<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from _____________ to ______________
Commission file number 1-9087.
SUMMA RX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1535372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2940 FM 3028, Mineral Wells, Texas 76067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (940) 325-0771
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.01 par value Over the Counter
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether 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 12 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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
As of July 16, 1999, the estimated aggregate market price of the
Registrant's voting stock held by non-affiliates was $590,000.
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of July 16, 1999, the Registrant had 3,145,838 shares of its common
stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits from (i) Registration Statement No. 33-00297-FW on Form
S-18 as filed with the Commission on December 9, 1985, (ii) Registration
Statement No. 33-9475 on Form S-8 as filed with the Commission on October 9,
1986, (iii) Annual Report on Form 10-K for the year ended April 30, 1989 and
(iv) Quarterly Report on Form 10-Q dated September 15, 1988 are incorporated by
reference into Part IV of this Report.
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PART I
ITEM 1. BUSINESS
CORPORATE IDENTITY STATEMENT
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
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.
DESCRIPTION OF PHARMACEUTICAL PRODUCTS AND SERVICES
Summa's manufacturing facility is registered with the Food and Drug
Administration (the "FDA") to manufacture drugs and medical devices. Present
operations consist primarily of the manufacturing and marketing of products that
fall into three categories - dietary supplements, prescription and over the
counter ('OTC") pharmaceuticals. All of its manufacturing and sales are now done
on a contract basis according to the customer's specifications, including
content and labeling design.
A major portion of Summa's sales consists of dietary supplements. Pursuant
to the new Dietary Supplement Health and Educational Act of 1994, the term
dietary supplements includes vitamins, minerals, amino acids, and herbs or other
botanicals. Summa manufactures dietary supplements for a variety of customers
including multi-level marketers and direct sales companies.
In addition, Summa, manufactures prescription and nonprescription
pharmaceuticals such as analgesics, decongestants, and mucolytic expectorants.
On March 31, 1997, Summa entered into a license agreement to manufacture
zinc lozenges under five U. S. Patents. The license allows Summa to sell the
products worldwide and was entered into with the patent holder in return for his
use of Summa's manufacturing facilities, and for consultation and assistance
provided by Summa over the past ten years that resulted in the development of
the patents.
Effective on May 16, 1997, Summa entered into a contract to manufacture and
sell zinc acetate lozenges to a distribution firm under the brand name
ColdCure(TM). In June 1997 the distribution company introduced Summa to the JB
Williams Company, Inc., the seller of the Cepacol brand product. As a result of
that introduction, on July 10, 1997 Summa 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.
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Summa's production and billing procedures are based on an order, production
and shipment/payment premise so as to minimize finished goods inventory, order
backlog and delays in payment of receivables. As of July 16, 1999, Summa had
pending orders that totaled $584,817. These orders are scheduled for delivery
during the next six weeks.
Distribution of products from Summa's manufacturing facility is by
commercial freight carriers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The sources of the raw materials for Summa's operations are from
independent commercial suppliers through-out the United States, and are
available from many other suppliers, other than those utilized by Summa. There
is adequate availability of the raw materials required for Summa's manufacturing
operations.
PATENTS AND TRADEMARKS
Although most of Summa's formulas are not subject to patent protection,
Summa has in the past, and will in the future attempt to retain those formulas
in the form of trade secrets. Summa believes that improvement of existing
products, reliance upon trade secrets, and unpatented proprietary know-how and
development of new products are generally as important as patent protection in
establishing and maintaining a competitive market position.
Summa has filed an application for a patent entitled "Dietary Supplement
for the Promotion of Healthy Hair and Pigment Restoration" with the U. S. Patent
Office.
In addition Summa has filed applications for trademarks for Gray Away, Zinc
Care, Zinc Plus, Cold Clear, and ColdCare.
As part of the license agreement to manufacture zinc lozenges, Summa
acquired the exclusive right to the use of ColdCure(TM).
SEASONALITY
Dietary supplements and nutritional products traditionally experience
declines in sales during the summer months; however, Summa has attempted to
restructure its marketing efforts and product line to minimize the impact of
seasonality on its sales.
DEPENDENCE ON CUSTOMERS' BUSINESS
For the year ended April 30, 1999, three customers accounted for 20%, 14%,
and 13% of Summa's sales, respectively. The loss of any of these customers could
have an adverse effect on the company. During the fiscal year ended April 30,
1998, three customers accounted for 37%, 20%, and 12% of sales.
