<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 September 30, 2000
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 September 30, 2000, there were 12,030,494 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
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE> 3
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 (Unaudited) December 31, 1999
------------------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 640,227 $ 585,857
Accounts Receivable 153,274 165,420
Less Allowance (44,000) (44,000)
Inventory 798,341 729,184
Prepaid Expenses 5,927 3,172
--------------- ---------------
Total Current Assets 1,553,769 1,439,633
--------------- ---------------
PROPERTY AND EQUIPMENT AT COST
Equipment 104,680 77,492
Accumulated Depreciation (14,749) (9,915)
--------------- ---------------
Net Property and Equipment 89,931 67,577
--------------- ---------------
OTHER ASSETS
Prepaid Royalties 514,000 500,000
Patents and Licenses 2,435,000 2,435,000
Less: Accumulated Amortization (307,879) (186,118)
--------------- ---------------
Total Other Assets 2,641,121 2,748,882
--------------- ---------------
TOTAL ASSETS $ 4,284,821 $ 4,256,092
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 39,430 $ 11,401
Accrued Liabilities 26,758 16,717
Notes Payable - Current 3,476 11,579
--------------- ---------------
Total Current Liabilities 69,664 39,697
--------------- ---------------
LONG-TERM LIABILITIES
Notes Payable - Less Current Portion 45,754 36,856
--------------- ---------------
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, 12,030,494 & 10,357,494
shares issued and outstanding respectively 12,031 10,358
Additional Paid in Capital 6,587,198 5,766,371
Deficit Accumulated in Development Stage (2,429,826) (1,597,190)
--------------- ---------------
Total Stockholders' Equity 4,169,403 4,179,539
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,284,821 $ 4,256,092
=============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
3
<PAGE> 4
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 PERIOD FROM
------------------------------------ AUGUST 31, 1997 TO
2000 1999 SEPTEMBER 30, 2000
--------------- --------------- ------------------
<S> <C> <C> <C>
SALES $ 39,745 $ 3,774 $ 455,422
COST OF SALES 26,525 1,650 142,327
--------------- --------------- ---------------
GROSS PROFIT 13,220 2,124 313,095
--------------- --------------- ---------------
OPERATION EXPENSES
Advertising and marketing 27,969 39,000 535,148
Amortization 40,587 47,046 317,576
Automobile expense 7,065 7,051 71,816
Bad debt expense 10 333 46,978
Commissions 2,784 -- 32,003
Consulting fees 3,000 -- 32,994
Contract services 310 -- 3,889
Contributions 235 170 4,715
Depreciation 5,052 2,122 24,598
Dues and subscriptions 386 595 8,949
Freight and delivery 7,774 6,016 64,924
Insurance 8,301 6,060 61,282
Legal and professional fees 18,527 9,423 152,801
Licenses and permits -- -- 28,194
Miscellaneous -- -- 17,006
Office expenses 8,306 6,138 71,038
Officer compensation 50,099 38,229 415,941
Payroll taxes 5,728 4,976 55,500
Printing and reproduction 3,691 -- 26,114
Rent 11,035 11,299 118,190
Repairs 5,555 1,370 26,630
Research and development 5,170 3,750 20,697
Royalties 3,913 -- 9,693
Salaries - Office 24,188 24,253 230,054
Seminars and training 957 (54) 3,826
Taxes -- 3,539 7,228
Telephone and utilities 10,839 9,426 80,251
Travel and entertainment 19,459 10,911 164,255
Warranty expense -- -- 18,409
--------------- --------------- ---------------
Total operating expense 270,940 231,653 2,650,699
--------------- --------------- ---------------
NET EARNINGS (LOSS) FROM OPERATIONS (257,720) (229,529) (2,337,604)
OTHER INCOME
Interest income 7,758 277 37,360
Interest expense (2,011) (565) (8,828)
Gain/Loss on Sale of Asset -- -- (8,112)
Miscellaneous 22 2,480 6,952
--------------- --------------- ---------------
Total other income (expense) 5,769 2,192 27,372
--------------- --------------- ---------------
NET LOSS BEFORE CUMULATIVE EFFECT OF THE
CHANGE IN ACCOUNTING PRINCIPLE (251,951) (227,337) (2,310,232)
--------------- --------------- ---------------
Cumulative effect on prior years of the change
in accounting principle, net of tax -- -- (119,594)
--------------- --------------- ---------------
NET LOSS $ (251,951) $ (227,337) $ (2,429,826)
--------------- --------------- ---------------
NET EARNINGS (LOSS) PER SHARE $ (0.02) $ (0.03) $ (0.33)
--------------- --------------- ---------------
WEIGHTED AVERAGE SHARES 12,030,494 7,528,494 7,253,628
</TABLE>
The accompanying notes are an integral part of these condensed statements.
