<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 [ ]
As of March 31, 1999, there were 7,439,694 shares of the Registrant's
Common Stock, par value $0.001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT ENVIRONMENTAL CORPORATION, INC.
BALANCE SHEET
For the three months ended March 31, 1999 and March 31, 1998 and
the twelve months ended December 31, 1998
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998 December 31, 1998
ASSETS Unaudited Unaudited Audited
--------------- --------------- ---------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 327,840 $ 168,626 $ 744,704
Accounts Receivable 126,305 93,162 173,456
Less Allowance (30,000) -- (30,000)
Inventory 669,616 52,712 399,060
Accrued income tax refund 7,252 -- 7,252
--------------- --------------- ---------------
Total Current Assets 1,101,013 314,500 1,294,472
--------------- --------------- ---------------
PROPERTY AND EQUIPMENT AT COST
Equipment 22,360 6,554 21,203
Accumulated depreciation (2,914) -- (1,942)
--------------- --------------- ---------------
Net property and equipment 19,446 6,554 19,261
--------------- --------------- ---------------
OTHER ASSETS
Prepaid royalties 400,000 -- 250,000
Organization Cost 129,291 40,789 129,291
Less accumulated amortization (16,160) -- (9,697)
Patents and Licenses 2,435,000 45,000 2,435,000
Less: Accumulated amortization (64,375) (500) (23,792)
--------------- --------------- ---------------
Total Other Assets 2,883,756 85,289 2,780,802
--------------- --------------- ---------------
Total Assets $ 4,004,215 $ 406,343 $ 4,094,535
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 61,438 $ 10,549 $ 19,201
Accrued Liabilities 18,777 11,844 17,283
Notes Payable - related party 500,000 -- 500,000
Notes Payable - other 441 5,218 1,738
--------------- --------------- ---------------
Total Current Liabilities 580,656 27,611 538,222
--------------- --------------- ---------------
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, 7,439,694 & 4,630,000 & 7,406,694
shares issued and outstanding respectively 7,439 4,630 7,406
Additional paid in capital 4,237,289 372,370 4,154,823
Deficit accumulated (821,169) 1,732 (605,916)
--------------- --------------- ---------------
Total stockholders' equity 3,423,559 378,732 3,556,313
--------------- --------------- ---------------
Total liabilities and stockholders' equity $ 4,004,215 $ 406,343 $ 4,094,535
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
SUMMIT ENVIRONMENTAL CORPORATION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (215,254) $ (39,030)
Adjustments to reconcile net earnings (loss) to cash
used in operating activities
Amortization 47,046 --
Depreciation 972 --
Change in assets and liabilities:
Accounts receivable 47,151 (20,351)
Inventory (270,556) (38,136)
Prepaid royalties (150,000) --
Accounts payable 42,237 2,675
Accrued liabilities 1,494 4,592
--------------- ---------------
Net cash used in operating activities (496,910) (90,250)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (1,156) (6,554)
Organization costs -- (40,789)
Acquisition of licenses -- (35,000)
--------------- ---------------
Net cash used in investing activities (1,156) (82,343)
=============== ===============
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds -- 5,218
Loan principal repayments (1,297) --
Proceeds from sale of stock 82,499 331,000
--------------- ---------------
Net cash provided by financing activities 81,202 336,218
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (416,864) 163,625
Cash - Beginning of period 744,704 5,001
--------------- ---------------
Cash - End of period $ 327,840 $ 168,626
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
SUMMIT ENVIRONMENTAL CORPORATION, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
--------------- ---------------
<S> <C> <C>
SALES $ 18,548 $ --
COST OF SALES 4,772 --
--------------- ---------------
Gross Profit 13,776 --
--------------- ---------------
OPERATION EXPENSES
General and administrative 186,161 39,029
Depreciation and amortization 48,018 --
Interest expense 54 --
--------------- ---------------
Total operating expense 234,233 39,029
--------------- ---------------
Net Earnings (Loss) from operations (220,457) (39,029)
OTHER INCOME
Interest income 5,203 --
--------------- ---------------
NET EARNINGS (LOSS) $ (215,254) $ (39,029)
--------------- ---------------
NET EARNINGS (LOSS) PER SHARE $ (0.03) $ (0.01)
--------------- ---------------
WEIGHTED AVERAGE SHARES 7,415,861 3,958,333
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
The balance sheet of Summit Environmental Corporation, Inc., the "Company," at
December 31, 1998 has been taken from the Company's audited financial statements
at that date. The balance sheets at March 31, 1999 and 1998, the statements of
operation for the three months ended March 31, 1999 and 1998, and the statements
of cash flows for the three months ended March 31, 1999 and 1998 have been
prepared by the Company without audit. The financial statements have been
prepared in conformity with generally accepted accounting principles and contain
such adjustments as management feels are necessary to present fairly, in all
material aspects, the financial position and results of operation of the
Company.
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 manufactures and markets environmentally friendly non-toxic
chemicals, cleaners and fire suppression materials along with herbal
and cosmetic health products. The products are proprietary or are under
exclusive 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 the 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.
5
<PAGE> 6
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>
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. PATENTS
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., which were issued
on February 1, 1999.
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
ending December 31, 1998.
6
<PAGE> 7
NOTES TO THE FINANCIAL STATEMENTS
5. COMMON STOCK
Common Stock Options
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.
Contingency Concerning Some Shares
See Company's 10-KSB at December 31, 1998
6. RELATED PARTY TRANSACTIONS
The following transaction occurred between the Company and related
parties:
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, and $400,000 as of March 31, 1999.