COMPETITION
The manufacture and sale of dietary supplements, prescription and OTC
pharmaceuticals is highly competitive with respect to price and products offered
and is influenced by consumer preference. Summa does not attempt to compete with
large pharmaceutical and nutritional companies, except in its dietary supplement
programs, but attempts to supplement the products offered by such companies by
offering similar products in market areas not penetrated by the larger
companies. There are numerous smaller companies whose products
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overlap many of the products produced by Summa. Many of those companies are of
comparable size or larger and provide the majority of the competition in Summa's
market.
PRODUCT RESEARCH AND DEVELOPMENT
Summa intends to direct its research and development activities toward (1)
additional dietary supplement products and (2) product lines to be manufactured
under contract for customers, particularly pharmaceuticals.
GOVERNMENTAL REGULATION
Summa's products and production and manufacturing facility are subject to
governmental regulation by the FDA. The FDA establishes standards relative to
product safety, efficacy, and labeling, which apply to the manufacture, clinical
testing, and marketing of pharmaceuticals and medical devices in the United
States. FDA regulations prohibit the general sale of such products until they
have been determined to be safe and effective. Summa's manufacturing facility is
registered with the FDA to manufacture drugs and medical devices. However,
Summa's products do not require FDA pre-approval.
The procedure for seeking and obtaining FDA approval for a new
pharmaceutical or medical device can involve many steps including animal testing
to determine the safety, efficacy, and potential toxicity prior to testing on
humans, and clinical testing on humans prior to marketing. The process of
obtaining FDA new drug approval generally takes a substantial period of time and
involves the expenditure of a large amount of resources. Investigational drugs
used in domestic clinical trials are subject to regulation relating to
production methods, advertising, price, and profit.
Summa is not subject to any environmental regulations involving the
discharge of any matter into the environment at either of its facilities.
Consequently, the costs and effects of compliance with governmental
environmental laws are non-existent.
Summa has no contracts or subcontracts being done for the federal
government.
EMPLOYEES
At April 30, 1999, Summa had 41 full-time employees.
Production/manufacturing accounted for 36 of such employees. The balance of
Summa's employees are engaged in finance, sales and administration.
ITEM 2. PROPERTIES
Summa owns its executive offices and its storage and manufacturing
facilities which consist of a single building containing 28,000 square feet
located on approximately six acres, five miles southeast of Mineral Wells,
Texas. In the opinion of management the properties are adequately covered by
insurance.
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Summa expanded its manufacturing, operating and storage facilities in
August 1997. Summa believes the expansion created sufficient manufacturing and
storage facilities for its present needs. Additional acreage, is available at
its facility to provide sufficient area for future expansion.
Summa does not invest any of its assets in real estate, real estate
mortgages or other securities.
ITEM 3. LEGAL PROCEEDINGS
In July, 1998, the licensor of Summa's zinc products filed a matter in
arbitration seeking to terminate Summa's license. The matter was tried in
January, 1999 and the arbitrator found all matters in favor of Summa. The
arbitrator's order has become final and non-appealable.
On September 29, 1998, Summa filed a claim in arbitration against J. B.
Williams Company, Inc. ("Williams") based on Williams' (i) purported termination
of the manufacturing and sales agreement dated July 11, 1997 (the "Agreement")
and (ii) failure to purchase the minimum amounts of zinc lozenges as required
under the Agreement. Summa seeks to have Williams agreement termination attempt
struck down and for money damages due it under the Agreement.
On April 19, 1999, Williams filed and answer and counterclaim to the
Company's claim asserting that the Agreement was properly terminated and seeking
damages based on lost profits, losses due to advertising, marketing and
promotion expenses and losses due to defective lozenges. The Company has denied
all of the allegations in the counterclaim and is vigorously defending the
counterclaim. Summa believes that the ultimate outcome of this matter will not
have a material adverse effect on the future results of operations or Summa's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Summa's Common Stock was not publicly traded prior to February 27, 1986.
Following that date, the Common Stock has been traded in the over-the-counter
market under the symbol DEWS until January 1988 when the symbol was changed to
SMRX. Summa's Common Stock does not have an established public trading market.
The following table sets forth the high and low sales price (bid, quote)
for the Common Stock for the period shown during the last two years ended April
30, 1998 and 1999.
<TABLE>
<CAPTION>
Quotations (1)
-------------------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
July 31, 1997 1/2 1/4
October 31, 1997 1/2 1/4
January 31, 1998 1/2 1/4
April 30, 1998 3/4 3/4
July 31, 1998 3/4 3/4
October 31, 1998 3/4 3/4
January 31, 1999 3/4 3/4
April 30, 1999 3/4 3/4
</TABLE>
(1) Actual high and low bid quotations.
