<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 June 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 June 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE> 3
SUMMIT ENVIRONMENTAL CORPORATION, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 (Unaudited) December 31, 1999
------------------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 856,914 $ 585,857
Accounts Receivable 149,010 165,420
Less Allowance (44,000) (44,000)
Inventory 796,604 729,184
Prepaid Expenses 7,620 3,172
------------ ------------
Total Current Assets 1,766,148 1,439,633
------------ ------------
PROPERTY AND EQUIPMENT AT COST
Equipment 102,930 77,492
Accumulated Depreciation (9,697) (9,915)
------------ ------------
Net Property and Equipment 93,233 67,577
------------ ------------
OTHER ASSETS
Prepaid Royalties 515,000 500,000
Patents and Licenses 2,435,000 2,435,000
Less: Accumulated Amortization (267,292) (186,118)
------------ ------------
Total Other Assets 2,682,708 2,748,882
------------ ------------
TOTAL ASSETS $ 4,542,089 $ 4,256,092
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 47,705 $ 11,401
Accrued Liabilities 22,879 16,717
Notes Payable - Current 3,218 11,579
------------ ------------
Total Current Liabilities 73,802 39,697
------------ ------------
LONG-TERM LIABILITIES
Notes Payable - Less Current Portion 46,933 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 (2,177,875) (1,597,190)
------------ ------------
Total Stockholders' Equity 4,421,354 4,179,539
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,542,089 $ 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
JUNE 30 PERIOD FROM
---------------------------- AUGUST 31, 1997 TO
2000 1999 JUNE 30, 2000
------------ ------------ ------------------
<S> <C> <C> <C>
SALES $ 21,753 $ 59,771 $ 415,677
COST OF SALES 6,562 24,783 115,802
------------ ------------ ------------
GROSS PROFIT 15,191 34,988 299,875
------------ ------------ ------------
OPERATION EXPENSES
Advertising and marketing 33,021 35,321 507,179
Amortization 40,587 47,046 276,989
Automobile expense 6,087 6,440 64,751
Bad debt expense -- 72 46,968
Commissions 3,677 -- 29,219
Consulting fees -- -- 29,994
Contract services 234 45 3,579
Contributions 1,100 25 4,480
Depreciation 5,437 972 19,546
Dues and subscriptions 950 5,101 8,563
Freight and delivery 5,903 5,899 57,150
Insurance 9,040 5,195 52,981
Legal and professional fees 21,538 6,720 134,274
Licenses and permits -- -- 28,194
Miscellaneous -- 199 17,006
Office expenses 7,440 4,721 62,732
Officer compensation 48,332 39,434 365,842
Payroll taxes 10,372 5,310 49,772
Printing and reproduction 6,052 186 22,423
Rent 10,899 11,669 107,155
Repairs 9,248 388 21,075
Research and development 10,981 -- 15,527
Royalties -- -- 5,780
Salaries - Office 26,032 23,486 205,866
Seminars and training 484 952 2,869
Taxes -- 1,100 7,228
Telephone and utilities 8,959 7,577 69,412
Travel and entertainment 25,836 23,350 144,796
Warranty expense -- -- 18,409
------------ ------------ ------------
Total operating expense 292,209 231,208 2,379,759
------------ ------------ ------------
NET EARNINGS (LOSS) FROM OPERATIONS (277,018) (196,220) (2,079,884)
OTHER INCOME
Interest income 12,729 2,728 29,602
Interest expense (2,043) (43) (6,817)
Gain/Loss on Sale of Asset (5,871) -- (8,112)
Miscellaneous 700 -- 6,930
------------ ------------ ------------
Total other income (expense) 5,515 2,685 21,603
------------ ------------ ------------
NET LOSS BEFORE CUMULATIVE EFFECT OF THE
CHANGE IN ACCOUNTING PRINCIPLE (271,503) (193,535) (2,058,281)
------------ ------------ ------------
Cumulative effect on prior years of the change
in accounting principle, net of tax -- -- (119,594)
------------ ------------ ------------
NET LOSS $ (271,503) $ (193,535) $ (2,177,875)
============ ============ ============
NET EARNINGS (LOSS) PER SHARE $ (0.02) $ (0.03) $ (0.32)
------------ ------------ ------------
WEIGHTED AVERAGE SHARES 12,019,901 7,528,494 6,843,224
</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>
SIX MONTHS ENDED
JUNE 30
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
SALES $ 38,556 $ 78,319
COST OF SALES 14,955 29,555
------------ ------------
GROSS PROFIT 23,601 48,764
------------ ------------
OPERATION EXPENSES
Advertising and marketing 96,886 52,776
Amortization 81,174 94,092
Automobile expense 14,832 13,018
Bad debt expense 2,516 119
Commissions 9,986 3,000
Consulting fees -- --
Contract services 234 1,282
Contributions 1,300 25
Depreciation 9,631 1,944
Dues and subscriptions 1,375 6,306
Freight and delivery 19,589 9,279
Insurance 15,778 10,158
Legal and professional fees 47,549 34,088
Licenses and permits 651 5,118
Miscellaneous 40 199
Office expenses 18,827 10,130
Officer compensation 95,247 76,934
Payroll taxes 14,270 12,169
Printing and reproduction 16,980 186
Rent 21,699 29,066
Repairs 11,578 1,506
Research and development 11,023 754
Royalties -- 5,780
Salaries - Office 50,371 51,239