4
<PAGE> 5
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
SALES $ 78,301 $ 82,093
COST OF SALES 41,480 31,205
--------------- ---------------
GROSS PROFIT 36,821 50,888
--------------- ---------------
OPERATION EXPENSES
Advertising and marketing 124,749 91,776
Amortization 121,761 141,138
Automobile expense 21,897 20,069
Bad debt expense 2,526 452
Commissions 12,770 3,000
Consulting fees 3,000 --
Contract services 544 1,282
Contributions 1,535 195
Depreciation 14,683 4,066
Dues and subscriptions 1,401 6,550
Freight and delivery 27,363 15,295
Insurance 24,079 16,219
Legal and professional fees 66,076 43,511
Licenses and permits 651 5,118
Miscellaneous 40 199
Office expenses 27,492 16,618
Officer compensation 147,498 116,112
Payroll taxes 19,998 17,145
Printing and reproduction 20,775 186
Rent 32,734 40,363
Repairs 17,133 2,876
Research and development 16,193 4,504
Royalties 3,913 5,780
Salaries - Office 72,408 74,544
Seminars and training 4,827 897
Taxes -- 4,638
Telephone and utilities 29,228 22,834
Travel and entertainment 63,676 41,673
Warranty expense 518 --
--------------- ---------------
Total operating expense 879,468 697,040
--------------- ---------------
NET EARNINGS (LOSS) FROM OPERATIONS (842,647) (646,152)
OTHER INCOME
Interest income 23,084 8,208
Interest expense (5,683) (662)
Gain/Loss on Sale of Asset (8,112) --
Miscellaneous 722 2,480
--------------- ---------------
Total other income (expense) 10,011 10,026
--------------- ---------------
NET LOSS BEFORE CUMULATIVE EFFECT OF THE
CHANGE IN ACCOUNTING PRINCIPLE (832,636) (636,126)
--------------- ---------------
Cumulative effect on prior years of the change
in accounting principle, net of tax -- --
--------------- ---------------
NET LOSS $ (832,636) $ (636,126)
--------------- ---------------
NET EARNINGS (LOSS) PER SHARE $ (0.07) $ (0.08)
--------------- ---------------
WEIGHTED AVERAGE SHARES 11,626,881 7,491,670
</TABLE>
The accompanying notes are an integral part of these condensed statements.
5
<PAGE> 6
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30 Period from
---------------------------- August 31, 1997 to
2000 1999 September 30, 2000
----------- ----------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (832,636) $ (636,126) $ (2,429,826)
Adjustments to reconcile net earnings (loss) to cash
used in operating activities
Amortization 121,761 141,138 317,576
Bad debt expense -- -- 44,452
Cumulative effect of change in accounting principle -- -- 119,594
Depreciation 14,683 4,066 24,598
Loss on sale of equipment 8,112 -- 8,112
Common stock issued for services -- -- 17,494
Change in assets and liabilities
Accounts receivable 12,146 (6,243) (153,726)
Inventory (69,157) (314,486) (798,341)
Prepaid expenses (16,755) (204,865) (519,927)
Accounts payable 28,029 4,541 39,430
Accrued liabilities 13,517 1,443 30,234
----------- ----------- ---------------
Net cash used in operating activities (720,300) (1,010,532) (3,300,330)
----------- ----------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (88,091) (55,856) (113,817)
Organization costs -- -- (129,291)
Acquisition of licenses -- -- (60,000)
Proceeds on sale of equipment 42,942 -- 42,942
----------- ----------- ---------------
Net cash used in investing activities (45,149) (55,856) (260,166)
----------- ----------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds -- 133,966 6,554
Loan principal repayments (2,681) (4,974) (12,566)
Loan principal repayments - related party -- -- (150,000)
Proceeds from sale of stock 822,500 307,500 4,356,735
----------- ----------- ---------------
Net cash provided by financing activities 819,819 436,492 4,200,723
----------- ----------- ---------------
NET INCREASE (DECREASE) IN CASH 54,370 (629,896) 640,227
---------------
Cash - Beginning of Period 585,857 744,704 --
----------- ----------- ---------------
Cash - End of Period $ 640,227 $ 114,808 $ 640,227
=========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
6
<PAGE> 7
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
The balance sheet of Summit Environmental Corporation, Inc., the "company", at
December 31, 1999 has been taken from the company's audited financial statements
at that date. The balance sheet at September 30, 2000, the statement of
operations for the three months and the nine months ended September 30, 2000 and
the three months and the nine months ended September 30, 1999 and the period
from August 31, 1997, to September 30, 2000, and the statement of cash flows for
the nine months ended September 30, 2000 and the nine months ended September 30,
1999 and the period from August 31, 1997 to September 30, 2000 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 promotion, videotapes, and personal demonstrations. Products
are marketed domestically and internationally.