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At April 30, 1999, Summa had approximately 150 listed stockholders,
excluding stockholders whose shares are held in a fiduciary capacity by banks,
brokerage houses and nominees. Based on information received from such banks,
brokers, and nominees, Summa believes that it has approximately 575
stockholders.
Summa has neither declared nor paid dividends on its Common Stock in the
two most recent fiscal years. Although there are no restrictions to the payment
of dividends, except as limited by Delaware general corporate laws, Summa
intends to retain earnings for the foreseeable future for use in the expansion
of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY
In July, 1999, the holders of the "12% Callable Notes" due July 10, 1999
(the "12% Notes") agreed to extend the due date of the 12% Notes until July 10,
2001.
At April 30, 1999 Summa was generating sufficient cash flow to meet daily
operating requirements, and does not anticipate the need to seek additional
funding during the fiscal year 2000.
CAPITAL RESOURCES
At April 30, 1996 Summa had certain products manufactured by
sub-manufacturers. In July 1996 Summa's issued $190,000 in principal amount of
"12% Callable Notes" Due July 10, 1999. The funds were used to purchase
additional equipment and warehouse racking to eliminate the need for
manufacturing by sub-manufacturers and allow Summa to do all manufacturing "in
house."
In May 1998 Summa's issued $380,000 in principal amount of "10% Callable
Notes Series B" Due May 15, 2003 (the "10% Notes"). The funds are to be used for
capital improvements including the purchase of additional equipment to upgrade
its production capacity.
Summa presently continues to hold a portion of such funds in an interest
bearing account. The funds were used to purchase production equipment.
Management has delayed building the projected additions to its plant and
production facilities until the previously anticipated expansion becomes
necessary. The previously existing need to expand the plant and production
facilities was abated when the contract production forecasts by one of Summa's
zinc lozenge customer's were eliminated by that customer due to its over
estimation of the retail market for zinc lozenges.
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RESULTS OF OPERATIONS
Sales for fiscal 1999 decreased 14% when compared to sales for fiscal 1998.
Sales for fiscal 1998 increased 33% when compared to fiscal 1997. The decrease
in sales in fiscal 1999 is attributed to a surplus of inventory held by one of
Summa's zinc lozenge customers. Sales increased during fiscal 1998 primarily due
to the acquisition of a zinc lozenge production contract. Summa changed its
manufacturing philosophy in 1991 to actively seek to do contract manufacturing
for others. Since that change in philosophy, Summa has actively sought customers
for whom it is able to manufacture powders, tablets or capsules and whose needs
and volumes are not sufficient to interest large manufacturers.
Cost of goods sold, as a percent of sales, were approximately 70%, and 51%
for fiscal years 1999 and 1998, respectively. The major components of cost of
goods sold for the respective fiscal years were as follows:
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<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------------
1999 1998
--------------------- ---------------------
Amount Percent Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Material $1,001,344 35.0 $ 842,468 25.4
Labor 559,620 19.6 484,472 14.6
Overhead 429,197 15.0 376,783 11.4
---------- -------- ---------- --------
$1,990,161 69.6 $1,735,360 51.4
========== ======== ========== ========
</TABLE>
Material costs, as a percent of sales, increased 18% when comparing fiscal
1999 and fiscal 1998. The increase in costs in fiscal 1999 was due primarily to
increased costs of material. Management was able to decrease material costs in
fiscal 1998 by actively seeking better pricing and purchasing in larger
quantities, due to the ability of two new customers to forecast and place
blanket purchase orders for several months production.
Selling and marketing expenses, as a percent of sales, decreased 11% in
fiscal 1999 when compared to fiscal 1998 due to the lack of zinc sales. The
increase of 17% in selling and marketing expenses, as a percent of sales, during
fiscal 1998 was due to contracts, which required royalty payments and allowed
increased commissions. Selling and marketing expenses, as a percent of sales,
for fiscal years 1999, and 1998 were approximately 13%, and 24% respectively.
