. The
products are manufactured for Moonlighting by an unaffiliated company, Summa
Laboratories, Inc., of Mineral Wells, Texas, from readily available herbs and
natural substances.
BioGenesis manufactures and supplies its industrial chemicals and
cleaners. These products are shipped in concentrated form to Houston, Texas, for
bottling by Bishop's Original Products. The Company's arrangement with this
bottler allows bottling in any amounts - small or large - for tests in each new
market.
DEPENDENCE ON MAJOR CUSTOMERS.
The Company's markets are insufficiently developed to determine if it
will be dependent on one or a few major customers.
PATENTS, TRADEMARKS AND LICENSES.
In mid-1997 Moonlighting and B. Keith Parker obtained a nearly
worldwide license from BioGenesis for its fire suppressant products and
improvements. See "Description of Summit Technologies' Business - Business
Development." The excepted countries were most Arabic countries and the
Scandinavian countries. On May 1, 1998, both of these areas, then under
exclusive license to other companies, became available due to the existing
licensees' failure to meet periodic sales quotas, and Parker and
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Moonlighting acquired licenses in these areas pursuant to the terms of their
agreement with BioGenesis.
In October 1997 this license from BioGenesis was assigned to Summit
Technologies (which company was merged into the Company on December 2, 1998) in
exchange for the payment to Moonlighting of $10,000, the issuance to
Moonlighting of 350,000 shares of common stock of Summit Technologies and the
obligation to pay to Moonlighting a royalty of $0.50 for each 16- ounce can of
FirePower 911(TM) and $0.50 for each gallon of FlameOut(TM). The license was for
a four-year initial term, renewable annually for twenty years. The licensing fee
was $500,000, (of which amount $200,000 has been paid) and $100,000 on June 1 of
each of the next three years. Annual sales quotas were to have been set on
November 15, 1998 should Summit Technologies not exercise an option it had to
acquire all patents and intellectual property rights associated with the fire
suppressant.
On November 2, 1998 BioGenesis assigned to Summit Technologies (which
company was merged into the Company on December 2, 1998) all patents and
intellectual property rights associated with the fire suppressant products. See
" - Business Development" above. The obligation to pay licensing fees to
BioGenesis merged with the acquisition of the patent rights and, accordingly,
was extinguished. The obligation to pay the above-described annual royalties to
Moonlighting, however, did not so merge and will continue in effect during the
term of the exclusive license obtained from Moonlighting.
Summit Technologies paid $20,000 for a perpetual license from its
affiliated company, Moonlighting, for its Stressex(TM), Poder 24(TM) and
Trim-Away(TM) products. The license has no sales quota. Product prices are set
at the prices Moonlighting was charging unrelated persons when the license was
given to Summit Technologies, subject to adjustment only to the extent
Moonlighting's manufacturing costs for the products should increase due to
increased product ingredient prices.
The Company has no written license from BioGenesis for its industrial
chemical and cleaner products.
GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS.
BioGenesis obtained EPA approval in 1994 and Underwriter Laboratories
certification in 1997 for FlameOut(TM) (Listing No. 7P21). Moonlighting
Philippines has obtained the approval of these products from the Philippine
National Bureau of Fire Protection.
No governmental approval is required in the U.S. or Mexico for the
manufacture for sale of Stressex(TM), Poder 24(TM) or Trim-Away(TM). These
products are made from herbs and other dietary ingredients that enable the
products to be marketed as "dietary supplements" that contain no drugs,
antibiotics or biologics that require prior governmental approval.
BioGenesis has obtained the necessary U.S. Government approvals for its
industrial chemical and cleaning products.
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GOVERNMENT REGULATIONS.
The fire suppressant products the Company distributes are subject to
government regulation in most countries of the world. The existence of this
regulation is of benefit to the Company, because the BioGenesis fire
suppressants are the favored substitute for Halon 1211, the fire suppressant of
choice in most of the world before most countries agreed at the 1992 Geneva
Peace Conference to phase out its use.
The Company's Stressex(TM), Poder 24(TM) and Trim-Away(TM) products
also are subject to government regulations. Until 1997 the Food, Drug and
Cosmetic Act prohibited the use of a health claim or a nutrient content claim in
the labeling of dietary supplements unless the Food and Drug Administration (the
"FDA") published a regulation authorizing such a claim. The Food and Drug
Administration Modernization Act of 1997 ("FDAMA") now allows distributors and
manufacturers to use nutrient content claims in the labeling of dietary
supplements if such claims are based on current, published, authoritative
statements from certain federal scientific bodies, as well as from the National
Academy of Sciences. A process is now administered by the FDA by which the
scientific basis for such nutrient claims is established. the Company makes no
nutrient claims in its labeling of Stressex(TM), Poder 24(TM) or Trim-Away(TM)
and, thus, is not subject to obtaining prior government approval in its labeling
of these products. It is required to label these products as "dietary
supplements" if they are sold as such.
The FDAMA does not provide a similar regimen for health claims in the
labeling of dietary supplements but defers such to a procedure and standard to
be established by regulation by the FDA. The FDA has not proposed any such
regulations but has announced that it does propose that health claims based on
authoritative statements be permitted for dietary supplements. the Company makes
no health claims in its labeling of Stressex(TM), Poder 24(TM) or Trim-Away(TM)
and, thus, should not be subject to such regulation when the FDA regulations in
this regard are adopted.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA")
provides that dietary supplements, without FDA authorization, may carry truthful
and not misleading claims about the effect of a dietary supplement on the
structure or function of the body for the maintenance of good health and
nutrition. Dietary supplements may not carry claims that they can treat,
diagnose, cure or prevent a disease. Recently proposed FDA regulations define
the criteria for structure or function claims that DSHEA permits and the disease
claims that it prohibits. The Company believes that its claims for its dietary
supplements clearly fall within permissible limits as well as the proposed
regulations and that the adoption of the proposed regulations will have no
effect on its sale of Stressex(TM), Poder 24(TM) or Trim-Away(TM) products.
SEASONALITY.
There is no known seasonal aspect to the Company' business.
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RESEARCH AND DEVELOPMENT.
The Company has agreements with two companies that are conducting
research and testing to produce new fire-fighting tools and new products.
Safety Systems Technologies of Escondido, California is currently
testing FlameOut(TM) in 2-1/2-, 3-1/2- and 10-gallon fire extinguishers.
Safety Systems has filed for permits and has received testing dates to conduct
Class A, B, C and D tests for these fire extinguishers.