Seminars and training 3,869 950
Taxes -- 1,100
Telephone and utilities 18,389 13,407
Travel and entertainment 44,216 30,762
Warranty expense 518 --
------------ ------------
Total operating expense 608,528 465,387
------------ ------------
NET EARNINGS (LOSS) FROM OPERATIONS (584,927) (416,623)
OTHER INCOME
Interest income 15,326 7,932
Interest expense (3,672) (97)
Gain/Loss on Sale of Asset (8,112) --
Miscellaneous 700 --
------------ ------------
Total other income (expense) 4,242 7,835
------------ ------------
NET LOSS BEFORE CUMULATIVE EFFECT OF THE
CHANGE IN ACCOUNTING PRINCIPLE (580,685) (408,788)
------------ ------------
Cumulative effect on prior years of the change
in accounting principle, net of tax -- --
------------ ------------
NET LOSS $ (580,685) $ (408,788)
============ ============
NET EARNINGS (LOSS) PER SHARE $ (0.05) $ (0.05)
------------ ------------
WEIGHTED AVERAGE SHARES 11,422,857 7,473,450
</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>
Six Months Ended
June 30 Period from
-------------------------- August 31, 1997 to
2000 1999 June 30, 2000
----------- ----------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (580,685) $ (408,788) $ (2,177,875)
Adjustments to reconcile net earnings (loss) to cash
used in operating activities
Amortization 81,174 94,092 276,989
Bad debt expense -- -- 44,452
Cumulative effect of change in accounting principle -- -- 119,594
Depreciation 9,631 1,944 19,546
Loss on sale of equipment 8,112 -- 8,112
Common stock issued for services -- -- 17,494
Change in assets and liabilities
Accounts receivable 16,410 1,591 (149,462)
Inventory (67,420) (322,433) (796,604)
Prepaid expenses (19,448) (156,095) (522,620)
Accounts payable 36,304 3,134 47,705
Accrued liabilities 9,380 663 26,097
----------- ----------- -------------
Net cash used in operating activities (506,542) (785,892) (3,086,572)
----------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (86,341) (3,586) (112,067)
Organization costs -- -- (129,291)
Acquisition of licenses -- -- (60,000)
Proceeds on sale of equipment 42,942 -- 42,942
----------- ----------- -------------
Net cash used in investing activities (43,399) (3,586) (258,416)
----------- ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds -- -- 6,554
Loan principal repayments (1,502) (1,738) (11,387)
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 820,998 305,762 4,201,902
----------- ----------- -------------
NET INCREASE (DECREASE) IN CASH 271,057 (483,716) 856,914
Cash - Beginning of Period 585,857 744,704 --
----------- ----------- -------------
Cash - End of Period $ 856,914 $ 260,988 $ 856,914
=========== =========== =============
</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 June 30, 2000, the statement of operations
for the three months and the six months ended June 30, 2000 and the three months
and the six months ended June 30, 1999, and the statement of cash flows for the
six months ended June 30, 2000 and the six months ended June 30, 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 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
7
<PAGE> 8
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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 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.
8
<PAGE> 9
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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
$33,021 and $35,321 for the second 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 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.
9
<PAGE> 10
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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 $14,720 and $16,474 for the second 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 second quarter of 2000, the company issued warrants to acquire
30,000 shares for $1.00 per share through June 30, 2002 in connection
with a private placement. No additional warrants have been issued.
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 (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 $515,000 as of June 30, 2000.
10
<PAGE> 11
SUMMIT ENVIRONMENTAL CORPORATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
Concentrations
Approximately 84% of the sales in the second quarter of 2000 were made to
a single customer and 53% of the sales in the second quarter of 1999 were
made to a different single customer.
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 June 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 $ 50,151
Less current installments of
long-term debt
(3,218)
--------
$ 46,933
========
</TABLE>
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.
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 - SECOND QUARTER OF 2000 COMPARED TO SECOND
QUARTER OF 1999
Summit Environmental's revenues for Q2 2000 were $21,753 compared to $59,771
in Q2 1999. Gross margin was 69.8 percent for Q2 2000 compared to 58.5 percent
for Q2 1999.