The major components of selling and marketing expense for the respective fiscal
years were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------------
1999 1998
--------------------- ---------------------
Amount Percent Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Salaries and commissions $326,201 11.4 $590,895 17.8
Royalties 15,818 0.5 157,987 4.8
Travel 5,863 0.2 8,468 0.3
Advertising 4,837 0.2 4,850 0.1
Other 25,533 0.9 21,991 0.7
-------- -------- -------- --------
$378,252 13.2 $784,191 23.7
======== ======== ======== ========
</TABLE>
General and administrative expenses, as a percent of sales, for fiscal 1999
and 1998 were approximately 19% and 16%. Legal expenses increased due to
litigation over the validity of the licensing agreement for zinc lozenges. The
other components remain constant due primarily to management's ability to
stabilize the costs of the components that make up general and administrative
expenses. The major components of general and administrative expenses for the
respective fiscal years were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------------
1999 1998
--------------------- ---------------------
Amount Percent Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Salaries $152,102 5.3 $160,768 4.8
Legal and Professional 209,238 7.3 77,405 2.3
Insurance 47,070 1.6 85,022 2.6
Other 127,869 4.5 198,591 6.0
-------- -------- -------- --------
$536,279 18.7 $521,786 15.7
======== ======== ======== ========
</TABLE>
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in a separate section
of this report. See Index of Financial Statements on Page F-1 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
BOARD OF DIRECTORS
The following table sets forth the names and ages of all of the Directors
of Summa as of July 16, 1999. Members of the Board of Directors are elected to
serve a term of one year or until their successors are elected and qualified. No
arrangement or understanding exists between any of the Directors and any other
persons pursuant to which the Directors were selected.
<TABLE>
<CAPTION>
Name Since Age Position
---- ----- --- --------
<S> <C> <C> <C>
Jerry A. Nelson 1987 63 Chairman of the Board, President
and Chief Executive Officer
Stanley K. Slutzky 1995 61 Chairman of the Compensation
Committee, Member of Audit
Committee and Director,
E. P. (Lou) Marinos 1996 57 Chairman of the Audit Committee,
Member of Compensation
Committee and Director
</TABLE>
The following sets forth pertinent information regarding each of the Directors.
Jerry A. Nelson - Elected as a Director of the Company in April, 1987, and
as Chairman of the Board, President and Chief Executive Officer in July, 1987.
He previously had served as a consultant to the company from July 1985. From
June 1982 until June 1987, Mr. Nelson was President of Nelson & Associates, a
consulting firm providing manufacturing and product development services to
various companies. From 1972 until 1982, Mr. Nelson was employed by Alcon
Laboratories, serving in various management positions at different divisions of
Alcon.
Stanley K. Slutzky - Elected as a Director of the Company in October 1995,
Mr. Slutzky is the senior partner of the law firm of Slutzky, Wolfe and Bailey
of Atlanta, Georgia. Mr. Slutzky has been in the practice
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of law in Georgia since 1962 and specializes in the practice of business law,
commercial real estate and estate planning.
E. P. (Lou) Marinos - Mr. Marinos was appointed as a member of the Board of
Directors in August, 1996. Beginning in June 1997, Mr. Marinos is serving as
President and CEO of Midcoast Interstate Transmissions, Inc. ("MIT"). In June
1999, Mr. Marinos assumed the position of Chairman of the Board and CEO of MIT,
and also became corporate Vice President-Administration of Midcoast Energy
Resources, Inc. Since March 1995, and through May 1997 Mr. Marinos served as the
President and Chief Executive Officer of Arrhythmia Research and Technology,
Inc. ("ART"), a corporation that manufactures and sells medical devices. Mr.
Marinos continues as a member of ART's Board of Directors and is Chairman of the
Audit Committee. In June 1994, Mr. Marinos was appointed as the interim Vice
President, Chief Operating Officer and Chief Financial Officer of ART. From
March 1991 until March 1995, Mr. Marinos served as President and Chief Executive
Officer of AMT/EMP Associates, a consulting company providing services in the
areas of strategic and financial planning, mergers and acquisitions, and
organizational restructuring.
EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
executive officers of Summa as of July 16, 1999. Such persons administer the
day-to-day operations of Summa and are appointed by Summa's Board of Directors
to serve until the subsequent annual meeting of the Board of Directors or until
they resign or are replaced. No arrangement or understanding exists between any
of the executive officers and any other persons pursuant to which the executive
officers were selected.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jerry A. Nelson 63 President and Chief Executive Officer
Pauline G. Lee 39 Chief Financial Officer and
Corporate Secretary
</TABLE>
Pauline G. Lee - Mrs. Lee joined Summa in May 1989 as an in-house
accountant. She was elected by the Board as the Corporate Secretary and Chief
Accounting Officer on July 8, 1993. Ms. Lee was elected to the position of Chief
Financial Officer on December 3, 1998. Prior to May 1989 she was employed as an
accountant for a group of automobile dealerships for two years, and was in
public accounting for the six years prior.
A description of Mr. Nelson's background is set forth above under "Board of
Directors."