International Aero, Inc., the world's largest reconfigurator of
commercial aircraft, has several projects underway. One is the development of
an FAA-approved fire extinguisher that would replace the fire extinguishers in
bathrooms and galleys on-board aircraft that contain Halon 1211. The Halon
1211 fire extinguishers are no longer (as of March 1999) protected for
continued use under the classification of Mission Critical.
Also, a non-toxic, biodegradable turbine cleaner has been developed by
International Aero for solar turbines for the scheduled monthly cleaning of
some 11,000 turbines worldwide. While there are a couple of cleaners
available, International Aero cannot find an acceptable cleaner. The initial
tests have been positive. The potential sale is 55,000 gallons of cleaner each
month.
ENVIRONMENTAL CONTROLS.
The Company is subject to no environmental controls or restrictions
that require the outlay of capital or the obtaining of a permit in order to
engage in business operations.
YEAR 2000 COMPUTER PROBLEM.
The Company has determined that it does not face material costs,
problems or uncertainties about the year 2000 computer problem. This problem
affects many companies and organizations and stems from the fact that many
existing computer programs use only two digits to identify a year in the date
field and do not consider the impact of the year 2000. The Company is newly
organized, presently uses off-the-shelf and easily replaceable software
programs, and has yet to devise its own software programs.
NUMBER OF EMPLOYEES.
On December 31, 1998, the Company employed six persons full time and no
persons part time.
ITEM 2. PROPERTIES.
The Company owns no plants or real property. It leases space for its
offices and for storing inventory.
OFFICE FACILITIES.
The Company leases 1,815 square feet of space in Longview, Texas for
its offices and for inventory storage at $1,159 a month and 300 square feet of
space for additional inventory at $138 a month. Additional space is available
for leasing should more storage space be required for inventory. The Company
believes all space requirements can be met at its present location for at least
the next year.
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ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor any of its property is a party to, or the
subject of, any material pending legal proceedings other than ordinary, routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 16, 1998, there was submitted to a vote of the stockholders
of the Company a proposal for the Company to merge with Summit Technologies,
Inc., a Texas corporation. By unanimous written action, the stockholders
approved the proposed merger. Then, on December 2, 1998, at a special meeting of
the stockholders of Summit Technologies, Inc., the proposed merger was approved
by the stockholders of such company. The votes cast in favor of the merger were
5,364,440 votes, and no votes were cast opposing the merger. The merger became
effective on December 2, 1998 by the filing that day of merger documents with
the Secretary of State of Texas.
The terms of the merger were as follows:
1. Summit Technologies was merged into the Company.
2. Upon the effectiveness of the Merger, the outstanding shares of
common stock of Summit Technologies were exchanged for 5,810,840 shares of
Common Stock of the Company.
3. The business of Summit Technologies is being conducted, since the
Merger, by the Company, into which Summit Technologies has merged, but Summit
Technologies' management and directors became the management and directors of
the Company. See "Management Information."
4. Prior to the Merger, SuperCorp distributed to its shareholders, on a
basis proportionate to their shareholdings in SuperCorp, 500,000 Shares of
Common Stock of the Company then held by SuperCorp. Each SuperCorp shareholder
received one share of the company for each fourteen shares of SuperCorp held of
record on the date of the Prospectus.
5. The historical financial statements of the Company are those of
Summit Technologies.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A National Association of Securities Dealers market maker has applied
to OTC Bulletin Board for authority to commence making a market in the Company's
Common Stock. The OTC Bulletin Board has assigned the stock symbol "SEVT" to our
Common Stock. As of March ____, 1999, OTC Bulletin Board is still reviewing the
market maker's application. The Company believes the market maker's application
will be approved soon and that trading will commence the first week of April.
There are approximately 166 holders of record of the Company's Common
Stock.
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The Company has declared no dividends on its Common Stock. There are no
restrictions that would or are likely to limit the ability of the Company to pay
dividends on its Common Stock, but it has no plans to pay dividends in the
foreseeable future and intends to use earnings for the expansion of its
business.
During 1998 the Company sold the following securities that were not
registered under the Securities Act of 1933:
On March 12, 1998, the Registrant issued 500,000 shares of its Common
Stock to its then corporate parent, SuperCorp, Inc., an Oklahoma corporation,
for a cash consideration of $500, or $0.001 a share, and on March 12, 1998,
issued 125,000 shares of its Common Stock to Dave Dischiavo and 125,000 shares
of its Common Stock to Marjorie Cole, the spouse of George W. Cole for a cash
consideration in each instance of $125, or $0.001 a share.
Mr. Dischiavo and Mr. Cole may be deemed to be "insiders" or
"promoters" in connection with the purchase by each of 125,000 shares of Common
Stock of the Company for $125, or $0.001 a share. Each also performed services
for the Company and SuperCorp Inc.
Mr. Dischiavo's and Mr. Cole's services consisted of introducing Summit
Technologies to SuperCorp in early 1998 and in advising Summit Technologies of
the advantages to it of entering into the agreement of merger with the Company.
There was no underwriter, and none of the above-described securities
were offered to any persons other than the present holders of these securities.
The securities were not registered under the Securities Act of 1933 in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act and by Regulation D, Rule 506.
In December 1998, subsequent to the effectiveness of the merger between
the Company and Summit Technologies, Inc., the Company sold 283,854 shares of
Common Stock to 36 accredited investors in an offering exempt from registration
pursuant to the provisions of Regulation D, Rule 506. No underwriter or
broker-dealer was used. The shares were all sold for cash at $2.50 a share. Each
of the purchasers was personally known to the Company and its directors prior to
the offer made by the Company to sell such securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion and analysis should be read in conjunction
with the financial statements and the accompanying notes thereto. It is
qualified in its entirety by the foregoing and by more detailed financial
information appearing elsewhere.
OVERVIEW.
The Company had no business until it merged on December 2, 1998 with
Summit Technologies, Inc. The financial statements included herein (see
10
<PAGE> 15
"Financial Statements") and the references below to the Company's business
operations refer also to Summit Technologies' financial statements and business
operations before the merger, to which the Company succeeded upon its merger
with Summit Technologies.
RESULTS OF OPERATIONS.
The following table presents, as a percentage of sales, certain
selected financial data for each of the two years in the period ended December
31, 1998:
<TABLE>
<CAPTION>
Year ended December 31 1997 1998
--------------------------------------------------------------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 12.7 26.5
----- ------
Gross margin 87.3 73.5
----- ------
Operating expenses 22.7 437.8
Other income and expenses, net 9.8 (6.8)
----- ------
32.5 431.0
Net income (loss) 54.8% (357.5)%
===== ======
</TABLE>
SALES.
