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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event
reported): December 31, 1998
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(Exact name of registrant as specified in its charter)
Texas 333-48659 73-1537206
-------------- ------------------------ -------------
(state of (Commission File Number) (IRS Employer
incorporation) I.D. Number)
414 East Loop 281, Suite 7
Longview, TX 75605
800-522-7841
--------------------------------------------------------------------
(Address and telephone number of registrant's principal
executive offices and principal place of business)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The below unaudited financial statements of Summit Environmental
Corporation, Inc. (the "Company") reflect the Company's merger on December 2,
1998, with Summit Technologies, Inc. Pursuant to the Company's Form S-4
Registration Statement, effective November 10, 1998, File No. 333- 48659,
covering the merger, the historical financial statements of the Company are
those of Summit Technologies, Inc. The audited financial statements of the
Company for the year ended December 31, 1998, will be filed with the Company's
Form 10-KSB on or before March 29, 1999.
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash in banks $ 744,281
Accounts receivable 171,378
Inventory 455,038
Advancement of expenses 2,500
Accrued income tax refund (Note 9) 6,555
----------
Total current assets $ 1,379,752
PROPERTY AND EQUIPMENT
Office furniture and equipment 18,348
Leasehold improvements 2,856
Accumulated depreciation (2,805)
----------
Net property and equipment 18,399
OTHER ASSETS
Prepaid royalties 250,000
Merger costs (Note 2) 138,541
Patents and Licenses (Note 4) 2,456,010
Accumulated amortization (90,076)
----------
Total other assets 2,754,475
-----------
TOTAL ASSETS $ 4,152,626
===========
LIABILITIES, COMMON STOCK SUBJECT TO A CONTINGENCY,
AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 66,183
Accrued liabilities 6,298
Note payable (Note 11) 1,738
----------
Total current liabilities $ 74,219
LONG TERM LIABILITIES 500,000
-----------
Total liabilities 574,219
COMMON STOCK SUBJECT TO A CONTINGENCY (Note 8)
616,840 shares issued and outstanding 617
Additional paid-in capital 1,071,617
----------
Total common stock subject to a contingency 1,072,234
STOCKHOLDERS' EQUITY
Capital stock (no par; 40,000,000 common shares
authorized, 5,750,000 shares issued and
outstanding) 5,750
Additional paid-in capital 441,000
Shares paid for but unissued
(1,061,000 shares) (Note 3) 2,653,252
Retained earnings 40,715
Income (loss) for 1998 (634,544)
----------
Total stockholders' equity 2,506,173
-----------
TOTAL LIABILITIES, COMMON STOCK SUBJECT TO A
CONTINGENCY, AND STOCKHOLDERS' EQUITY $ 4,152,626
===========
</TABLE>
See accompanying notes to financial statements
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (AUGUST 14, 1997) TO
DECEMBER 31, 1997 AND FISCAL YEAR 1998
(UNAUDITED)
<TABLE>
<CAPTION>
8-14-97 to
1998 12-31-97
--------- ----------
<S> <C> <C>
Sales $ 135,082 $ 74,349
Cost of Sales 47,981 9,465
--------- --------
Gross profit $ 87,101 $ 64,884
Operating Expenses
Advertising $ 10,666 $ 600
Amortization 89,576 --
Automobile expense 21,183 600
Commissions 16,233 --
Consulting fees 30,750 --
Contract services 1,863 --
Contributions 1,135 --
Depreciation 2,805 --
Insurance 14,775 --
Marketing 240,489 900
Miscellaneous 8,612 --
Office expense 22,051 1,730
Officer compensation 104,240 --
Postage and delivery 14,740 --
Printing and reproduction 4,308 --
Professional fees 23,983 300
Rent 34,248 --
Repairs 5,040 --
Salaries-office 49,701 9,000
Taxes 15,397 --
Telephone and utilities 19,811 --
Travel and entertainment 47,432 --
Other -- 3,787
--------- --------
Total $ 779,038 $ 16,917
Net income (loss) from operations $(691,937) $ 47,967
Other Income
Interest income $ 5,039 --
Sale of license 45,000 --
Rent income 800 --
---------
Total other income $ 50,839 --
Net income (loss) before income taxes (641,099) 47,967
Income taxes -- 7,252
Income tax benefit 6,555 --
Net Income (Loss) $(634,544) $ 40,715
========= ========
</TABLE>
See accompanying notes to financial statements
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (AUGUST 14, 1997) TO
DECEMBER 31, 1997 AND FISCAL YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
8-14-97 to
1998 12-31-97
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (634,543) $ 40,812