ITEM 10. EXECUTIVE COMPENSATION
During the fiscal year ended April 30, 1999, Mr. Nelson, Summa's President
and CEO, received cash compensation of $113,454. No other Summa executive
officer received cash compensation in excess of $100,000. All of Summa's
executive officers (two persons) received a total aggregate compensation of
approximately $ 156,653 during such period.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) CERTAIN BENEFICIAL OWNERS
The following table set forth information regarding certain beneficial
owners of Summa's Common Stock at July 16, 1999 who own more than five percent
(5%) of the Common Stock. Each stockholder has sole voting and investment power
with respect to the shares set forth opposite their name, unless otherwise
indicated.
<TABLE>
<CAPTION>
Number of Shares
Owned as of
Name and Address of Beneficial Owners July 16, 1999 Percent
------------------------------------- ---------------- ---------
<S> <C> <C>
Carol M. Petrie
772 Potato Patch
Vail, Colorado 81657 233,356 7.42
Lawrence L. Black, Black & Co.
1 SW Columbia Street
Portland, Oregon 97258 223,695 7.11
Jerome Klawitter
3 Humbolt Lane
Austin, Texas 78746 306,442 9.74
Shirley K. Hunter Trustee,
Le Damier Trust
1000 Bayou Oaks Lane
Lake Charles, Louisiana 70605 434,055 13.80
Edwin K. Hunter Trustee, Chambers
Medical Foundation and Tellurogenic
1807 Lake Street
Lake Charles, Louisiana 70601 374,064 9.03
--------- ---------
TOTAL OWNERSHIP 1,571,612 47.10
========= =========
</TABLE>
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(B) MANAGEMENT OWNERSHIP
The following table set forth information regarding management ownership of
Summa's Common Stock at July 16, 1999. Mr. Nelson has sole voting and investment
power with respect to his shares.
<TABLE>
<CAPTION>
Number of Shares
Owned as of
Name of Management Owners July 16, 1999 Percent
------------------------- ---------------- -------
<S> <C> <C>
Jerry A. Nelson 180,371 5.73
Stanley K. Slutzky Trustee, Gabriel Trust 331,914 10.55
------- -------
All Officers and Directors
as a Group (5 persons) 512,285 16.28
======= =======
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 15, 1996 Summa combined two promissory notes into a single
promissory note in the principal amount of $104,390 to Carol Petrie, the holder
of 233,356 shares of the Common Stock. The principal amount includes all past
due principal and interest under the two pre-existing notes. The note is due on
December 15, 1999, bears interest at 12% per annum and is secured by all of
Summa's executive offices and manufacturing facilities. It is management's
opinion that the terms of the note are equal to or better than those which could
be obtained from an independent financial institution.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements:
See Index to Financial Statements on page F-1 for a list of all financial
statements and schedules filed as part of this report.
2. Financial Statement Schedules required to be filed by Item 8 of this
Form 10-K, and by paragraph (d) below:
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required or are inapplicable and, therefore, have been omitted.
3. Exhibits filed herewith as required by Item 601 of Regulation S-K:
Item (10) - Material Contracts.
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(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this Report.
(c) Exhibits required by Item 601 of Regulation S-K:
Item (2) - Plan of acquisition, reorganization, arrangement, liquidation.
or succession:
(A) Articles of Merger of Dews Laboratories, Inc., a Texas
corporation, and Summa Rx Laboratories, Inc., a Delaware corporation, filed
with the Commission as Exhibit 3.3 to Annual Report on Form 10-K for the
year ended April 30, 1988 are incorporated herein by reference.
(B) Certificate of Agreement of Merger of Dews Laboratories, Inc., a
Texas corporation, and Summa Rx Laboratories, Inc., a Delaware corporation,
filed with the Commission as Exhibit 3.2 to Annual Report on Form 10-K for
the year ended April 30, 1988 are incorporated herein by reference.
Item (3) (i) - Articles of Incorporation:
Certificate of Incorporation of Summa Rx Laboratories, Inc., a
Delaware corporation, filed with the Commission as Exhibit 3.1 to Annual
Report on Form 10-K for the year ended April 30, 1988 are incorporated
herein by reference.
Item (3) (ii) - By-Laws:
By-Laws of Summa Rx Laboratories, Inc., a Delaware corporation, filed
with the Commission as Exhibit 3.4 to Annual Report on Form 10-K for the
year ended April 30, 1989 are incorporated herein by reference.