Recent Accounting Pronouncements
During 1999, the company changed its method of accounting for
organizational costs to conform to new requirements of the American
Institute of Certified Public Accountants Statement of Position 98-5.
The effect of this change was to increase net loss for 1999 by $93,736
($0.01 per share). Financial statements for 1998 have not been
restated, and the cumulative effect of the change of $119,594 ($0.01
per share) is shown as a one-time charge to income in the 1999
statement of operations.
The Financial Accounting Standards Board has released FAS 134,
"Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage loans Held for Sale by a Mortgage Banking
Enterprise," FAS 135, "Rescission of FASB Statement No. 75 and
Technical Corrections," FAS 136, "Transfers of Assets to a
Not-for-Profit or Charitable trust That Raises or
7
<PAGE> 8
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
Holds Contributions for Others," and FAS 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective
date of FASB Statement No. 133." In December 1999, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101"). The
company believes that the impact of these new standards and bulletins
will not have a material effect on the company's consolidated financial
position, results of operations or disclosures.
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 financial institutions 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 and licenses costs are recorded at cost. Amortization is
computed on the straight-line method over fifteen years.
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.
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.
8
<PAGE> 9
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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>
Automobiles 5 years
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
$27,969 and $39,000 for the third quarters of 2000 and 1999,
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 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 required cash payments of $500,000 and 875,000
9
<PAGE> 10
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
shares of common stock of the company to be issued and delivered to
BioGenesis Enterprises, Inc.
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. 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. Rent expense for all
operating leases was approximately $16,204 and $13,544 for the third
quarters of 2000 and 1999, respectively.
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.
In September 1999, the Board of Directors issued options to purchase
350,000 shares of common stock to employees and directors pursuant to
the Plan.
Warrants
During the third quarter of 2000, the company issued no additional
warrants.
6. RELATED PARTY TRANSACTIONS
The following transactions occurred between the company and related
parties:
The company acquired a patent from BioGenesis Enterprises, Inc.
(BioGenesis) on November 2, 1998. 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
10
<PAGE> 11
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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 $500,000 as of December 31, 1999, and
$514,000 as of September 30, 2000.
Concentrations
Approximately 91.5% of the sales in the third quarter of 2000 were made
to two customers and 68.5% of the sales in the third quarter of 1999
were made to three different customers.
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 and liabilities arise principally from the
temporary differences between financial statement and income tax
recognition of depreciation and amortization, bad debts and net
operating losses.
8. NOTES PAYABLE
As of September 30, 2000, the company was obligated under one note
payable, due currently, described as follows:
<TABLE>
<CAPTION>
Monthly
Creditor Collateral Maturity Interest Rate Payment Total
-------- ---------- -------- ------------- ------- --------
<S> <C> <C> <C> <C> <C>
Austin Bank Motorhome 04-07-05 9.0% $ 644 $ 49,230
Less current installments
of long-term debt (3,476)
--------
$ 45,754
========
</TABLE>
9. LEGAL PROCEEDINGS
On January 27, 2000, the company received a citation, Cause No.
CC-00-934-A, Infinity Broadcasting Corporation of Dallas d/b/a KLUV
98.7 FM and 1190 AM vs. Summit Environmental Corporation, Inc., which
involves a disagreement as to the billing of radio advertising cost.
The amount of the case is $58,346. It is the opinion of company
management and counsel that this case has no merit. The company has
previously recorded in accounts payable what it believes is owed in the
matter.
11
<PAGE> 12
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."
RESULTS OF OPERATIONS - THIRD QUARTER OF 2000 COMPARED TO THIRD QUARTER
OF 1999
Summit Environmental's revenues for Q3 2000 were up ten-fold over Q3
1999--$39,744 in Q3 2000 compared to $3,774 in Q3 1999. Gross margin was 33.3
percent for Q3 2000 compared to 56.3 percent for Q3 1999.
Operating expenses rose slightly during Q3 2000 compared to Q3 1999.
Operating expenses increased by $39,287 from $231,653 in Q3 1999 to $270,940 in
Q3 2000, a 17.0 percent increase.
Amortization and depreciation were $3,529 lower in Q3 2000 than Q3
1999.
Summit had a net loss from operations of $251,951 for Q3 2000 compared
to a net loss of $227,337 for Q3 1999, a $24,614 or a 10.8 percent increase.
RESULTS OF OPERATIONS - FIRST THREE QUARTERS OF 2000 COMPARED TO FIRST
THREE QUARTERS OF 1999
Sales from operations decreased slightly, by 5 percent, for the first
three quarters of 2000 compared to the first three quarters of 1999. Gross
margin on these sales was 47 percent in the first three quarters of 2000
compared to gross margin of 62 percent in the first three quarters of 1999.