Adjustments to reconcile net
income (loss) to cash used
in operating activities:
Amortization 89,576 500
Depreciation 2,805 --
Increase in accounts
receivable (98,567) (72,811)
Increase in advances
receivable (2,500) --
Increase in inventory (440,461) (14,576)
Increase in income tax
refunds (6,555) --
Increase in accounts
payable 58,309 7,874
Increase in contracts
payable 500,000 --
Decrease in accrued
expenses (904) 7,202
------------ ---------
Net cash used in operating
activities $ (532,840) $ (30,999)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of patents and
licenses $ (2,446,010) $ (10,000)
Prepaid royalties (250,000) --
Acquisitions of property and
equipment (21,303) --
Merger costs (138,541) --
------------ ---------
Net cash used in investing
activities $ (2,855,854) $ (10,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of stock issue $ 4,126,235 $ 46,000
Loan proceeds 6,554 --
Loan principal repayments (4,816) --
------------ ---------
Net cash provided by
financing activities 4,127,973 46,000
------------ ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 739,279 5,001
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 744,280 $ 5,001
============ =========
</TABLE>
See accompanying notes to financial statements
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Capital Additional Retained
Stock Paid In Earnings Total
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Predecessor (Summit
Technologies, Inc.)
organized 08-14-97:
Sale of 100,000 shares $ 1,000 $ 45,000 $ -- $ 46,000
1997 earnings -- -- 40,715 40,715
--------- ----------- ----------- -----------
BALANCES: 12-31-97 $ 1,000 $ 45,000 $ 40,715 $ 86,715
Adjustment for 35-for-1
stock split: 01-23-98
(3,500,000 shares outstanding) 2,500 (2,500) -- --
Sale of 1,500,000 shares
01-24-98 through 03-26-98 1,500 398,500 -- 400,000
Merger with Summit Environmental
Corporation (the "Company") on
12-02-98. Adjustment for
750,000 Company shares issued
02-28-98 750 -- -- 750
Net loss for 1998 -- -- (634,544) (634,544)
--------- ----------- ----------- -----------
BALANCES: 12-31-98 $ 5,750 $ 441,000 $ (593,829) $ (147,079)
</TABLE>
COMMON STOCK SUBJECT TO A CONTINGENCY (Note 8)
<TABLE>
<CAPTION>
Capital Additional Retained
Stock Paid In Earnings Total
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sale of 250,000 shares - 04/98 $ 250 $ 149,750 $ -- $ 150,000
Sale of 384,840 shares - 06/98 385 917,043 -- 917,428
Sale of 176,000 shares for
services rendered 176 4,824 -- 5,000
Adjustment for return of
194,000 shares for failure
of consideration - 12/98 (194) -- -- (194)
--------- ------------ ----------- -----------
TOTALS $ 617 $ 1,071,617 $ -- $ 1,072,234
========= ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity - Summit Environmental Corporation, Inc. (the "Company") is a
Texas corporation that markets fire suppression materials, herbal health
products, and others. The products are proprietary or are under license.
Marketing efforts include "infomercials" and other television promotion,
videotapes, and personal demonstrations. Products are marketed domestically and
internationally.
Inventory - Inventory is reported at the lower of cost or market, using the
first-in, first-out method.
Intangible Assets - Licenses are recorded at cost. Amortization is computed on
the straight-line method over sixty months.
Merger Costs - The Company capitalized all costs incurred in connection with a
recent merger.
Income Taxes - For federal income tax purposes, the Company uses the accrual
method of accounting. The tax year-end is December 31. Differences between tax
and financial reporting include the length of the amortization period for
intangible assets and depreciation methods and lives for property and equipment.
If the differences become material, deferred taxes will be reported.
Cash and Cash Equivalents - For purposes of the statement of cash flows, cash
and cash equivalents include cash on hand and in banks and any short-term debt
securities purchased with a maturity of three months or less.
Advertising and Promotion - Advertising and promotion costs are expensed as
incurred.
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.
NOTE 2 - MERGER COST
On December 2, 1998, the shareholders of Summit Technologies, Inc. voted to
merge with the Company. The purpose of the transaction is to create a public
market for the common stock of the Company. As of December 31, 1998, the Company
has incurred related costs of $138,541.