Sales for 1998 increased $106,533 or 143% from the prior year, but the
prior year was a period of only approximately 4.5 months - from inception on
August 14, 1997 until December 31, 1997. Management devoted considerable
attention during 1998 to certain organizational matters:
o a merger between the Company and Summit Technologies,
o obtaining full ownership of the patent and other intellectual
property rights pertaining to the Company's fire suppressant
products,
o developing the sales and promotional materials relating to the
Company's fire suppressant products, and
o establishing contacts and relations with potential major
purchasers of the Company's fire suppressant products, such as
Wal-Mart, Home Depot, Lowes, Sears, Price-Costco, Cormark and
Kingsford (which is owned by Clorox),
o developing, negotiating and executing an exclusive marketing
agreement with International Aero, Inc., the world's largest
reconfigurator of commercial aircraft. The contract gives
International Aero d/b/a Firepak, Inc. the worldwide
exclusive marketing rights to the aviation industry and the
military for the Company's fire suppressant products and U.S.
Gulf coast for the petroleum industry to market the cleaners
and chemicals of the Company, and
o perhaps most important, obtaining rating and certification
for the sale of FirePower 911(TM) in an aerosol can. This
endeavor alone dominated seven months of the Company's time
and resources at a nationally recognized testing laboratory
- Applied Research Labs in Miami, Florida. This
one-of-a-kind product is why all the major retailers are
looking at the Company and the FirePower 911(TM) fire
extinguisher.
GROSS MARGIN.
Gross margin in 1998 decreased to 73.5% of sales from 87.3% of sales in
shortened-year 1997. The Company believes the 1998 gross margin is more
indicative of what future gross margins will be. Sales in 1997 were made almost
entirely to the Philippines under terms more favorable to the Company than it
can obtain today. All agreements the Company now enters into where FlameOut(TM)
concentrate is sold to a distributor require the distributor to share its
revenue with the Company from the sale of the products in which FlameOut(TM)
concentrate is resold in a diluted form. Similarly, the International Aero
contract gives the Company 15% of the gross sale of all devices, tools or
mechanical units in which FlameOut(TM) is introduced.
OPERATING EXPENSES.
Operating expenses for 1998 increased by $775,000, or 47 fold, over
1997's operating expenses of $16,870. Again, there were operations for only 4.5
months in 1997. Further, the officers worked in 1997 for aggregate compensation
of only $9,000, as compared with $104,240 during
11
<PAGE> 16
1998. Marketing expenses of $240,535 and travel and entertainment expenses of
$47,432 were incurred in 1998, as compared with only $900 spent for these ends
in shortened 1997. See "- Sales" above for a list of the organizational matters
to which management devoted its attention and the operating expenses of the
Company during 1998.
NET INCOME (LOSS).
The Company had a net loss of $646,678 during 1998, as compared to net
earnings of $40,762 during the 4.5 months of operations during 1997. The year
1998 was a year of organization - both corporate organization, as reflected in
the merger between the Company and Summit Technologies, and product and
marketing organization, as reflected in the acquisition of all rights related to
the Company's fire suppressant products and in the efforts exerted to introduce
the fire suppressant products to major purchasers and distributors of these
products. These efforts, while properly accounted for as expenses, represent
major investments by the Company in the future marketing of its fire suppressant
products.
LIQUIDITY AND CAPITAL RESOURCES.
The Company had negative cash flow from operations of $1,285,276 in
1998 and negative cash flow from operations of $30,999 in the 4.5 months of
operation in 1997. Major contributors to the 1998 negative cash flow from
operations were the $646,678 net loss from operations, $100,645 increase in
accounts receivable, $384,484 in additions to inventory and $250,000 increase in
prepaid royalties.
The Company had negative cash flow from investing activities of
$200,494 in 1998 as compared to only $10,000 in this category in 1997. The major
components of 1998's negative cash flow from investing activities were
organization costs of $129,291 related to the merger between the Company and
Summit Technologies and $50,000 in the acquisition of licenses.
The Company was able to stay liquid only from the sale of $2,223,735 of
its common stock during 1998 and $46,000 during 1997. At the year end of 1998,
the Company had $744,704 cash on hand.
The Company has received indications from several prospective buyers of
its fire suppressant products that a considerable market for these products will
develop during 1999. See "Outlook" below. The Company believes it will have to
raise significant additional capital during 1999 to enable it to inventory
sufficient stock to meet the expected demand for its fire suppressant products.
The Company is considering all methods of raising this capital, including
private sales of common stock and a registered public offering of shares of its
common stock. No decision has yet been made in this regard, and no underwriter
has been approached or obtained to assist in this matter.
OUTLOOK.
The statements made in this Outlook are based on current plans and
expectations. These statements are forward looking, and actual results may vary
considerably from those that are planned.
12
<PAGE> 17
The Company anticipates that its fire suppressant products will
dominate the world market for fire suppressants in the near future. Already,
major retailers, such as Wal-Mart and Home Depot, are considering not just
whether to carry these products in their numerous stores but whether to conduct
promotional activities for these products.
International Aero, Inc., a company that periodically overhauls the
interiors of over 67,000 of the large commercial aircraft in the world, is
considering replacing all fire extinguishers in the planes it services with
extinguishers containing the Company's fire suppressant. The Company will
receive income from these replacements not only from the sale of the fire
suppressant but from the sale of the fire extinguishers themselves.
The Company's fire suppressant products have been recognized by the
Halon Options Technical Working Conference, a global organization of
researchers dedicated to solving the problems associated with the replacement
of Halon. This recognition and the Company's presence at this organization's
1999 conference (April 1999) should bring instant global recognition to
FlameOut(TM). The unique qualities of FlameOut(TM) brought International Aero
to the Company and led to a contract that should be a major source of revenue
for the Company.
The Company has been asked to demonstrate FlameOut(TM) at the opening
day of the International Fire World Conference in April 1999 in Houston, Texas.
International Aero, d/b/a FirePak, has the exclusive marketing rights
for FirePower 911(TM) in Australia. The initial order going to Australia for
FirePower 911(TM) cans is in excess of $500,000. A similar, but larger, sale
is being completed for a distributor of FirePak in Europe. The Company holds
the European equivalent of the U.S. rating on FirePower 911(TM), which rating
was issued by the Swiss Government.
