<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, 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 March 31, 2000, there were 11,930,494 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 (Unaudited) December 31, 1999
-------------------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,093,154 $ 585,857
Accounts Receivable 150,646 165,420
Less Allowance (44,000) (44,000)
Inventory 762,726 729,184
Prepaid Expenses 1,479 3,172
------------- -------------
Total Current Assets 1,964,005 1,439,633
------------- -------------
PROPERTY AND EQUIPMENT AT COST
Equipment 70,674 77,492
Accumulated Depreciation (10,644) (9,915)
------------- -------------
Net Property and Equipment 60,030 67,577
------------- -------------
OTHER ASSETS
Prepaid Royalties 500,000 500,000
Patents and Licenses 2,435,000 2,435,000
Less: Accumulated Amortization (226,705) (186,118)
------------- -------------
Total Other Assets 2,708,295 2,748,882
------------- -------------
TOTAL ASSETS $ 4,732,330 $ 4,256,092
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 49,693 $ 11,401
Accrued Liabilities 19,148 16,717
Notes Payable - Current 3,452 11,579
------------- -------------
Total Current Liabilities 72,293 39,697
------------- -------------
LONG-TERM LIABILITIES
Notes Payable - Less Current Portion 14,680 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, 11,930,494 & 10,357,494
shares issued and outstanding respectively 11,931 10,358
Additional Paid in Capital 6,539,798 5,766,371
Deficit Accumulated in Development Stage (1,906,372) (1,597,190)
------------- -------------
Total Stockholders' Equity 4,645,357 4,179,539
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,732,330 $ 4,256,092
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
3
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(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31 Period from
---------------------------------- August 31, 1997 to
2000 1999 March 31, 2000
------------- ------------- ------------------
<S> <C> <C> <C>
SALES $ 16,803 $ 18,548 $ 393,924
COST OF SALES 8,393 4,772 109,240
------------- ------------- -------------
GROSS PROFIT 8,410 13,776 284,684
------------- ------------- -------------
OPERATION EXPENSES
Advertising and marketing 66,893 17,454 474,158
Amortization 40,587 47,046 236,402
Automobile expense 8,745 6,578 58,664
Bad debt expense 2,516 46 46,968
Commissions 6,309 3,000 25,542
Consulting fees -- -- 29,994
Contract services -- 1,237 3,345
Contributions 1,200 -- 3,380
Depreciation 4,194 972 14,109
Dues and subscriptions 532 1,205 7,613
Freight and delivery 13,686 3,381 51,247
Insurance 6,738 4,963 43,941
Legal and professional fees 26,011 27,368 112,736
Licenses and permits 651 5,118 28,194
Miscellaneous 40 -- 17,006
Office expenses 11,231 5,408 55,292
Officer compensation 49,067 37,500 317,510
Payroll taxes 3,898 6,859 39,400
Printing and reproduction 10,928 -- 16,371
Rent 10,800 17,397 96,256
Repairs 2,330 1,118 11,827
Research and development 42 754 4,546
Royalties -- 5,780 5,780
Salaries - Office 22,188 27,752 179,834
Seminars and training 2,385 -- 2,385
Taxes -- -- 7,228
Telephone and utilities 9,430 5,830 60,453
Travel and entertainment 15,400 7,413 118,960
Warranty expense 518 -- 18,409
------------- ------------- -------------
Total operating expense 316,319 234,179 2,087,550
------------- ------------- -------------
NET EARNINGS (LOSS) FROM OPERATIONS (307,909) (220,403) (1,802,866)
OTHER INCOME
Interest income 2,597 5,203 16,873
Interest expense (1,629) (54) (4,774)
Gain/Loss on Sale of Asset (2,241) -- (2,241)
Miscellaneous -- -- 6,230
------------- ------------- -------------
Total other income (expense) (1,273) 5,149 16,088
------------- ------------- -------------
NET LOSS BEFORE CUMULATIVE EFFECT OF THE
CHANGE IN ACCOUNTING PRINCIPLE (309,182) (215,254) (1,786,778)
------------- ------------- -------------
Cumulative effect on prior years of the change
in accounting principle, net of tax -- -- (119,594)
------------- ------------- -------------
NET LOSS $ (309,182) $ (215,254) $ (1,906,372)
============= ============= =============
NET EARNINGS (LOSS) PER SHARE $ (0.03) $ (0.03) $ (0.30)
------------- ------------- -------------
WEIGHTED AVERAGE SHARES 10,825,813 7,417,794 6,309,069
</TABLE>
The accompanying notes are an integral part of these condensed statements.