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 3 - SHARES PAID FOR BUT UNISSUED
The adjustment is for (1) 750,000 Company shares to be issued on February 1,
1999 but paid for in November 1998 by Biogenesis Enterprises, Inc. when it
assigned to the Company all its rights in the fire suppressant products until
then only licensed to the Company and (2) 311,000 Company shares subscribed
after December 2, 1998, but still unissued.
NOTE 4 - LICENSES
On November 2, 1998, the Company purchased patent rights and intellectual
property to various fire suppression products.
This purchase requires cash payments of $200,000 to be paid on or before
February 1, 1999; $300,000 to be paid on or before April 1, 1999; $300,000 to be
paid on or before August 1, 1999; and 750,000 shares of common stock of the
Company to be issued and delivered on or before February 1, 1999.
Allocation of the purchase price is:
<TABLE>
<S> <C>
Intellectual Property $ 2,375,000
Royalties 500,000
-----------
$ 2,875,000
===========
</TABLE>
As of December 31, 1998, $250,000 in advanced royalties had been paid.
The aforementioned license agreement authorizes the Company to sell marketing
rights to third parties for international distribution of the products.
Licenses for limited exclusive marketing rights to various herbal health
products have been acquired for fees totaling $30,000. Under the agreements, the
Company must meet annual production quotas. The grantor of the licenses is the
manufacturer/supplier of the products.
NOTE 5 - LEASES
The Company has a lease agreement for the office space it occupies; the lease is
month-to-month, under with the Company pays $1,185 per month, with a 30-day
notice required for termination. The Company leases office equipment on a
month-to-month basis; the amount of the required monthly payment is determined
by actual usage. The Company signed a lease agreement on May 20, 1998, for
storage space for a monthly payment of $1,100 for two years plus an optional
two-year extension.
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 6 - RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and related parties
during the year ended December 31, 1998:
o The Company purchased marketing licenses for herbal health
products from an entity with common shareholders and
management members of the Company.
o The Company and another business with common shareholders
share office space and the related expenses.
NOTE 7 - CONCENTRATIONS
As of December 31, 1998, approximately 35% of accounts receivable was due from
Flameout International resulting from sales made in 1997, and 28% was due from
Proformance Marketing resulting from 1998 sales.
NOTE 8 - CONTINGENCIES
On December 2, 1998, the Company merged with Summit Technologies, Inc. ("STI").
The Company filed a registration statement with the Securities and Exchange
Commission (the "Commission") on March 26, 1998, related to the proposed merger,
naming STI as the entity proposed to be merged into the Company. STI
subsequently sold 810,840 shares of its common stock prior to the merger 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 (1) the filing of the
registration statement by the Company and (2) the manner in which STI conducted
the sale of the 810,840 shares of common stock constituted "general advertising
or general solicitation" by STI. 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 provisions of Regulation
D, Rule 506 of the Commission. The Company does not concede that there was no
exemption from registration available for STI's offering. Nevertheless, should
the aforementioned circumstances have constituted general advertising or general
solicitation, STI - and now, the Company, because of STI's merger into 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
STI sold the 810,840 shares of common stock after March 26, 1998 and before the
merger. 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. Accordingly, the amounts received from the sale of these shares are
set apart from Stockholders' Equity to indicate this contingency.
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 9 - FEDERAL INCOME TAX
The Company files federal income tax returns on a calendar year basis. The
accrued income tax calculation is based on the twelve-month period ended
December 31, 1998. Significant components involved in this calculation are shown
below:
<TABLE>
<S> <C>
Net financial income before income tax $ (641,099)
Accrued income tax at statutory rates --
----------
Accrued refund from carryback of
net operating loss to 1997 $ 6,555
==========
</TABLE>
NOTE 10 - NOTE PAYABLE
As of December 31, 1998, the Company was obligated under one note payable,
described as follows:
<TABLE>
<S> <C>
Creditor The Mortgage Center
Collateral Computer Equipment
Interest Rate 12%
Monthly Payment $ 445
Current Portion $ 1,738
Long-Term Portion $ --
Total $ 1,738
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 28, 1999 Summit Environmental Corporation, Inc.
By /s/ B. Keith Parker
------------------------------------
B. Keith Parker, Chief Executive
Officer
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