Item (4) - Instruments defining the rights of security holders, including
indentures:
Proxy Statement for Special Meeting of Stockholders held on July 15,
1988 at which Summa stockholders approved and adopted a proposal to
authorize 2,000,000 shares of Preferred Stock, $0.10 par value, and
reported under Item 2 of Quarterly Report on Form 10-Q as filed with the
Commission and dated September 15, 1988 is incorporated herein by
reference.
Item (10) - Material Contracts - See Item (a)(3), above.
Item (23) - Consents of Experts and Counsel - Consents of Counsel are
incorporated herein by reference filed as part of Registration Statement No.
33-00297-FW on Form S-18 as filed with the Commission on December 9, 1985, and
Registration Statement No. 33-9475 on Form S-8 as filed with the Commission on
October 9, 1986.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Jerry A. Nelson Date: August 13, 1999
---------------------------------------------
JERRY A. NELSON, President and
Chief Executive Officer
By: /s/ Pauline G. Lee Date: August 13, 1999
---------------------------------------------
PAULINE G. LEE, Principal Financial
Officer and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Jerry A. Nelson Date: August 13, 1999
---------------------------------------------
JERRY A. NELSON, Chairman of
the Board of Directors
By: /s/ Stanley K. Slutzky Date: August 13, 1999
---------------------------------------------
STANLEY K. SLUTZKY, Director
By: /s/ E. P. (Lou) Marinos Date: August 13, 1999
---------------------------------------------
E. P. (LOU) MARINOS, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
NOT APPLICABLE.
<PAGE> 16
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SUMMA RX LABORATORIES, INC.
APRIL 30, 1999 AND 1998
<PAGE> 17
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Balance Sheets - April 30, 1999 and 1998 F-3
Statements of Operations - Years ended April 30, 1999 and 1998 F-5
Statement of Changes in Stockholders' Equity - Years ended
April 30, 1999 and 1998 F-6
Statements of Cash Flows - Years ended April 30, 1999 and 1998 F-7
NOTES TO FINANCIAL STATEMENTS F-8
</TABLE>
F-1
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Summa Rx Laboratories, Inc.
We have audited the accompanying balance sheets of Summa Rx Laboratories, Inc.
as of April 30, 1999 and 1998, and the related statements of operations, changes
in stockholders' equity, and cash flows for each of the two years in the period
ended April 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Summa Rx Laboratories, Inc. as
of April 30, 1999 and 1998, and the results of its operations and its cash flows
for each of the two years in the period ended April 30, 1999, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
June 23, 1999
F-2
<PAGE> 19
SUMMA RX LABORATORIES, INC.
BALANCE SHEETS
April 30,
<TABLE>
<CAPTION>
ASSETS 1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 268,620 $ 415,227
Trade accounts receivable, less allowance for doubtful
accounts of $176,322 in 1999 and $73,161 in 1998 181,099 158,440
Inventories
Raw materials 171,650 123,239
Work-in-progress 20,185 7,000
Finished goods 3,693 2,393
---------- ----------
195,528 132,632
Other current assets 79,555 84,465
---------- ----------
TOTAL CURRENT ASSETS 724,802 790,764
PROPERTY, PLANT AND EQUIPMENT
Furniture, fixtures and equipment 1,252,713 1,172,310
Buildings and improvements 383,859 343,156
---------- ----------
1,636,572 1,515,466
Less accumulated depreciation 584,680 487,339
---------- ----------
1,051,892 1,028,127
Land 5,798 5,798
---------- ----------
1,057,690 1,033,925
OTHER ASSETS 2,644 4,576
---------- ----------
$1,785,136 $1,829,265
========== ==========
</TABLE>
F-3
<PAGE> 20
SUMMA RX LABORATORIES, INC.