4
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31 Period from
----------------------------------- August 31, 1997 to
2000 1999 March 31, 2000
------------- ------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (309,182) $ (215,254) $ (1,906,372)
Adjustments to reconcile net earnings (loss) to cash
used in operating activities
Amortization 40,587 47,046 236,402
Bad debt expense -- -- 44,452
Cumulative effect of change in accounting principle -- -- 119,594
Depreciation 4,194 972 14,109
Loss on sale of equipment 2,241 -- 2,241
Common stock issued for services -- -- 17,494
Change in assets and liabilities
Accounts receivable 14,774 47,151 (151,098)
Inventory (33,542) (270,556) (762,726)
Prepaid insurance 1,693 -- (501,479)
Prepaid royalties -- (150,000) --
Accounts payable 38,292 42,237 49,693
Accrued liabilities 2,431 1,494 19,148
------------- ------------- -------------
Net cash used in operating activities (238,512) (496,910) (2,818,542)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (22,880) (1,156) (48,606)
Organization costs -- -- (129,291)
Acquisition of licenses -- -- (60,000)
Proceeds on sale of equipment 23,992 -- 23,992
------------- ------------- -------------
Net cash used in investing activities 1,112 (1,156) (213,905)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds -- -- 6,554
Loan principal repayments (30,303) (1,297) (40,188)
Loan principal repayments - related party -- -- (150,000)
Proceeds from sale of stock 775,000 82,499 4,309,235
------------- ------------- -------------
Net cash provided by financing activities 744,697 81,202 4,125,601
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 507,297 (416,864) 1,093,154
Cash - Beginning of Period 585,857 744,704 --
------------- ------------- -------------
Cash - End of Period $ 1,093,154 $ 327,840 $ 1,093,154
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE CONDENSED 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 March 31, 2000, the statement of operations
for the three months ended March 31, 2000 and the three months ended March 31,
1999, and the statement of cash flows for the three months ended March 31, 2000
and the three months ended March 31, 1999 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.
Recent Accounting Pronouncements
During 1999 the Company changed its method of accounting for
organizational costs to conform with 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 Holds Contributions for
6
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Others," and FAS 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective date of FASB Statement No.
133." The Company believes that the impact of these new standards 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 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 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.
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
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<PAGE> 8
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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
$63,863 and $17,454 for the first 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 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
8
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 $10,800 and $17,397 for the first 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 first quarter of 2000, the Company issued warrants to acquire
736,500 shares for $1.00 per share through June 30, 2002 in connection
with a private placement.
In compliance with SFAS No. 123, the Company recognizes and measures
compensation costs related to the Employee Plan utilizing the intrinsic
value based method. Accordingly, no compensation cost has been recorded.
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
9
<PAGE> 10
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(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 $500,000 as of December 31, 1999, and $500,000 as of March 31,
2000.
Concentrations
Approximately 99% of the sales in the first quarter of 2000 were made to
three customers and 48% of the sales in the first quarter of 1999 were
made to two customers. These are five separate customers, none of whom
made purchases in both quarters.
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 March 31, 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>
Bank of America RV Trailer 08-25-04 9.75% $ 422 $18,132
Less current installments
of long-term debt
(3,452)
-------
$14,680
=======
</TABLE>
9. NEW ACCOUNTING BULLETIN
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB No. 101"). SAB No. 101 summarizes certain of the SEC
staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We are presently
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SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
evaluating the impact, if any, that SAB No. 101 will have on our reported
results.
10. 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 owing in the matter.
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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 - FIRST QUARTER OF 2000 COMPARED TO FIRST QUARTER OF
1999
Summit Environmental's revenues for Q1 2000 were $16,803, a 9.4 percent
reduction from revenues of $18,548 in Q1 1999. Gross margin was 50 percent for
Q1 2000 compared to 74 percent for Q1 1999.
Operating expenses rose during Q1 2000 compared to Q1 1999. Operating
expenses increased by $83,714 from $234,233 in Q1 1999 to $317,947 in Q1 2000, a
35.7 percent increase.
Amortization and depreciation were $3,237 lower in Q1 2000 than Q1 1999.
Summit had a net loss from operations of $309,183 for Q1 2000 compared to a
net loss of $215,254 for Q1 1999, a $93,929 or a 43.6 percent increase.