Operating expenses, however, increased by 26 percent during the first
three quarters of 2000 compared to those in the first three quarters of 1999. In
large part, the increase in operating expenses in 2000 is attributed to the
hiring of a vice president of marketing; his salary, travel expenses, and
marketing budget comprise the greatest portion of the increase in operating
expenses for the first three quarters of 2000.
We experienced a net loss of $832,636 in the first three quarters of
2000 as compared to a net loss of $636,126 in the first three quarters of 1999.
The loss per share of common stock was $0.07 for the first three quarters of
2000 compared to a net loss per share of $0.08 in the first three quarters of
1999.
Our inventory after the first three quarters of 2000 was $798,341, an
increase of 10 percent over $729,184, the inventory at December 31, 1999. Other
balance sheet items that reflect significant changes from December 31, 1999 to
September 30, 2000 are cash, up from $585,857 to $640,227, equipment, up from
$77,492 to $104,680, due primarily to purchase of new computer networking
system, accounts payable, up from $11,401 to $39,430 and accrued liabilities, up
from $16,717 to $26,758.
12
<PAGE> 13
The net loss of $832,636 was financed partly from the $816,500 proceeds
of sale of 1,673,000 shares of common stock and partly from $136,444 in
amortization and depreciation.
The retail markets for FIREPOWER 911(TM) are developing in several
areas regarding retail grocery stores and convenience stores. Sales were
completed during the first quarter with Love's Truck and Travel Centers, Circle
K Stores and Grocery Supply Company. Some initial discounts were received and
other contractual volume discounts were obtained. With these factors taken into
consideration, the company, through its retail sales marketing office, began
notifying brokers, buyers and potential customers with new wholesale pricing for
FIREPOWER 911(TM). The company and some of the brokers feel that this will
provide some added momentum for commitments to buy FIREPOWER 911(TM).
When the company began the eight-month process of securing a listed and
validated rating on FIREPOWER 911(TM) as a fire extinguisher, thirty-eight
states had regulations in their state Fire Codes (NFPA 10) which require a
portable fire extinguisher to be tested to ANSI/UL8 and ANSI/UL711 standards.
FIREPOWER 911(TM) accomplished this monumental feat and stands alone in the
marketplace as the only rated and listed fire extinguisher in an aerosol can.
This has produced an unforeseen hurdle for the company in the marketing of
FIREPOWER 911(TM). There are approximately six to seven other aerosol products
in the marketplace which have the words "fire extinguisher" on the front of
their can, but they have no listing or rating validation. During the middle of
the first quarter of this year, management began to advise the Texas State Fire
Marshal's office that these non-listed and non-rated fire suppression products
were being sold at retail locations in Texas. The action from that office was
swift. Cease and desist orders were issued within days. They are public record.
California State Fire Officials have taken the same action against the same
products that have appeared in California.
During the second quarter, the company received a purchase order for
FIREPOWER 911(TM) from Valley Wholesale Hunting Stores. That order was shipped
and recorded in the third quarter financial reports.
The company has received notice that FIREPOWER 911(TM) has been
approved for programming at QVC. It has also been submitted and passed the
packing and drop tests.
Due to the action taken by the Texas State Fire Marshal's office, one
of the non-listed and non-rated fire products was the recipient of a cease and
desist order at QVC. Rather than have other states follow suit, QVC removed this
product entirely. Originally, QVC was selling Chief's Choice(TM) fire
suppressors, which were FIREPOWER 911(TM) under a private label. The initial
segments of Chief's Choice(TM) sales on QVC produced an average of 4,475 cans
sold per fifteen-minute segment. When the company notified QVC of the mandatory
NFPA 10 requirement that was not met by Chief's Choice(TM), QVC substituted a
non-listed and non-rated product in its place. At this point, the company began
securing the validated listing and rating for FIREPOWER 911(TM) as required by
NFPA 10. That substitute product experienced $2,500,000 in sales over
approximately a two-year period, until its removal from programming occurred in
July 2000, due to the Texas State Fire Marshal's enforcement action. Its removal
has renewed and accelerated negotiations between Summit and QVC. The company has
now become the subject of the legal and regulatory process required by the NFPA
10 standards. The
13
<PAGE> 14
company has submitted a complete package to the legal department of QVC in order
that all legal matters be satisfied. The buyer at QVC is ready to proceed and is
waiting for clearance from their legal department. The concluding step of the
legal department is a verification interview with the Director of Engineering at
Applied Research Laboratories. ARL, BioGenesis and Summit will also verify the
issues of product liability insurance with third-party certificates of
insurance.
In the direct response television buying market, a new network will be
going on the air in England during the third quarter of 2000. FIREPOWER 911(TM)
has been approved for on-air programming pending certification approval. This
will be only a formality, since Applied Research Laboratories, the company which
completes certified testing for the FIREPOWER 911(TM) fire extinguisher's
listing and rating, is approved and reciprocally recognized by British
Standards.