Operating expenses rose during Q2 2000 compared to Q2 1999. Operating
expenses increased by $61,001 from $231,208 in Q2 1999 to $292,209 in Q2 2000, a
26.4 percent increase.
Amortization and depreciation were $1,994 lower in Q2 2000 than Q2 1999.
Summit had a net loss from operations of $271,503 for Q2 2000 compared to a
net loss of $193,535 for Q2 1999, a $77,968 or a 40.3 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. 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).
During the second quarter, the company received purchase orders for
FIREPOWER 911(TM) that cannot be recorded in the financial statements until
delivery during the third quarter. The shipping of those orders is scheduled for
August 2000 and the sale will appear in the third quarter financial reports.
These orders for FIREPOWER 911(TM) have been received and are being shipped to
Premium Oil Convenience Stores in the west, Valley Wholesale Hunting Stores in
the west and northwest, and HEB Food Stores in San Antonio.
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 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. During the second week of April
2000, the company was notified of successfully having met product
approval.
o 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. The company is looking for the
programming to begin in the fourth quarter.
12
<PAGE> 13
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.
The company received a purchase order for SAFETREE(TM) during the second
quarter of 2000. The sale will appear on the fourth quarter financial
statements.
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. As of August 4, 2000, the company still did not have a start date.
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) was 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 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.
The new mandated EPA testing for certifying cleaners as non-corrosive for
the mandatory cleaning of jet engines has been in the process on ULTIMATE CLEAN
668(TM) since December of 1999. Final requirements are currently being
completed. The company anticipates a short period of time for actual
on-equipment testing with the Navy. Upon issue of the specification number,
International Aero has several airline customers and military customers ready
with initial orders for ULTIMATE CLEAN 668(TM).
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.
13
<PAGE> 14
In late June, the company received the first order for FIREPOWER 911(TM)
for shipment to Chile. The company has been notified by MPI, a strategic
alliance partner for South America, of a 30,000 can order in process.
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 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. 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.
The company has received a repeat order for ULTIMATE ABSORB from the
Delta Center in Salt Lake. The company began aggressively marketing ULTIMATE
ABSORB in June. The response both in the U.S. and abroad has been very
favorable. Premium Oil, based in Utah, has now purchased the absorbent for their
convenience stores and fleet of fuel trucks. The absorbent has also been
introduced into the meat industry distribution center in the ports of New Jersey
and ULTIMATE ABSORB has been received very well.
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. The first
container-load of FLAMEOUT(R) for Summit Europe is scheduled for delivery in
August 2000.
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.
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
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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(TM) 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(TM). 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
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. Due to the time and effort the company has spent positioning
FIREPOWER 911(TM) for this strategic niche market, the Texas State Fire
Marshall's office has taken enforcement action on several occasions since
January 2000. One of the most obvious products violating the NFPA10 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
Marshall'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 promoted themselves 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 pricewise with these low end products. However, these products are now
being
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eliminated from the marketplace by enforcement action. It has been very
difficult to educate buyers to understand the difference in our aerosol fire
extinguisher and others 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 code. The notice will
provide the validation and listing information on FIREPOWER 911(TM) and the
public record files information on the enforcement actions taken in Texas and
California.
The company is preparing to embark on a test at Underwriters
Laboratories during the third 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.
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
cardholders.
The second agreement is with a company that will represent FIREPOWER
911(TM) in a door-to-door marketing effort. This is an overseas marketing
company with a presence of over 150,000 sales people in 93 countries. Management
feels that this direct door-to-door sales approach, even though overseas, could
provide some needed sales. After all, many of the initial shareholders of the
company participated in the early private placements due to the simple, quick
and effective demonstration of FIREPOWER 911(TM).
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, 2000 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.
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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.
At the Annual Shareholders' Meeting, May 8, 2000, the company
introduced a super-absorbent. ULTIMATE ABSORB 1103 is a unique product that will
absorb any liquid or semi-liquid known. The company conducted the first test
market on ULTIMATE ABSORB at the Delta Center in Salt Lake City, Utah. The
successful test has led to ULTIMATE ABSORB and its new shaker bottle, for quick
application, being ordered by the Delta Center through the company's
distributors, Magic Chemical, to replace all the absorbent currently on hand.
ULTIMATE ABSORB is US-EPA, USDA, California Title 22 and World Health
Organization approved. The company anticipates an additional approval in late
August or early September for EPA landfill usage. This will allow hazardous
materials to be deposited in landfills when ULTIMATE ABSORB has been used in the
cleanup. This opens up an enormous market. The company's marketing partner, MPI,
has also introduced ULTIMATE ABSORB 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.
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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) FORMS 8-K
None
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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: August 11, 2000 Summit Environmental Corporation, Inc.
By /s/ B. KEITH PARKER
---------------------------------------------
B. Keith Parker, Chief Executive Officer
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