The Company's future results of operations and the other
forward-looking statements contained in this Outlook involve a number of risks
and uncertainties. Among the factors that could cause actual results to differ
materially are the following: inability of the Company to obtain needed
additional capital, loss of personnel - particularly chief executive officer B.
Keith Parker - as a result of accident or for health reasons, interruptions in
the supply of inventory from manufacturers of the inventory, the development of
a competing fire suppressant by a well-capitalized competitor that either is
able to develop a new product with the same attributes as the Company's fire
suppressant or is able to discover the additives to the Company's fire
suppressant that give it its unique and superior qualities, and an accident
involving life or serious bodily harm that fairly or unfairly would bring into
question the safety of using the Company's fire suppressant products.
ITEM 7. FINANCIAL STATEMENTS.
13
<PAGE> 18
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Summit Environmental Corporation, Inc.
Longview, Texas
We have audited the accompanying balance sheet of Summit Environmental
Corporation, Inc. (a development stage company) as of December 31, 1998, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year then ended and for the period August 14, 1997 (date of
incorporation) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Summit Environmental
Corporation, Inc. as of December 31, 1998, and the results of its operations and
its cash flows for the year then ended and for the period August 14, 1997 (date
of incorporation) to December 31, 1998, in conformity with generally accepted
accounting principles.
LANE GORMAN TRUBITT, L.L.P.
Dallas, Texas
February 10, 1999
14
<PAGE> 19
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Summit Technologies, Inc. (the predecessor to Summit Environmental Corporation,
Inc.)
Longview, Texas
We have audited the accompanying statements of operations, changes in
stockholders' equity, and cash flows of Summit Technologies, Inc. (the
predecessor to Summit Environmental Corporation, Inc.) (a development stage
company) for the period August 14, 1997 (date of incorporation) to December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Summit
Technologies, Inc. for the period August 14, 1997 (date of incorporation) to
December 31, 1997, in conformity with generally accepted accounting principles.
GARNER & LAWRENCE, L.L.P.
Dallas, Texas
January 5, 1998
15
<PAGE> 20
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 744,704
Accounts receivable, less allowance of $30,000 143,456
Inventory 399,060
Refundable income taxes 7,252
-----------
Total current assets 1,294,472
-----------
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 18,347
Leasehold improvements 2,856
Accumulated depreciation and amortization (1,942)
-----------
Net property and equipment 19,261
-----------
OTHER ASSETS
Prepaid royalties 250,000
Organization costs, net of accumulated amortization of $9,697 119,594
Patent and licenses, net of accumulated amortization of $23,792 2,411,208
-----------
Total other assets 2,780,802
-----------
Total assets $ 4,094,535
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 19,201
Accrued liabilities 17,283
Note payable - related party 500,000
Note payable - other 1,738
-----------
Total current liabilities 538,222
-----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001; 10,000,000 shares
authorized; no shares issued --
Common stock, par value $.001; 40,000,000 shares
authorized; 7,406,694 shares issued and outstanding 7,406
Additional paid-in capital 4,154,823
Deficit accumulated in development stage (605,916)
-----------
Total stockholders' equity 3,556,313
-----------
Total liabilities and stockholders' equity $ 4,094,535
===========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 21
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Period From
Year Ended August 14, 1997 to August 14, 1997 to
December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
SALES $ 180,882 $ 74,349 $ 255,231
COST OF SALES 47,980 9,465 57,445
----------- ----------- -----------
Gross profit 132,902 64,884 197,786
----------- ----------- -----------
OPERATING EXPENSES
Advertising 10,666 600 11,266
Amortization 32,989 500 33,489
Automobile expenses 21,184 600 21,784
Consulting fees 29,994 -- 29,994
Contract services 1,863 -- 1,863
Depreciation 1,942 -- 1,942
Insurance 14,775 -- 14,775
Marketing 240,535 900 241,435
Miscellaneous 7,197 995 8,192
Licenses and permits 22,425 -- 22,425
Office expenses 22,163 1,730 23,893
Officer compensation 104,240 9,000 113,240
Postage and delivery 14,740 1,361 16,101
Printing and reproduction 4,308 884 5,192
Professional fees 32,576 300 32,876
Contributions 1,135 -- 1,135
Bad debt expense 30,000 -- 30,000
Rent 34,248 -- 34,248
Repairs 5,041 -- 5,041
Salaries - office 59,906 -- 59,906
Commissions 16,233 -- 16,233
Taxes 2,349 -- 2,349
Payroll taxes 13,829 -- 13,829
Telephone and utilities 20,101 -- 20,101
Travel and entertainment 47,432 -- 47,432
----------- ----------- -----------
Total operating expenses 791,871 16,870 808,741
----------- ----------- -----------
Net earnings (loss) from operations (658,969) 48,014 (610,955)
OTHER INCOME
Interest income 5,039 -- 5,039
----------- ----------- -----------
Net Earnings (loss) before income tax (653,930) 48,014 (605,916)
Income taxes 7,252 (7,252) --
----------- ----------- -----------
NET EARNINGS (LOSS) $ (646,678) $ 40,762 $ (605,916)
=========== =========== ===========
NET EARNINGS (LOSS) PER SHARE $ (0.13) $ .01 $ (.13)
WEIGHTED AVERAGE SHARES 5,161,596 3,360,000 4,664,728
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 22
Summit Environmental Corporation, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the period from August 14, 1997 to
December 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock in
-------------------------- Additional Development
Shares Amount Paid-in Capital Stage Total
----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, August 14, 1997 -- $ -- $ -- $ -- $ --
Issued for cash ($.46 per share) 100,000 1,000 45,000 -- 46,000
Net earnings -- -- -- 40,762 40,762
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1997 100,000 1,000 45,000 40,762 86,762
Adjustment for 33.6-for-1 stock split 3,260,000 2,360 (2,360) -- --
Sale of 500,000 shares ($.20 per share) 500,000 500 99,500 -- 100,000
Sale of 1,000,000 shares ($.29 per share) 1,000,000 1,000 289,000 -- 290,000
Merger with Summit Environmental Corporation Inc.