On September 1, 2000, the company executed an agreement with the SPAP
Company, which specializes in mass marketing and direct response television. The
company had been working on this agreement for six months prior to its
execution. The company has now submitted packages to Home Shopping Network (HSN)
and HSN, International. In the international market, sixteen countries in Europe
and the Middle East have been listed. Negotiations are underway between Summit
Environmental Europe BV and the SPAP Company.
Summit's strategic alliance with International Aero, Inc., the world's
largest reconfigurating company for commercial aircraft, now includes four
independent developmental protocols in progress. They include: 1) the Federal
Aviation Agency's Minimum Performance Standards for the globally mandated
replacement of Halon hand-held fire extinguishers onboard commercial aircraft,
2) development of Next Generation FLAMEOUT(R) testing by the United States Navy
as a replacement for AFFF, which is the universally accepted fire-fighting agent
for petroleum fires. AFFF poses a health hazard as it is a known cancer-causing
agent, 3) current testing by the Naval Research Laboratories of FLAMEOUT(R) in a
new patented misting system for the passenger cabins onboard commercial aircraft
and 4) the completion of testing of ULTIMATE CLEAN 668(TM) turbine cleaner by
the United States Navy. The completion of this testing will furnish the company
with a military specification number which will clear the way for sales to the
military and commercial aircraft companies.
The mandated EPA testing for certifying cleaners as non-corrosive for
the compulsory cleaning of jet engines is in progress on ULTIMATE CLEAN 668(TM).
The magnitude of this testing is enormous. These test requirements are rigid and
comprehensive. However, the company realizes that in dealing with commercial
aircraft, the number of lives potentially affected warrants this depth of
testing. Awaiting issue of the specification number, International Aero
continues to have several of its airline customers and military customers ready
with initial orders for ULTIMATE CLEAN 668(TM). Recently, IA's distributor,
Pyrogen, UK Limited, which is Summit's exclusive distributor for England,
presented ULTIMATE CLEAN 668(TM) and ULTIMATE CLEAN 1103(TM) to Occidental
Petroleum in England.
The final submission requirement for ceramic finishes was completed and
sent to the laboratory on October 27, 2000. International Aero, Inc. (IA) has
begun the introduction of ULTIMATE CLEAN 668(TM) to several OF its customers,
including United Airlines. ULTIMATE ABSORB 1103(TM) will be cross-sold to the IA
customers duriNG the presentation of ULTIMATE CLEAN 668(TM). More about ULTIMATE
ABSORB 1103(TM) is further in our discussion.
14
<PAGE> 15
International product submissions have resulted in approvals from the
Hong Kong Fire Department, Singapore Fire Department, and the Forestry Service
and the State Fire Department for the government of Chile. During the first
quarter, the first run of test market cans for Hong Kong and Japan were packaged
and shipped. In addition to the previously mentioned product approvals,
FIREPOWER 911(TM) is currently undergoing tests in Japan according to the
Japanese Standards.
In late June, the company received the first order for FIREPOWER
911(TM) for shipment to Chile. MPI, A strategic alliance partner for South
America, ordered 5,000 Spanish labeled fire extinguishers. This order was
completed on September 27, 2000. Similar test market production runs are being
scheduled for Argentina, Brazil and Peru.
During the month of March, the company obtained the patent and
marketing rights to a new product line, a super-absorbent, ULTIMATE ABSORB
1103(TM). This product is a US-EPA, USDA, FDA, California Title 22 and World
Health Organization approved absorbent for both liquids and semi-liquids. The
first sale of ULTIMATE ABSORB 1103(TM), through one of the company's
distributors, Magic Chemical, was for the Delta Center in Salt Lake City. The
initial use of the product at Delta Center produced very positive results. The
company is currently preparing packaging for this market.
While marketing FIREPOWER 911(TM) at convenience stores, ULTIMATE
ABSORB 1103(TM) was developed as a result of feedback regarding fuel spills.
Once management understood the size of the market and had the five very
substantial approvals listed above, the company began to introduce the absorbent
to all distributor networks for both fire suppression and engine cleaner venues
as a parallel cross-sell product. As ULTIMATE CLEAN 668(TM) is used for engine
cleaning demonstrations, ULTIMATE ABSORB 1103(TM) will be demonstrated for the
site cleanup.
The first week of October, the company submitted ULTIMATE ABSORB
1103(TM) to a US-EPA approved testing facility for the purpose of obtaining an
EPA Landfill Approval Stamp. This will give users of ULTIMATE ABSORB 1103(TM)
the ability to dispose of cleanup materials in local landfills. ULTIMATE ABSORB
1103(TM) has the ability to absorb fuels and, just like FLAMEOUT(R) when used on
fuel fires, the resulting by-product has been molecularly reorganized so that it
is non-flammable.
