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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 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 January 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1943 for the transition period from ______________ to
______________.
1-9087
(Commission file no.)
SUMMA RX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 75-1535372
(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
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2940 FM 3028, Mineral Wells, Texas 76067
(Address of principal executive office) (Zip Code)
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(940) 325-0771
(Registrant's telephone number, including area code)
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 Act of 1934 during the
preceding 12 months (or for a 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 January 31, 1998 there were 3,145,838 shares of common stock outstanding.
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SUMMA RX LABORATORIES, INC.
TABLE OF CONTENTS
FORM 10-QSB
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PART I - FINANCIAL INFORMATION 3
Item 1 - Financial Statements 3
Balance Sheet 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to the Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION 9
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other information 9
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 9
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2
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SUMMA RX LABORATORIES, INC.
BALANCE SHEET
(Unaudited)
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January 31,
ASSETS 1998
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Cash $ 29,355
Trade Accounts Receivable, less
allowance for doubtful accounts of $74,150 91,845
Inventory 153,573
Other Current Assets 20,558
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Total Current Assets 295,331
Property, plant and equipment 1,498,952
Less accumulated depreciation 457,514
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Net property, plant and equipment 1,041,438
Land 5,798
Intangibles 36,676
Less accumulated amortization 31,617
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Net intangibles 5,059
Total assets $ 1,347,626
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LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable to related parties $ 104,390
Accounts Payable 214,045
Accrued Liabilities 100,239
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Total current liabilities 418,674
Long Term Debt 190,000
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Total Liabilities 608,674
Common stock 31,458
Additional paid-in capital 3,219,379
Accumulated deficit (2,511,885)
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Stockholders' equity 738,952
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Total liabilities and stockholders' equity $ 1,347,626
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See accompanying notes to the financial statements.
3
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SUMMA RX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three months ended Nine months ended
January 31 January 31
1998 1997 1998 1997
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Net Sales $ 501,236 $ 651,216 $ 2,883,441 $ 1,905,946
Cost of Goods sold 358,806 442,802 1,334,542 1,358,381
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Gross Profit 142,430 208,414 1,548,899 547,565
Selling, general and administrative 179,373 138,507 1,157,310 389,511
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Operating profit (loss) (36,943) 69,907 391,589 158,054
Other income (expense) (7,576) (8,832) (25,471) (22,695)
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Net Income (loss) $ (44,519) $ 61,075 $ 366,118 $ 135,359
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Basic earnings (loss) per share (.01) .02 .10 .04
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Weighted average shares outstanding 3,563,388 3,560,974 3,563,388 3,560,974
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Fully diluted earnings (loss) per share (.01) .02 .09 .03
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Fully diluted shares outstanding 4,076,504 4,048,379 4,076,504 4,048,379
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See accompanying notes to the financial statements.
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SUMMA RX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine months ended
January 31
1998 1997
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Cash flows from operating activities:
Cash received from customers $ 2,737,214 $ 1,576,584
Cash paid to suppliers and employees (2,419,545) (1,453,629)
Interest paid (31,997)
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Net cash used in operating activities 285,672 (156,371)
Cash flows from investing activities:
Capital expenditures (407,348) (164,259)
Proceeds from sale of assets
Cash effect of stock purchase (85,884) 98,405
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Net cash provided by (used in) investing activities (493,232) (65,854)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 190,000
Proceeds from issuance of common stock 0 37,500
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Net cash provided by financing activities 0 227,500
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Net increase (decrease) in cash (207,560) 5,275
Cash at beginning of year 236,915 16,708
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Cash at end of year $ 29,355 $ 21,983
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Reconciliation of net loss to net cash used in operating activities:
Net profit (loss) $ 366,118 $ 135,359
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 46,196 35,099
Changes in assets and liabilities:
Accounts receivable (91,714) (218,434)
Inventories (545) 52,566
Other current assets (9,552) (7,870)
Accounts payable and accrued expenses (24,831) (153,091)
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Net cash used in operating activities $ 285,672 $ (156,371)
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See accompanying notes to the financial statements.
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SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND GENERAL
Summa Rx Laboratories, Inc. ("Summa") was formed as a Texas sole proprietorship
in 1972 and was incorporated in the State of Texas in October 1976, as Dews
Laboratories, Inc. In November 1987, Dews was merged into a Delaware corporation
and was renamed Summa Rx Laboratories, Inc.
Summa is engaged in the business of manufacturing and marketing of
pharmaceuticals, dietary supplements and nutritional products for sale under its
own label and under contract for others. Its executive offices and manufacturing
facilities are located at 2940 FM 3028, Mineral Wells, Texas 76067,
approximately 45 miles west of the Dallas/Fort Worth metropolitan area.
The Unaudited interim financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
accompanying Unaudited interim financial statements and related notes should be
read in conjunction with the financial statements notes thereto included in the
Corporation's most recent Form 10-K covering fiscal year ended April 30, 1997.
The information furnished reflects, in the opinion of the management of Summa Rx
Laboratories, Inc. all adjustments necessary for a fair presentation of the
financial results for the interim period presented.
Interim results are subject to year-end adjustments and audit by independent
certified public accountants.
NOTE 2 - TRANSACTIONS AFFECTING STOCKHOLDER'S EQUITY
There were 2,000,000 shares of $0.10 par value preferred stock authorized and no
shares issued and outstanding at October 31, 1997 and 50,000 shares issued and
outstanding at April 30, 1997. In October 1997 the final preferred shareholder
converted his 50,000 shares into 51,973 shares of common.