(the "Company") 750,000 shares (.001 per share) 750,000 750 (750) -- --
Sale of 250,000 shares ($.60 per share) 250,000 250 149,750 -- 150,000
Sale of 384,840 shares ($2.50 per share) 384,840 385 961,715 -- 962,100
176,000 shares issued for services ($.10 per share) 176,000 176 17,372 -- 17,548
Return of 54,000 shares ($.001 per share) (54,000) (54) -- -- (54)
750,000 shares issued for patent ($2.50 per share) 750,000 750 1,874,250 -- 1,875,000
Sale of 289,854 shares ($2.49 per share) 289,854 289 721,346 -- 721,635
Net loss -- -- -- (646,678) (646,678)
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1998 7,406,694 $ 7,406 $ 4,154,823 $ (605,916) $ 3,556,313
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 23
Summit Environmental Corporation, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From Period From
Year Ended August 14, 1997 to August 14, 1997 to
December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (646,678) $ 40,762 $ (605,916)
Adjustments to reconcile net earnings (loss) to cash
used in operating activities
Amortization 32,989 500 33,489
Bad debt expense 30,000 -- 30,000
Depreciation 1,942 -- 1,942
Common stock issued for services 17,494 -- 17,494
Change in assets and liabilities:
Accounts receivable (100,645) (72,811) (173,456)
Inventory (384,484) (14,576) (399,060)
Prepaid royalties (250,000) -- (250,000)
Refundable income taxes (7,252) -- (7,252)
Accounts payable 11,327 7,874 19,201
Accrued liabilities 10,031 7,252 17,283
----------- ----------- -----------
Net cash used in operating activities (1,285,276) (30,999) (1,316,275)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (21,203) -- (21,203)
Organization costs (129,291) -- (129,291)
Acquisition of licenses (50,000) (10,000) (60,000)
----------- ----------- -----------
Net cash used in investing activities (200,494) (10,000) (210,494)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds 6,554 -- 6,554
Loan principal repayments (4,816) -- (4,816)
Proceeds from sale of stock 2,223,735 46,000 2,269,735
----------- ----------- -----------
Net cash provided by financing activities 2,225,473 46,000 2,271,473
----------- ----------- -----------
NET INCREASE IN CASH 739,703 5,001 744,704
Cash - Beginning of period 5,001 -- --
----------- ----------- -----------
Cash - End of period $ 744,704 $ 5,001 $ 744,704
=========== =========== ===========
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 723 $ -- $ 723
Issuance of common stock for patent 1,875,000 -- 1,875,000
Issuance of note payable for patent 500,000 -- 500,000
Cash paid for income taxes 7,252 -- 7,252
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 24
Summit Environmental Corporation, Inc.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Summit Environmental Corporation, Inc. (the "Company") was organized in
accordance with the Business Corporation Act of the State of Texas on
February 2, 1998, for the purpose of merging (the "Merger") with Summit
Technologies, Inc., a Texas corporation. The Company continued to exist
as the surviving corporation under its present name pursuant to the
provisions of the Texas Business Corporation Act. The Merger was effected
on December 2, 1998 as a tax-free reorganization accounted for as a
pooling of interests.
The Company markets fire suppression materials and herbal health
products. The products are proprietary or are under license. Marketing
efforts include "infomercials" and other television and radio promotion,
videotapes, and personal demonstrations. Products are marketed
domestically and internationally.
Revenue Recognition
Revenues from sales of materials and products are recorded at the time
the goods are shipped or when title passes.
Cash
The Company maintains cash balances at a financial institution located in
Longview, Texas, which at times may exceed federally insured limits. The
Company has not experienced any losses in such accounts and believes it
is not exposed to any significant credit risk on cash and cash
equivalents.
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Inventory
Inventory is recorded at the lower of cost or market, with cost being
determined by the first-in, first-out method.
Intangible Assets
Patents, licenses and organization costs are recorded at cost.
Amortization is computed on the straight-line method over fifteen years
for patents and licenses and over five years for organization costs.
Income Taxes
Deferred income taxes are determined using the liability method under
which deferred tax assets and liabilities are determined based upon
differences between financial accounting and tax bases of assets and
liabilities.
20
<PAGE> 25
Summit Environmental Corporation, Inc.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives by the straight-line method.
Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter.
Major repairs or replacements of property and equipment are capitalized.
Maintenance, repairs and minor replacements are charged to operations as
incurred.
When units of property are retired or otherwise disposed of, their cost
and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is included in operations.
The estimated service lives used in determining depreciation and
amortization are:
<TABLE>
<CAPTION>
Description Estimated Service Life
----------- ----------------------
<S> <C>
Office furniture and equipment 5-7 years
Leasehold improvements 4 years
</TABLE>
Advertising and Marketing
Advertising and marketing costs are expensed as incurred, which totaled
$251,201 and $1,500 for the periods ended December 31, 1998 and 1997,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Per Share Information
Per share information is based on the weighted average number of common
stock and common stock equivalent shares outstanding. Only basic earnings
per share are shown, as there are no dilutive items. During 1998 a
33.6-for-one stock split of the Company's common stock was authorized.
Net earnings (loss) per share has been adjusted to reflect the split on a
retroactive basis.
2. PATENT
On November 2, 1998, the Company purchased via issuance of common stock
and a note payable, patent rights and intellectual property to various
fire suppression products for a purchase price of $2,375,000. This
purchase requires cash payments of $500,000 to be paid on or before
August 1, 1999 and 750,000 shares of common stock of the Company to be
issued and delivered to BioGenesis Enterprises, Inc. on or before
February 1, 1999.
21
<PAGE> 26
Summit Environmental Corporation, Inc.
NOTES TO FINANCIAL STATEMENTS
3. LICENSES
Licenses for limited exclusive marketing rights to various herbal health
products have been acquired for fees totaling $60,000 from a related
party. Under the agreements, the Company must meet annual production
quotas. The grantor of the licenses is the manufacturer/supplier of the
products.
4. LEASES
The Company is obligated under various operating leases for equipment,
vehicles, and office and warehouse space. Management expects that, in the
normal course of business, leases that expire will be renewed by other
leases; thus it is anticipated that future minimum lease commitments will
not be less than the amount shown for the period ended December 31, 1998.
Rent expense for all operating leases was approximately $50,700 and $0
for the periods ended December 31, 1998 and 1997, respectively.
At December 31, 1998, approximate rental commitments under all
noncancellable leases having terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1999 $33,700
2000 26,000
2001 8,200
Thereafter 600
-------
Total minimum lease payments $68,500
=======
</TABLE>
5. COMMON STOCK
Common Stock Options
The sole director and stockholders approved the 1998 Stock Option Plan
(the "Plan") of the Company whereby, at the discretion of the directors
or of a Stock Option Committee appointed by the board of directors,
invited employees of the Company or directors of the Company or
consultants to the Company will have the option of subscribing to common
shares of the Company based on a price determined by the directors or
Stock Option Committee. The number of shares subject to the Plan is
500,000. No options have been granted in accordance with this plan.