The company has sold ULTIMATE ABSORB 1103(TM) to Autoliv, a company
that makes airbags. The initial test market proved very successful and the
company has received a second order. Autoliv is preparing to implement the use
of ULTIMATE ABSORB 1103(TM) at all 22 of its manufacturing facilities across the
United States. After the sale of ULTIMATE ABSORB 1103(TM) to Premium Oil, the
company has purchase commitments from Diamond Shamrock and Circle K upon
approval from the US-EPA Landfill Testing.
During the month of June, Summit Environmental Europe BV was formed.
The Netherlands-based company is a corporate joint venture between Kerst
Houweling Limited BV and Summit Environmental Corporation, Inc., USA. Summit,
USA will sell FLAMEOUT(R) to Summit Europe and, after approved operational
expenses by the management of the BV have been accrued, the profits from
operations are split 60% to Kerst Houweling and 40% to Summit, USA. Kerst
Houweling and Keith Parker, Summit CEO, are co-managing directors of Summit
Europe BV.
15
<PAGE> 16
Summit Europe BV has opened an office in Rotterdam, The Netherlands.
Currently, Jockel Manufacturing, of Frankfurt, Germany, has successfully tested
FLAMEOUT(R) II, which is the company's new foam, developeD originally to assist
International Aero in the replacement of AFFF. FLAMEOUT(R) II successfully met
the foaM stabilization requirements at the Ansul Fire Test facility in
Marinette, Wisconsin in April.
Jockel's plans are to begin in January using FLAMEOUT(R) II in their
fire extinguishers. Summit Europe BV will have the same revenue sharing
agreement with Jockel as Summit, USA has with manufacturing customers when
selling FLAMEOUT(R).
The company corporate web site is undergoing construction. This is an
all-inclusive information site for up-to-the-minute information on Summit.
Directories include: Company Information, Strategic Alliances, Financial
Reports, Board Members, Standards and Certification, Press Releases,
Newsletters, See the Products Work, Research and Development, Frequently Asked
Questions, Products, and Links. This web site address is www.seci-us.com. Due to
the passage of the SEC regulation, Fair Disclosure Rule, effective October 23,
2000, press releases will now become the method by which shareholders can keep
up-to-date on news. Additionally, the web site will be updated weekly in any
directories affected by change. When the company releases news to E-Wire or
Business-Wire, the same press release will be posted to the "current news"
section of the web site. For more information on the new SEC requirements, go to
www.niri.org.
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.
The company believes that, with the approval, listing and rating of
FIREPOWER 911(TM) as a fiRe extinguisher, a niche market has been created. This
is supported by actions taken by the US-EPA, which have been mentioned
previously, and actions of the Connecticut State Fire Marshal's office and the
California State Fire Marshal's Office.
The formula for FIREPOWER 911(TM) is FLAMEOUT(R) and is one of only a
few suppressing agents certified by the EPA as a replacement for the globally
banned fire-fighting agent, Halon 1211. Initially, the Connecticut State Fire
Marshal's office notified the company that its aerosol fire suppressant,
FIREPOWER 911(TM), was to be removEd from the shelves of Home Depot, because it
was not listed and rated as a fire extinguisher. All other aerosol can products
representing that they were fire extinguishers were also to receive the same
notification. While the company was not marketing FIREPOWER 911(TM) as a fire
extinguisher at that time, the other aerosol fire suppressoRs subject to this
action were touting their products to be fire extinguishers.
Due to the capabilities of FLAMEOUT(R), the company applied for the
minimum fire extinguisher rating iN order to establish FIREPOWER 911(TM) as a
fire extinguisher and satisfy the State Fire Codes. The specific fiRe code is
ANSI/UL8 and ANSI/UL711, set forth in the NFPA Standard 10. NFPA 10 establishes
the requirements for listing and rating portable fire extinguishers.
16
<PAGE> 17
The completion of the listing and rating requirements has placed
FIREPOWER 911(TM) in a class of its owN, the only listed and rated fire
extinguisher in an aerosol can available in the global marketplace. The company
received a letter from the Connecticut State Fire Marshal's Office certifying
that the company's FIREPOWER 911(TM) had satisfied their fire code requirements.
The California State Fire Marshal's office notified the company in 1999
that California had a unique legislative requirement in addition to the NFPA and
ANSI/UL standards for portable fire extinguishers. This was a new area, termed
Non-Halon Certification, and meant that any portable fire extinguisher whose
marketing intent was directed to the residential and individual use market must
contain a formula that had been certified as Non-Halon. FLAMEOUT(TM) was the
first of seven permanent listed and certified replacements for Halon 1211 and is
tHE only product that can meet this Non-Halon Certification requirement due to
FLAMEOUT(TM)'s approval for residentiAL as well as commercial use. All other
products are approved for commercial use only. Applied Research Laboratories has
completed the application process on behalf of the company, meeting the
California Non-Halon requirements. FIREPOWER 911(TM) now meets the California
Non-Halon Certification requirements.