There were 10,000,000 shares of $.01 par value common stock authorized and
3,145,838 shares issued and outstanding at January 31, 1997 and 3,597,401 shares
issued and outstanding at April 30, 1997. In October 1997 56,464 shares were
issued for payment of interest on the outstanding Note Payable to related
parties. A former board member returned 60,000 shares to Treasury. These shares
were based on a long term commitment and he resigned before they were vested .
During January 1998 Summa purchased 500,000 shares of common stock from the
Estate of G. R. Chambers.
NOTE 3 - EARNINGS PER SHARE
In February, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share", which simplifies
the calculation of basic EPS and diluted EPS. The effective date is for
accounting periods ending after December 15, 1997, with restatement for prior
periods presented after December 15, 1997.
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding during the three months and nine months periods ended January 31,
1998 and 1997. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised and converted into common stock or resulted in the issuance of common
stock that then shared in the earnings.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
An agreement was entered into with a distribution company to produce patented
zinc lozenges during the last quarter of fiscal year 97, this agreement
dramatically increased sales in the second quarter of 1998, the sales of zinc
fell off during the third quarter of fiscal year 98. Sales of zinc lozenges were
only present during four of the nine month comparison. Sales decreased 24% and
increased overall by 151%.
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Three months Nine months
1997 1996 1997 1996
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Sales $ 501,236 $ 589,326 $2,382,205 $1,254,730
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Cost of goods can fluctuate dramatically due to the nature of our business,
contract manufacturing. Management strives to maintain cost of goods between 70%
to 75% of sales. Cost of goods sold increased from 68% to 71% and decreased from
71% to 46% for the comparable prior periods. The decrease was a direct result
from lower cost of goods associated with contracts that had higher royalty and
commission expenses.
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Three months Nine months
1998 1997 1998 1997
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Cost of Goods $ 358,806 $ 442,802 $1,334,542 $1,358,381
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The dollar value of general and administrative expenses have remained constant
due to management's diligence to control expenses. General and administrative
expenses increased from 14% to 19% and from 14% to 15% of sales respectfully for
the comparable periods last year. Selling expenses have increased from 7% to 17%
and from 6% to 25% of sales respectfully for the comparable periods last year.
The increase in selling expenses is directly related to the royalty agreement
with the patent holder on the zinc lozenges and the sales commissions relating
to those sales.
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Three months Nine months
1998 1997 1998 1997
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Selling, general and administrative $ 179,373 $ 138,507 $ 1,157,310 $ 389,511
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Interest expense was primarily on loans from stockholders.
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FINANCIAL CONDITION
The Company's debt structure has significantly improved, the debt to related
parties has been accruing interest, but not consuming cash in debt service.
The Company exchanged $185,000 of Convertible Debentures, and its accrued
interest of $98,405 for 566,810 shares of common stock during the first quarter
of fiscal 1997, an additional 75,000 shares of common stock were sold to
generate cash to retire the remaining debenture and its accrued interest.
In July, the company issued twelve percent (12%) subordinated callable notes in
the amount of $190,000 due July 10, 1999. The funds were generated and set aside
for capital expenditures. A new IMA Model 40F intermittent motion capsule
filling machine was purchased to meet the growing demand of customers wanting
encapsulated products as opposed to compressed tablets. A new air compressor has
been installed to meet the demand of compressed air needed to run the new
capsule machine and automated packaging line simultaneously.
Recently, one of Summa's products, a patented zinc lozenge, was featured on the
program 20/20 which touted it as being a cure for the common cold. As a result
of that feature story many retailers could not get enough of the product to meet
demand. The calendar year 1996 was the first year that there was a significant
presence of these products in the market place. Because of the feature story and
the public acceptance of that product Summa then anticipated significant sales
of the product in the future.
In March, 1997 Summa entered into a license agreement with the inventor and
patent holder to manufacture and sell zinc lozenges worldwide. The basis of that
agreement was assistance and consultation provided to the inventor by Summa over
the past ten years during which time Summa worked with and assisted the
inventor/researcher to develop and obtain six United States patents on zinc
lozenges.
In May 1997, Summa entered into a manufacturing and sales agreement with a
distribution company that provided for minimum annual sales of zinc lozenge
tablets with increased annual minimums in the third year of the contract.
In June 1997 the distribution company introduced Summa to the JB Williams
Company, Inc., the seller of the Cepacol(R) brand product. As a result of that
introduction, Summa has entered into a multi-year manufacturing and sales
agreement with JB Williams Company to supply it with zinc lozenge tablets. That
agreement provides that JB Williams will purchase an annual minimum during the
first two years with an increase of 64% during the remainder of the agreement.
The JB Williams agreement is for a five year primary term with automatic five
year extensions thereafter. Sales by JB Williams under its agreement are limited
to the United States of America, its territories and possessions, the other
nations of North America, the nations islands of Central America and the
Caribbean Sea, less Cuba and Greenland.
Because of the JB Williams agreement, the agreement with the distribution
company has been amended to allow it to significantly reduce its required annual
minimum purchases.
While Summa's exports sales have been negligible, it has sought to increase
sales the this arena by making arrangements with brokers who actively do
business in the export market. Based on domestic acceptance of zinc lozenges and
the fact that the product is patented, sales into export market raise the likely
possibility that zinc lozenges could become a product that will have year-round
sales.
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PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 - Changes in Securities
Not applicable
Item 3 - Defaults Upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 - Other information
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Summa Rx Laboratories, Inc.
March 27, 1998 /s/ Pauline G. Lee
Pauline G. Lee
Secretary and
Chief Accounting Officer
9
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INDEX TO EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
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