BALANCE SHEETS - CONTINUED
April 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of notes payable to related parties $ 104,390 $ 104,390
Accounts payable - trade 251,612 253,134
Accrued expenses 122,913 106,254
Customer deposits 186,634 83,722
----------- -----------
TOTAL CURRENT LIABILITIES 665,549 547,500
LONG-TERM NOTES PAYABLE TO RELATED PARTIES 570,000 570,000
STOCKHOLDERS' EQUITY
12% cumulative convertible preferred stock - authorized,
2,000,000 shares of $.10 par value -- --
Common stock - authorized, 10,000,000 shares of $.01
par value; issued and outstanding, 3,145,838 shares 31,458 31,458
Additional paid-in capital 3,219,379 3,219,379
Accumulated deficit (2,701,250) (2,539,072)
----------- -----------
549,587 711,765
----------- -----------
$ 1,785,136 $ 1,829,265
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 21
SUMMA RX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years ended April 30,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 2,859,576 $ 3,314,877
Cost of goods sold 1,990,161 1,703,723
----------- -----------
GROSS PROFIT 869,415 1,611,154
Selling, general and administrative expenses 914,531 1,305,977
----------- -----------
OPERATING INCOME (LOSS) (45,116) 305,177
Other income (expense)
Interest expense - related parties (73,834) (38,526)
Other (43,228) 4,280
----------- -----------
(117,062) (34,246)
----------- -----------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES (162,178) 270,931
Deferred income tax benefit -- 68,000
----------- -----------
NET EARNINGS (LOSS) (162,178) 338,931
Less dividend requirement on preferred stock -- 2,750
----------- -----------
EARNINGS (LOSS) ALLOCABLE TO COMMON
STOCKHOLDERS $ (162,178) $ 336,181
=========== ===========
Earnings (loss) per common share - basic and diluted
Net earnings (loss) $ (.05) $ .10
=========== ===========
Weighted average common shares outstanding 3,145,838 3,472,301
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 22
SUMMA RX LABORATORIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
12% cumulative
convertible
preferred stock Common stock
------------------------- -------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at May 1, 1997 50,000 $ 5,000 3,597,401 $ 35,974
Conversion of preferred stock to common stock (50,000) (5,000) 51,973 520
Stock issued for satisfaction of debt -- -- 56,464 564
Purchase and retirement of common stock -- -- (560,000) (5,600)
Net earnings -- -- -- --
----------- ----------- ----------- -----------
Balances at April 30, 1998 -- -- 3,145,838 31,458
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at April 30, 1999 -- $ -- 3,145,838 $ 31,458
=========== =========== =========== ===========
<CAPTION>
Additional Total
paid-in Accumulated stockholders'
capital deficit equity (deficit)
----------- ----------- ----------------
<S> <C> <C> <C>
Balances at May 1, 1997 $ 3,295,747 $(2,878,003) $ 458,718
Conversion of preferred stock to common stock 4,480 -- --
Stock issued for satisfaction of debt 13,552 -- 14,116
Purchase and retirement of common stock (94,400) -- (100,000)
Net earnings -- 338,931 338,931
----------- ----------- -----------
Balances at April 30, 1998 3,219,379 (2,539,072) 711,765
Net loss -- (162,178) (162,178)
----------- ----------- -----------
Balances at April 30, 1999 $ 3,219,379 $(2,701,250) $ 549,587
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 23
SUMMA RX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $(162,178) $ 338,931
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation 99,273 76,504
Deferred income taxes -- (68,000)
Write-down of equipment 59,855 --
Changes in operating assets and liabilities
Accounts receivable - trade (22,659) (72,948)
Inventories (62,896) 20,396
Other current assets 4,910 (5,459)
Accounts payable - trade (1,522) 36,958
Other accrued liabilities 16,659 13,868
Customer deposits 102,912 (1,639)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,354 338,611
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (180,961) (423,862)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 380,000
Payments of long-term debt -- (16,437)
Purchase of common stock -- (100,000)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 263,563
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (146,607) 178,312
Cash and cash equivalents at beginning of year 415,227 236,915
--------- ---------
Cash and cash equivalents at end of year $ 268,620 $ 415,227
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 72,571 $ 23,544
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 24
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
Nature of Operations
Summa Rx Laboratories, Inc. (the Company) is licensed by the Food and Drug
Administration to manufacture drugs and medical devices. Summa primarily
manufactures and markets products which fall into three categories: food
supplements, pharmaceuticals and vitamins. In addition, Summa manufactures
prescription and nonprescription pharmaceuticals such as antihistamines,
analgesics, and mucolytic expectorants.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the assets,
which for buildings and improvements is 10-30 years, and furniture,
fixtures and equipment is 5 - 20 years.
Customer Deposits
The Company requires cash deposits on certain customer orders. The deposits
are recorded as a current liability and recognized as revenue when the
product is shipped.
Revenue Recognition
Revenue is recognized from sales when a product is shipped.
F-8
<PAGE> 25
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Earnings Per Share
The Company computes basic earnings (loss) per common share based on the
weighted average number of common shares outstanding. Diluted earnings per
share is computed based on the weighted average number of common shares
outstanding plus the number of additional common shares that would have
been outstanding if dilutive potential common shares had been issued. All
potential common shares were anti-dilutive in 1999 and 1998. Accordingly,
singular earnings (loss) per share amounts have been presented in the
accompanying financial statements. In 1999 and 1998, options and warrants
covering 1,286,664 and 506,664 shares of common stock, respectively, were
excluded from diluted earnings per share because they were anti-dilutive.