With these requirements, approvals, listings, certifications, and
confirmations, the company has positioned FIREPOWER 911(TM) to become the only
product that can be sold in the retail residential market IN California. The
completion of this certification will place FIREPOWER 911(TM) as the only
product that can surviVE this process, according to the California State Fire
Marshal's Office, until such time as EPA-SNAP would approve another residential
formulation and said formulation was listed and rated in a portable fire
extinguisher. It has been seven years since the approval of Surfactant Blend
A--FLAMEOUT(R), which is the proprietary formula ownED by the company. There
have been no additional approvals within the last four years.
In other states where Non-Halon Certification has not become effective
to date, there is still the NFPA 10 requirement that all aerosol cans must be
tested, listed, and rated as a fire extinguisher. FIREPOWER 911(TM) IS the only
product that possesses the validated listing and rating for an aerosol fire
extinguisher. Due to the time and effort the company has spent positioning
FIREPOWER 911(TM) for this strategic niche market, the Texas StaTE Fire
Marshal's office has taken enforcement action on several occasions since January
2000. One of the most obvious products violating the NFPA 10 code has been
issued a cease and desist order for retail sales in Texas. In addition, the same
office notified one of the large home shopping channels that they would need to
discontinue making sales to persons in Texas or face enforcement action. The
network removed the product from programming. The California State Fire
Marshal's office has taken the same actions toward the same product and shopping
network.
In total, California and Texas have provided enforcement against six
products that have been promoted as fire extinguishers, but do not have the
listing and validation codes and numbers. This action will begin opening doors
for FIREPOWER 911(TM). These products that are now being eliminated from the
market were sold very cheapLY and caused the pricing structure of FIREPOWER
911(TM) to be viewed negatively. Summit's financial and time commitments to
obtaining proper testing, listings and ratings make it virtually impossible to
compete in price with these low end products. Fortunately, these products are
now being eliminated from the marketplace by enforcement action. It has been
very difficult to educate store buyers to understand the difference in our
aerosol fire extinguisher and others
17
<PAGE> 18
being erroneously promoted as such. The removal of these unapproved products
allows the company to begin making headway with this initiative.
The company will also be producing a public relations notice to all 36
remaining states that have NFPA 10 in their state fire codes. The notice will
provide the validation and listing information on FIREPOWER 911(TM) and the
information from public record files on the enforcement actions taken in Texas
and California. This initiative has been given an additional boost as the Texas
State Fire Marshal's office has now issued cease and desist orders to more
retail locations and the manufacturers of four copycat products which were on
the shelves of retail locations within Texas. The enforcement action then
traveled outside Texas to encompass the nationwide marketing of a copycat on a
home-shopping channel.
FIREPOWER 911(TM) contains FLAMEOUT(R), a fire-fighting product
technology which is a US-EPA certiFIed replacement for the globally banned
Halon. FLAMEOUT(R) also has an Underwriters Laboratories listing, #7P21. ThE
copycat products primarily contain soap and are not technology-driven. The
FIREPOWER 911(TM) can is one liteR, while the copycat products are only 16
ounces. Until now, price has been the sole criteria in the marketplace. With
continued enforcement action, FIREPOWER 911(TM) now stands alone as the only
product in compliance with tHE NFPA 10 standard. During the third week of
October, appointments were being scheduled for FIREPOWER 911(TM) inTO two
nationwide building supply companies, both of which were required to remove
copycat products from their shelves by action taken by the State Fire Marshal's
offices in Texas and California. The company also has presentation packages with
two home shopping television venues in addition to QVC.
The company is preparing to embark on a test at Applied Research
Laboratories during the first quarter, 2001. The new K-rating for restaurant
kitchens is a rating for cook-top extinguishers. Applied Research Laboratories
has ordered the testing to be started so that this certification process can be
completed. The company believes that this will be a key for a new niche market
development for grocery stores.
Since the close of the second quarter, the company has completed two
new strategic marketing agreements for the sale of FIREPOWER 911(TM). First is
an agreement with a company which specializes in Direct ResponSE Television
outside the United States, and places products in selected catalogues and
directs credit card inserts. The SPAP Company, based in California, will begin
with a credit card insert for FIREPOWER 911(TM). THE inserts will be placed in
both bank card and oil companies' monthly statements to their credit card
holders.
The SPAP Company has registered Home Shopping Network, USA and Home
Shopping Network, International on the amendment to their non-circumvention
agreement with the company. During the last week of October, they began the
introduction process for FIREPOWER 911(TM) into Canada and Mexico.
The company's negotiations with International Aero have resulted in an
exclusive distribution agreement for the aviation industry and the military.