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. The Company began aggressively selling the overall
FIREPOWER 911(TM) market potential to the different component suppliers
essential for the production of FIREPOWER 911(TM). 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).
On April 30 and May 1, FIREPOWER 911(TM) was presented at the annual
Buyers' Program for Grocery Supply Company. Previously, FIREPOWER 911(TM) was
shown at another Advantage meeting, where FIREPOWER 911(TM) was presented for
pre-booking of orders. This was a successful program producing orders for
FIREPOWER 911(TM) from Grocery Supply Company, which were shipped in January.
The previous presentation was to buyers for convenience store customers of
Grocery Supply Company. The just-completed presentation was for both the
convenience and the retail store buyers (for the first time). Grocery Supply
Company ships products to approximately 20,000 stores.
The Company has been developing the necessary tools for the production of
an infomercial for FIREPOWER 911(TM). The Company has known for some time that a
FIREPOWER 911(TM) demonstration has the visual capacity to capture viewers and
produce impulse sales. To produce a quality, well-placed
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<PAGE> 13
infomercial that will yield optimum results, key agreements must be
consummated.
o Paramount to the success of the campaign would be fulfillment.
The Company sought West Teleservices to represent the
Company's fulfillment needs. Since an infomercial featuring
FIREPOWER 911(TM)would be sailing in uncharted waters in the
infomercial industry, we had to await the approval process
regarding these first time issues with West Teleservices, such
as the major hurdle, liability exposure. During the second
week of April 2000, the Company was notified of successfully
having met product approval.
o Another area was for the Company to secure a production and
placement company/partner with sufficient expertise in the
area of infomercials. An agreement is being consummated in
this area and will be made public during the second quarter of
2000.
During the first quarter, the marketing office at the Company
headquarters began the presentation to the retail grocery store brokers of the
Company's seasonal Christmas tree protectant, SAFETREE(TM). Vendor approvals
during the first quarter came from Albertson's Food Stores and HEB Food Stores
(Texas). SAFETREE(TM) is a seasonal product sold only in the 30 to 45 days prior
to Christmas. A single production run will be conducted during September for the
shipments to fulfill orders received by August 1, 2000.
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.
During the last quarter of 1999, members of the Company's executive
committee traveled to the office of QVC in Westchester, Pennsylvania to present
products. SAFETREE(TM) was approved. However, due to the timing involved
regarding a one-time production run, it was determined that Christmas 2000 would
be the first date SAFETREE(TM) would be available.
Catalogue sales were initiated during 1999 and the Company's FIREPOWER
911(TM) received major acceptance with its placement in the Spring and Summer
Gift Catalogue of the Amway Corporation. The drop-shipment for the first
catalogue was during February 2000. Orders for fulfillment are being handled by
the Company's distributor, Proformance Marketing. FIREPOWER 911(TM) will be
featured on the June mailing for American Master Products, A mail order house
out of Michigan.
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
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<PAGE> 14
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 Reserve
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.
International product submissions have resulted in approvals from the
Hong Kong Fire Department, Singapore Fire Department, 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.
On May 2, 2000, the Company was notified by its South American strategic
alliance partner, MPI, that the official government notice of certification for
the sale of FIREPOWER 911(TM) in Chile will occur by May 12, 2000. Preparations
are currently underway between the Company and MPI, arranging letters of credit
and Spanish labels for FIREPOWER 911(TM).
The Company executed a contract for the "Caribbean Corridor" which
includes 16 island countries throughout the Caribbean. The execution of the
contract calls for approximately $12,000 in sales per month. These sales are
comprised of one pallet of FIREPOWER 911(TM) one liter cans and one pallet of
16-ounce cans per month.
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, California Title22 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. ULTIMATE ABSORB 1103(TM) was developed by Dr. Mohsen
Amiran as a parallel product for ancillary sales for both bio-hazard cleanup by
fire departments and related spill cleanup for both the aviation and military
markets.
During the week of May 2-4, 2000, Summit was represented at the Halon
Option Technical Working Conference. Dr. Amiran presented a paper on
FLAMEOUT(R), a super-agent fire suppressant, at the conference. FLAMEOUT(R) was
the only presentation of a product at the conference poster presentation segment
of the meeting. A copy of the paper and presentation can be viewed on the
Company's new corporate website.