22
<PAGE> 27
Summit Environmental Corporation, Inc.
NOTES TO FINANCIAL STATEMENTS
5. COMMON STOCK (Continued)
Contingency Concerning Some Shares
During the purposed merger period with Summit Environmental Corporation,
Inc. ("SECI"), SECI filed a registration statement with the Securities
and Exchange Commission ("the Commission") on March 26, 1998 related to
the proposed merger, naming the Company as the entity proposed to be
merged into SECI. The Company subsequently sold 810,840 shares of its
common stock in an offering intended to be exempt from registration
pursuant to the provisions of Section 4 (2) of the Securities Act of 1933
and of Regulation D, Rule 506 of the Commission.
It is possible, but not certain, that the filing of the registration
statement by SECI and the manner in which the Company conducted the sale
of the 810,840 shares of common stock constituted "general advertising or
general solicitation" by the Company. General advertising and general
solicitation are activities that are prohibited when conducted in
connection with an offering intended to be exempt from registration
pursuant to the provision of Regulation D, Rule 506 of the Commission.
The Company does not concede that there was no exemption from
registration available for this offering. Nevertheless, should the
aforementioned circumstances have constituted general advertising or
general solicitation, the Company would be denied the availability of
Regulation D, Rule 506 as an exemption from the registration requirements
of the Securities Act of 1933 when it sold the 810,840 shares of common
stock after March 26, 1998. Should no exemption from registration have
been available with respect to the sale of these shares, the persons who
bought them would be entitled, under the Securities Act of 1933, to the
return of their subscription amounts if actions to recover such monies
should be filed within one year after the sales in question. As of year
end, the Company has refunded 54,000 shares, leaving 756,840 shares and
$1,129,594 stockholders' equity that may be refunded.
6. RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and related
parties:
1998
The Company purchased a license for herbal health products from an entity
with common shareholders and management members of the Company. During
the year, the Company paid $60,000 for such costs.
The Company and another business with common shareholders share office
space and the related expenses.
The Company paid $20,000 for consulting services to an officer of the
Company.
Sales totaling $49,852 were made to related parties.
At December 31, 1998, receivables from related parties totaled $109,393.
The Company acquired a patent from BioGenesis Enterprises, Inc.
(BioGenesis) on November 2, 1998 (see footnote number 2). The purchase
agreement requires the Company to pay BioGenesis a periodic royalty of
$.50 per 16-oz. can and an equivalent (approximately 7%) on all other
product categories using the fire suppressant technology. One-half of all
periodic royalty fees due to BioGenesis will be credited against the
advance royalty fee (until fully recovered) and one-half will be paid to
BioGenesis in cash on the 30th of each month based upon invoiced sales
through the close of the preceding month. The Company has prepaid
royalties to BioGenesis totaling $250,000 as of December 31, 1998.
23
<PAGE> 28
Summit Environmental Corporation, Inc.
NOTES TO FINANCIAL STATEMENTS
6. RELATED PARTY TRANSACTIONS (Continued)
1997
Sales totaling $65,610 were made to Flameout International, with special
90-day payment terms not available to other customers.
Sales totaling $2,336 were made to various Company stockholders or their
related businesses.
Purchases of inventory items totaling $13,645 were made from the related
parties mentioned above.
The Company and another business with common shareholders share office
space and the related expenses.
7. CONCENTRATIONS
Approximately 55% of sales for 1998 were made to two customers. At
December 31, 1998, accounts receivable from those customers were $99,224.
Approximately 88% of sales for 1997 were made to Flameout International.
8. INCOME TAXES
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the currently enacted tax rates. Deferred tax
expense or benefit is the result of the changes in deferred tax assets
and liabilities.
Deferred income taxes arise principally from the temporary differences
between financial statement and income tax recognition of depreciation,
bad debts and net operating losses.
The deferred tax assets in the accompanying balance sheet include the
following components:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax asset - current $ 10,200 $ --
Deferred tax asset - noncurrent 187,700 --
Valuation allowance (197,900) --
--------- ---------
Deferred tax asset, net $ -- $ --
========= =========
</TABLE>
The valuation allowance was established to reduce the deferred tax asset
for the amounts that will more likely than not be realized. This
reduction is primarily necessary due to the uncertainty of the Company's
ability to utilize all of the net operating loss carryforward. The
Company has a net operating loss carryforward of approximately $582,000
which will expire in 2018.
The Company generated a net operating loss of approximately $630,000 in
1998 of which the Company anticipates carrying back a portion of this
loss to 1997, and receiving an income tax benefit of $7,252.
24
<PAGE> 29
Summit Environmental Corporation, Inc.
NOTES TO FINANCIAL STATEMENTS
9. NOTES PAYABLE
As of December 31, 1998, the Company was obligated under two notes
payable, due currently, described as follows:
<TABLE>
<CAPTION>
Interest Monthly
Creditor Collateral Rate Payment Total
-------- ---------- ---- ------- -----
<S> <C> <C> <C> <C>
BioGenesis Enterprises, None 0% $ -- $ 500,000
The Mortgage Center Computers 12% 445 1,738
--------- ---------
$ 445 $ 501,738
========= =========
</TABLE>
Interest costs incurred and charged to expense for the periods ended
December 31, 1998 and 1997 were $723 and $0, respectively.
25
<PAGE> 30
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 17, 1998 the Company's principal independent accountant,
Hogan & Slovacek of Oklahoma City, Oklahoma, resigned. Its reports on the
Company's financial statements from inception onward contained no adverse
opinions or disclaimers of opinions and were not modified as to uncertainty,
audit scope or accounting principles. There were no disagreements with Hogan &
Slovacek, whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to Hogan & Slovacek's satisfaction, would have caused it
to make reference to the subject matter of the disagreements in connection with
its reports.
On December 17, 1998 the Company engaged new principal independent
accountants, Lane Gorman Trubitt, L.L.P. of Dallas, Texas, to audit the
Company's financial statements.
The change in the Company's certifying accountants was made solely in
connection with the change of the Company's principal place of business from
Oklahoma City, Oklahoma to Longview, Texas. The engagement of the new accounting
firm was made by the officers of the Company without the prior approval of the
board of directors or any committee of the board of directors, but a majority of
the directors advised the officers that the engagement would be approved at the
next directors' meeting.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Set forth below are the names, and terms of office of each of the
directors, executive officers and significant employees of the Company and a
description of the business experience of each.