7. INCOME TAXES
Deferred tax assets and liabilities are determined based on the
differences 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.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and the accompanying notes thereto and is
qualified in its entirety by the foregoing and by more detailed financial
information appearing elsewhere. See "Item 1. Financial Statements."
SALES
The Company had no sales in the first fiscal quarter of 1998 and only
$18,548 of sales in the first quarter of 1999. The Company's efforts in the
first quarter of 1998 were directed primarily to raising capital for the
Company. Its efforts in the first quarter of 1999 were directed primarily to
negotiating distribution agreements and licenses with third parties. The Company
executed agreements during this quarter with the following persons:
o International Aero, Inc.'s subsidiary, Firepak, Inc., was
given an exclusive license to sell the Company's FlameOut(TM)
and FirePower 911(TM) fire suppressant products to the
aerospace industry and the military establishments worldwide
and an exclusive license to sell these products to the
petrochemical industry in the U.S. Gulf Coast area.
International Aero reconfigures the interiors of commercial
aircraft during their periodic overhauls. It is believed to
be the largest company of its kind in the world.
International Aero proposes to replace, with the Company's
fire suppressants, the Halon-filled extinguishers now found
in aircraft in the cockpits, the bathrooms and the galleys.
International Aero is developing a Class B foam, made with
the Company's fire suppressants, to replace the presently
used, highly toxic foam called AFFF that is used to fight jet
fuel fires.
o Performance Marketing, LLC of Middlebury, Connecticut, was
given an exclusive license to distribute in the U.S. and
Canada the Company's Firepower 911(TM) fire suppressant to the
plumbing, heating, ventilation, air-conditioning and roofing
industries. The fire suppressant has unique capabilities as a
cooling agent, to prevent fires in welding situations, as well
as a fire extinguisher.
o The Company's Western Region sales representatives have been
testing a turbine cleaner, developed by BioGenesis
Enterprises, Inc., to be used on 15,000 rpm and slower jet
engines. The tests appear to have been successful. The
Company anticipates getting significant orders for the
turbine cleaner to be used to clean the turbines that
generate the power to run the engines of the power stations
for off-shore drilling and production rigs. These turbines
require monthly cleaning. There are approximately 11,000
turbines in operation in this industry, and each turbine
requires approximately five gallons of cleaner each month.
8
<PAGE> 9
International Aero has applied for FAA certification for the Company's
fire suppressant products to be used in commercial aircraft. The other two
licensees began ordering product from the Company in April and May. The Company
believes sales will increase quickly during the next 90 days.
The Company is in the final preparations for delivering its Firepower
911(TM) aerosol fire extinguishers to a major national retailer (4,000 stores).
The Company is building inventory before commencing this distribution of
product.
The Company is preparing a television sales campaign for its fire
suppressant products. The campaign will be conducted primarily on regional talk
shows.
OPERATING EXPENSES
Operating expenses increased six-fold, from $39,029 to $234,233, during
the first quarter of 1999 as compared to the first quarter of 1998. The major
portion of the increase was in general and administrative expenses and
represented increased expenses for the staffing of the Company's administrative
offices.
NET INCOME (LOSS)
The Company had a net loss from operations of $220,457 during the first
quarter of 1999, as compared to a net loss of $39,029 during the first quarter
of 1998. Most of this increased loss is a reflection of the increased staff and
office expense in negotiating the three licenses described above under "Sales"
and in pursuing other, similar distribution licenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company is rapidly approaching the point where its building of
inventory (from $55,712 in the first quarter of 1998 to $669,616 in the first
quarter of 1999) will deplete its cash reserves. Yet, the inventory buildup is
required if the Company is to meet its commitments under its license agreements.
The Company expects to rebuild its cash revenues and restore its liquidity
through the sale of stock to friends of management. It has no commitments at
this time from potential investors.
We are approaching the immediate future with great optimism. Provided
needed capital can be obtained to build inventory, we believe the operating
losses of the Company will soon disappear and that the Company will operate with
a net profit.
The Company's future results of operations and the other forward-
looking statements contained herein 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
9
<PAGE> 10
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27 Financial Data Schedule
(B) FORMS 8-K
12-2-98 Item 2: Acquisition or Disposition of Assets
12-17-98 Item 4: Change in Registrant's Certifying Accountant
1-28-99 Item 7: Unaudited Financial Statements 12-31-98 After
Merger
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 13, 1999 Summit Environmental Corporation, Inc.
By /s/ B. Keith Parker
-----------------------------------
B. Keith Parker, Chief Executive
Officer
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 327,840
<SECURITIES> 0
<RECEIVABLES> 126,305
<ALLOWANCES> (30,000)
<INVENTORY> 669,616
<CURRENT-ASSETS> 1,101,013
<PP&E> 22,360
<DEPRECIATION> (2,914)
<TOTAL-ASSETS> 4,004,215
<CURRENT-LIABILITIES> 580,656
<BONDS> 0
0
0
<COMMON> 7,439
<OTHER-SE> 3,416,120
<TOTAL-LIABILITY-AND-EQUITY> 4,004,215
<SALES> 18,548
<TOTAL-REVENUES> 23,751
<CGS> 4,772
<TOTAL-COSTS> 4,772
<OTHER-EXPENSES> 234,133
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> (215,254)
<INCOME-TAX> 0
<INCOME-CONTINUING> (215,254)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (215,254)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