The Company has a new corporate website. 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 Release, Newsletters, See the
Products Work, Research and Development, Frequently asked Questions, Products,
and Links. This website address is WWW.SECI-US.COM.
14
<PAGE> 15
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 can be created. This is
supported by actions taken by the US-EPA, which have been mentioned previously,
and actions of the Connecticut State Fire Marshall's Office and the California
State Fire Marshall's Office.
The formula for FIREPOWER 911(TM) and FLAMEOUT(R) is one of only a few
suppressing agents certified by the EPA as a replacement for the globally banned
fire agent, Halon 1211. Initially, the Connecticut State Fire Marshall'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.
In February 1999, the Company completed the listing and rating
requirements, placing 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. In March 1999, the Company received a letter from the Connecticut
State Fire Marshall's Office certifying that the Company's FIREPOWER 911(TM) had
satisfied their fire code requirements.
The California State Fire Marshall's Office notified the Company in
July 1999 that California had a unique legislative requirement in addition to
the NFPA and ANSI/UL standards for portable fire extinguishers. This is a new
area, termed Non-Halon Certification, and means that any portable fire
extinguisher whose marketing intent is directed to the residential and
individual use market must contain a formula that has been certified as
Non-Halon. FLAMEOUT(R) is the first of seven permanent listed and certified
replacements for Halon 1211. It is the only product that can meet this
requirement due to the type of approval for FLAMEOUT(R). The approval is 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
15
<PAGE> 16
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
Marshall's Office, until such time as EPA-SNAP would approve another residential
formulation and said formulation was listed and rated as a portable fire
extinguisher.
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. The Company is preparing to embark on a test at Underwriters
Laboratories during the second quarter. The new K-rating for restaurant kitchens
is a rating for cook-top extinguishers. The Company's chief executive officer
and other directors have met with Underwriters Laboratories in order to begin
this process. 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 in the market development for grocery stores.
The Company spent all of 1999 preparing, submitting and obtaining these
direct and crucial marketing positions. The concepts for marketing, now that
strategic positioning has been accomplished, are discussed in Management's
Discussion and Analysis.
The Company's negotiations with International Aero have resulted in an
exclusive distribution agreement for the aviation industry and the military that
was executed in January 1999. During 2000, FLAMEOUT(R) will be submitted by
International Aero as the agent to replace Halon in the onboard handheld fire
extinguishers. In March 1999, the Federal Aviation Agency published the Minimum
Performance Standards, which is the requirement guideline for finding the
selected firefighting 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.
FLAMEOUT(R) was demonstrated April 11-13 in Wisconsin, at the NFPA 18
fire suppressant testing meeting. The Company expects this event to begin the
exposure of FLAMEOUT(R) in the upper echelons of firefighting products
worldwide. The Company was represented by International Aero, Dr. Mohsen Amiran
and Keith Parker at the ANSUL test facility. Tests for 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 the first week of May 2000, FLAMEOUT(R) was tested at the Naval
Research Laboratories in Greenwood, Mississippi. These tests used FLAMEOUT(R) in
the new NRL patented passenger cabin misting system developed by Naval Research
Laboratories.
16
<PAGE> 17
International marketing agreements were negotiated and executed during
1999. 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 reached during
1999 included 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 spent all of 1999 assisting our distributor partners with
necessary testing, listing, ratings and certification in order to complete the
registration process in each of these countries. 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. Five such announcements are anticipated for release during
the second quarter.
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
17
<PAGE> 18
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 11, 2000 Summit Environmental Corporation, Inc.
By /s/ B. Keith Parker
--------------------------------------
B. Keith Parker, Chief Executive
Officer
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,093,154
<SECURITIES> 0
<RECEIVABLES> 150,646
<ALLOWANCES> 44,000
<INVENTORY> 762,726
<CURRENT-ASSETS> 1,964,005
<PP&E> 70,674
<DEPRECIATION> 10,644
<TOTAL-ASSETS> 4,732,330
<CURRENT-LIABILITIES> 72,293
<BONDS> 0
0
0
<COMMON> 11,931
<OTHER-SE> 4,720,399
<TOTAL-LIABILITY-AND-EQUITY> 4,732,330
<SALES> 16,803
<TOTAL-REVENUES> 17,159
<CGS> 8,393
<TOTAL-COSTS> 8,393
<OTHER-EXPENSES> 316,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,629
<INCOME-PRETAX> (309,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> (309,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 309,183
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