FLAMEOUT(R) is to be submitted by International Aero as the agent tO replace
Halon in the onboard handheld fire extinguishers. The Federal Aviation
Administration published the Minimum Performance Standards, which is the
requirement guideline for
18
<PAGE> 19
finding the selected fire-fighting agent to qualify for this mandatory
replacement. Two major criteria for the selected agent are that the agent must
be an EPA-SNAP certified replacement for Halon 1211, and the agent must possess
near zero toxicity levels. FLAMEOUT(R) meets both these requirements. We have
previously discussed the EPA issues surrounding FLAMEOUT(R). Additionally,
FLAMEOUT(R) has an HMIS reactivity rating of 0-0-0-B, certifying that it is a
non-toxic agent. Actual testing for the cup fires, which contain JP-4 or JP-5
jet fuel, could begin as early as November, according to International Aero
representatives.
FLAMEOUT(R) II was demonstrated April 11-13, 2000 in Wisconsin, at the
NFPA 18 fire suppressant testing meeting. This event began the exposure of
FLAMEOUT(R) in the upper echelons of fire fighting products worldwide. John
Brooks of International Aero, Dr. Mohsen Amiran, Bill Hogan, Don Hendon and
Keith Parker represented the company at the ANSUL test facility. Tests for the
new FLAMEOUT(R) II version for development as an alternative for AFFF were
conducted. The changes in the original formula are to position FLAMEOUT(R) to be
sold to the United States Military, the Department of Defense and the petroleum
industry.
During July and August, initial tests were conducted on FLAMEOUT(R) II
at International Aero for foam stability. The new formulation performed much
better than anticipated, lasting for days, rather than just the required three
hours. FLAMEOUT(R) II is the product of choice and is undergoing current testing
at Jockel Manufacturing in Europe.
International marketing agreements have been negotiated and executed. A
key element of these agreements is the revenue sharing clause that provides the
company profit sharing from the tools, devices or mechanisms into which
FLAMEOUT(R) is introduced for resale. Global agreements have been reached with
Australia, New Zealand, Hong Kong, Singapore, Japan, England and the European
Union, the Dominican Republic, Brazil, Argentina, Chile, Peru, Ecuador,
Paraguay, Uruguay, Puerto Rico, Venezuela, Columbia, Bolivia and Mexico. The
company has assisted our distributor partners with necessary testing, listing,
ratings and certification in order to complete the registration process in each
of these countries. The first shipment of FIREPOWER 911(TM) with Spanish labels
was shipped to Chile at the end of September. Several key approvals have been
received for FLAMEOUT(R) and FIREPOWER 911(TM), but are not being released
currently at the request of the particular exclusive distributors or strategic
alliance partners.
At the Annual Shareholders' Meeting, May 8, 2000, the company
introduced a super-absorbent. ULTIMATE ABSORB 1103(TM) is a unique product that
will absorb any liquid or semi-liquid known. The company conducted the first
test market on ULTIMATE ABSORB 1103(TM) at the Delta Center in Salt Lake City,
Utah. The successful test has led to ULTIMATE ABSORB 1103(TM) and its new shaker
bottle being ordered by the Delta Center through the company's distributors,
Magic Chemical, to replace all the absorbent currently on hand.
ULTIMATE ABSORB 1103(TM) is US-EPA, USDA, California Title 22 and World
Health Organization approved. The company officially began the technical and
crucial EPA Landfill approval in September. Notice of this approval is
anticipated in December. This will allow hazardous materials to be deposited in
landfills when ULTIMATE ABSORB 1103(TM) has been used in the cleanup. This opens
up an enormous niche market. The company's marketing partner, MPI, has also
introduced ULTIMATE
19
<PAGE> 20
ABSORB 1103(TM) to the meat, fish and poultry industry in New York aNd New
Jersey. This initial product test was conducted at loading docks where 5,000
trucks per week are transporting meat.
At International Aero, ULTIMATE ABSORB 1103(TM) will be used to clean
up the runoff during tHe demonstration of the company's ULTIMATE CLEAN 668(TM)
turbine cleaner. This will create a natural cross-sell of An additional product.
ULTIMATE ABSORB 1103(TM) has been introduced to several new petroleum transport
companies, foOd preparation companies and manufacturing facilities. ULTIMATE
ABSORB 1103(TM) was just recently presented at tHe National Association of
Convenience Stores. Appointments are being scheduled with Core-Mark, which
distributes to 47,000 convenience stores in the western United States.
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.
MANAGEMENT'S STATEMENT ON Y2K
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) FORMS 8-K
None
20
<PAGE> 21
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: November 8, 2000 Summit Environmental Corporation, Inc.
By /s/ B. Keith Parker
-------------------------------------
B. Keith Parker,
Chief Executive Officer
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