<TABLE>
<CAPTION>
OFFICE HELD TERM OF
PERSON OFFICE SINCE OFFICE
------ ------ ----- ------
<S> <C> <C> <C>
B. Keith Parker, 49 Chief Executive Officer and 1997 4-99
Director
Don Hendon, 55 President, Chief Financial Officer 1997 4-99
and Director
Paula Parker, 44 Vice President, Secretary and Director 1997 4-99
Dean Haws, 28 Director 1997 4-99
Ty Bishop, 27 Director 1997 4-99
James J. Roach, 51 Director 1998 4-99
</TABLE>
B. KEITH PARKER. Mr. Parker graduated from Texas A & M University and
pursued graduate studies in tax law, estate planning and philosophy at Southern
Methodist University and Southwest Texas State University. He began a career in
financial and tax planning in 1973, is a licensed financial planner and has
earned numerous industry awards for production.
26
<PAGE> 31
In 1995 he and Paula Parker, his spouse, organized Moonlighting Distribution
Corporation and began the distribution of more than 30 products, many of which
products they developed themselves. In August 1997 they organized Summit
Technologies, Inc.
DON HENDON. Mr. Hendon received a B.B.A. degree in 1965 from Sam
Houston State University and began a career in accounting. From July 1966 until
September 1973 he was a field agent for the Internal Revenue Service. From 1973
until 1978 he was a partner in the Longview, Texas accounting firm of Langston,
Delouche, Hayes & Hendon. From 1978 until the present he has been a partner in
the Longview accounting firm of Hendon and Russell.
PAULA PARKER. Mrs. Parker received a bachelor of arts degree in 1975
and a master's degree in education, marketing and finance in 1977 from Stephen
F. Austin University and a master's of finance degree in 1980 from the
University of Colorado. While a runway model for seventeen years, she worked
also on numerous contract jobs, primarily in banking in the promotion of
automatic teller machines, and as an instructor for the American Banking
Association. She developed a franchise program for a restaurant and increased
the restaurant business from three units to 46 units in five states in two
years. She served as the liaison between then Arkansas Governor William J.
Clinton and the catfish industry in Arkansas. In 1995 she and Keith Parker, her
spouse, organized Moonlighting Distribution Corporation and began the
distribution of more than 30 products, many of which products they developed
themselves. In August 1997 they organized Summit Technologies, Inc.
DEAN HAWS. Mr. Haws has been the owner and operator of a satellite dish
sales and installation company, Gilmer Satellites of Gilmer, Texas, for the last
nine years. He has also been active in the oil field service business and the
ostrich business.
TY BISHOP. Mr. Bishop graduated from Texas Tech University in 1993 and
majored in marketing and public relations. After graduation he organized Ty
Bishop Management, which managed an alternative musical band. In 1995 he became
a partner in Bishop Cellular Plus, an authorized agent for Southwestern Bell
Mobile Systems. In 1996 he organized and owned Global Cartridge Sales, a
reseller for new jumbo toner cartridges for laser printers and for
re-manufactured toner cartridges. In 1997 he became a partner in WorldWide Link,
an international trade company that represents inventors, manufacturers and
exclusive distributors of products and services that save lives and help the
world's environment.
JAMES J. ROACH. Mr. Roach is the regional director of Summit
Technologies' Northeast Marketing Region. He is currently the President of
Electrical Generation Technologies, which specializes in the development and
installation of network communications. He is a retired Connecticut State police
sergeant and owns a private detective and security company. His clients include
many insurance companies in the state of Connecticut.
27
<PAGE> 32
ITEM 10. EXECUTIVE COMPENSATION.
The directors of the Company receive no compensation for their services
as directors. The officers received from it an aggregate of $104,240 of
compensation in the last fiscal year for their services in all capacities.
Mr. Parker, the chief executive officer of Summit Technologies,
receives a salary of $5,000 a month. Mr. Hendon, the president, receives a
salary of $3,000 a month.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows information as of December 31, 1998 with
respect to each beneficial owner of more than 5% of each class of voting stock
of the Company and to each of the officers and directors of the Company
individually and as a group:
<TABLE>
<CAPTION>
NO. OF % OF
SUMMIT TECHNOLOGIES SHARES CLASS
------------------- ------ -----
<S> <C> <C>
B. Keith Parker 2,360,805(1) 31.8
414 East Loop 281, Suite 7
Longview, TX 75605
Don Hendon 111,240 1.5
414 East Loop 281, Suite 7
Longview, TX 75605
Paula Parker 510,000(2) 6.9
414 East Loop 281, Suite 7
Longview, TX 75605
Dean Haws 247,100 3.3
P. O. Box 1071
Gilmer, TX 75644
Ty Bishop 211,400 2.8
Suite 194
660 Preston Forest Center
Dallas, TX 75230
James J. Roach 0 0
1255 Middlebury Road
Middlebury, CT 06762
Moonlighting Distribution 350,000 4.7
Corporation(3)
414 East Loop 281, Suite 7
Longview, TX 75605
Officers and Directors 2,930,545 39.5
as a group (5 persons)
</TABLE>
- -------------------------
28
<PAGE> 33
(1) Mr. Parker directly owns 1,850,805 shares of common stock. He is
attributed the beneficial ownership of 80,000 shares owned by a minor
son, Casey Joe Parker, and 80,000 shares owned by a minor daughter,
Leslie Nicole Parker, who share his residence. He beneficially owns
an additional 350,000 shares through his controlling stock ownership
and position as a director of Moonlighting Distribution Corporation,
which directly owns such 350,000 shares. These same 510,000 shares
are attributed to Paula Parker. See footnote (2).
(2) Mrs. Parker, who is the spouse of B. Keith Parker, is attributed
350,000 shares through her controlling stock ownership and position
as a director of Moonlighting Distribution Corporation, the record
owner of the shares. She is attributed the beneficial ownership of
80,000 shares owned by a minor son, Casey Joe Parker, and 80,000
shares owned by a minor daughter, Leslie Nicole Parker, who share her
residence. These same 510,000 shares are attributed to Mr. Parker.
(3) Some 52.5 percent of the stock of Moonlighting Distribution Corporation
is owned by B. Keith Parker and Paula Parker, husband and wife, who
also are directors of such company. These 350,000 shares are also
attributed to Mr. and Mrs. Parker by reason of their controlling stock
ownership of such company and their positions as directors of it.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following persons may be deemed to be a "promoter" or an "insider"
of the Company: Dave Dischiavo and George W. Cole. Each of such persons or his
spouse purchased, at $0.001 a share, 125,000 shares of Common Stock of the
Company and received $18,500 from Summit Technologies (which company merged with
the Company on December 2, 1998) for finder's fees and consulting services
rendered in connection with the merger. Mr. Cole exchanged $14,250 of such
$18,500 fee for 23,750 shares of Common Stock of Summit Technologies at $0.60 a
share and transferred the shares to his spouse, Marjorie Cole.
Summit Technologies, prior to its merger with the Company, paid $20,000
to Moonlighting Distribution Corporation for the exclusive license to distribute
products manufactured by Moonlighting Distribution Corporation - Stressex(TM),
Poder 24(TM) and Trim-Away(TM). B. Keith Parker and his spouse, Paula Parker,
who were officers and directors of Summit Technologies, own 52.5 percent of the
capital stock of Moonlighting. Summit Technologies will pay prices for these
products earlier established in arms' length transactions with non-affiliated
third parties.
Summit Technologies' and, now, the Company's distribution rights to
BioGenesis's fire suppression products were acquired not from BioGenesis but,
rather, from Moonlighting Distribution Corporation, which had acquired these
rights before Summit Technologies was formed. In exchange for the transfer of
these rights to Summit Technologies, it issued 350,000 shares of its common
stock to Moonlighting Distribution Corporation, paid $10,000 to Moonlighting,
and will pay to Moonlighting a royalty of $0.50 for each 16-ounce can of
FirePower 911(TM) and $0.50 for each gallon of FlameOut(TM).
29
<PAGE> 34
On November 2, 1998 BioGenesis assigned to Summit Technologies all
patents and intellectual property rights associated with the fire suppressant
products. Because of the Company's merger with Summit Technologies, these rights
are now owned by the Company. The obligation to pay licensing fees to BioGenesis
merged with the acquisition of the patent rights and, accordingly, was
extinguished. The obligation to pay the above-described annual royalties to
Moonlighting, however, did not so merge and will continue in effect during the
term of the exclusive license obtained from Moonlighting.
PARENTS OF THE COMPANY.
Moonlighting Distribution Corporation ("Moonlighting") is
affiliated with the Company through the common control of it and the Company by
B. Keith Parker and Paula Parker, husband and wife, who are directors of each
corporation, own 52.5% of the capital stock of Moonlighting (which itself owns
4.7 percent of the capital stock of the Company) and own of record 31.8 percent
of the capital stock of the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are filed, by incorporation by reference, as
part of this Form 10-KSB:
2.1 - Agreement of Merger of July 14, 1998, between Summit
Environmental Corporation, Inc. and Summit
Technologies, Inc.**
3.1 - Articles of Incorporation of Summit Environmental
Corporation, Inc.*
3.1.1 - Amendment to Articles of Incorporation of Summit
Environmental Corporation, Inc.**
3.2 - Bylaws of Summit Environmental Corporation, Inc.*
10.1 - 1998 Stock Option Plan adopted by Summit Environmental
Corporation, Inc.*
10.3 - Limited Exclusive Marketing Bilateral Agreement
between Moonlighting Distribution Corporation-USA and
Summit Technologies, Inc. (Poder Sexual, Ultimate
Stressex and/or Poder 24)*
10.4 - Limited Exclusive Marketing Bilateral Agreement among
B. Keith Parker, individually and as Chairman of the
Board and CEO of Moonlighting Distribution
Corporation-USA, d/b/a Moonlighting International, and
Summit Technologies, Inc. (FireKare, FirePower 911,
Super Cold Fire, and Flame Out)*
10.6 - Exclusive Marketing Bilateral Agreement between
Moonlighting Distribution Corporation-USA and Summit
Technologies, Inc. (Trim-Away)**
30
<PAGE> 35
10.7 - November 2, 1998 Amendment to April 27, 1998 Letter of
Intent between BioGenesis Enterprises, Inc. and Summit
Technologies, Inc., and April 27, 1998 Letter of
Intent.***
27 - Financial Data Schedule.
* Previously filed with Form SB-2; Commission File No. 333-48675
incorporated herein.
** Previously filed with Amendment No. 1 to Form SB-2; Commission
File No. 333-48675 incorporated herein.
*** Previously filed with Amendment No. 5 to Form SB-2; Commission
File No. 333-48675 incorporated herein.
The following reports on Form 8-K were filed during the last quarter of
the period covered by this Form 10-KSB report:
<TABLE>
<CAPTION>
Date of Report Item Reported
-------------- -------------
<S> <C>
12-02-98 Acquisition or Disposition of Assets (Merger with
Summit Technologies, Inc.)
12-17-98 Change in Registrant's Certifying Accountant
(resignation of Hogan & Slovacek; engagement
of Lane Gorman Trubitt, L.L.P.)
12-31-98 Financial Statements and Exhibits (unaudited financial
statements as of December 31, 1998)
</TABLE>
SIGNATURES
In accordance with Section 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SUMMIT ENVIRONMENTAL CORPORATION, INC.
Date: March 30, 1999 By /s/ B. Keith Parker
-----------------------------------
B. Keith Parker, Chief Executive
Officer
31
<PAGE> 36
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 30, 1999 By /s/ Don Hendon
-----------------------------------------
Don Hendon, Chief Financial Officer and
Director
Date: March 30, 1999 By /s/ B. Keith Parker
-----------------------------------------
B. Keith Parker, Chief Executive Officer
and Director
Date: March 30, 1999 By /s/ Paula Parker
-----------------------------------------
Paula Parker, Director
Date: March 30, 1999 By /s/ Dean Haws
-----------------------------------------
Dean Haws, Director
32
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 744,704
<SECURITIES> 0
<RECEIVABLES> 173,456
<ALLOWANCES> 30,000
<INVENTORY> 399,060
<CURRENT-ASSETS> 1,294,472
<PP&E> 21,203
<DEPRECIATION> 1,942
<TOTAL-ASSETS> 4,094,535
<CURRENT-LIABILITIES> 538,222
<BONDS> 0
0
0
<COMMON> 7,406
<OTHER-SE> 3,548,907
<TOTAL-LIABILITY-AND-EQUITY> 4,094,535
<SALES> 180,882
<TOTAL-REVENUES> 185,921
<CGS> 47,980
<TOTAL-COSTS> 47,980
<OTHER-EXPENSES> 761,148
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 723
<INCOME-PRETAX> (653,930)
<INCOME-TAX> (7,252)
<INCOME-CONTINUING> (646,678)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (646,678)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