Financial Instruments
The carrying amounts for cash, accounts receivable, accounts payable and
notes payable approximate fair value because of the short term nature of
these items.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock Options
The Company measures stock-based compensation cost as the excess of the
quoted market price of the Company's common stock over the amount the
employee must pay for the stock. The Company's policy is to generally grant
stock options at fair market value at the date of grant.
F-9
<PAGE> 26
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - LONG-TERM NOTES PAYABLE TO RELATED PARTIES
Long-term notes payable to stockholders' consist of the following:
<TABLE>
<CAPTION>
April 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Note payable to a stockholder, interest at 12% per annum, payable
monthly, in either cash or shares of the Company's stock (at a rate of
$.25 per share) at the Company's option, secured by
all property, due December 1999 $104,390 104,390
Unsecured notes payable to stockholders, interest at 12% per annum,
payable quarterly, due July 2001 and subordinate to the 12% note
payable to a stockholder 190,000 190,000
Unsecured notes payable to stockholders, interest at 10% per annum,
payable quarterly, due May 2003 and subordinate to the 12%
unsecured notes payable to stockholders 380,000 380,000
-------- --------
674,390 674,390
Less current maturities 104,390 104,390
-------- --------
$570,000 $570,000
======== ========
</TABLE>
Aggregate annual principal maturities of long-term debt at April 30, 1999
are as follows:
<TABLE>
<S> <C>
2000 $104,390
2001 --
2002 190,000
2003 380,000
--------
$674,390
========
</TABLE>
In 1998, the Company granted warrants to purchase 100,000 shares of its
common stock for $.50 per share, in connection with a one-year extension on
the $104,390 note payable.
In connection with the issuance of the $190,000 notes payable in 1997, the
Company granted warrants to purchase 190,000 shares of its common stock for
$.50 per share. The notes are callable, at the option of the Company, upon
thirty days notice.
F-10
<PAGE> 27
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - LONG-TERM NOTES PAYABLE TO RELATED PARTIES - CONTINUED
In connection with the issuance of the $380,000 notes payable in 1998, the
Company granted warrants to purchase 506,664 shares of its common stock for
$.75 per share. The notes are callable, at the option of the Company, upon
thirty days notice.
The value of the aforementioned warrants was not significant.
NOTE C - INCOME TAXES
The following reconciles the provision for income taxes in the statements
of operations to the expected provision at standard Federal rates:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Expected provision (benefit) at Federal rates $ (55,141) $ 92,117
Change in valuation allowance 52,000 (158,000)
Other 3,141 (2,117)
--------- ---------
$ -- $ (68,000)
========= =========
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 442,000 $ 388,000
Other 23,000 25,000
--------- ---------
465,000 413,000
Less valuation allowance (397,000) (345,000)
--------- ---------
$ 68,000 $ 68,000
========= =========
</TABLE>
The Company has net operating loss carryforwards of approximately,
$1,300,000, which expires in 2007 through 2019. The valuation allowance is
necessary due to the uncertainty of future taxable income estimates. The
Company continually reviews the adequacy of the valuation allowance and is
recognizing these benefits only as reassessment indicates that it is more
likely than not the benefits will be realized.
F-11
<PAGE> 28
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - STOCKHOLDERS' EQUITY
The Company has a nonqualified stock option plan under which directors may
be granted options to purchase the Company's common stock. The Company has
reserved 150,000 shares of stock for issuance under the plan. The exercise
price of options granted under the plan cannot be less than the fair market
value of the stock on the date of grant. The following summarizes option
activity under the nonqualified stock option plan for each of the two years
in the period ended April 30, 1999:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
-------- --------
<S> <C> <C>
Options outstanding and exercisable at May 1, 1998 100,000 $ .50
Granted 40,000 .50
-------- --------
Options outstanding and exercisable at April 30, 1998 140,000 .50
Granted 40,000 .50
Cancelled (40,000) .50
-------- --------
Options outstanding and exercisable at April 30, 1999 140,000 $ .50
======== ========
Weighted average fair value per share of
options granted during 1998 and 1999 $ .13
========
Weighted average remaining contractual life 5.5 years
</TABLE>
F-12
<PAGE> 29
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - STOCKHOLDERS' EQUITY - CONTINUED
In 1998, the Company adopted a qualified stock option plan under which key
employees may be granted options to purchase the Company's common stock.
The Company has reserved 300,000 shares of stock for issuance under the
plan. The exercise price of options granted under the plan cannot be less
than the fair market value of the stock on the date of grant. The following
summarizes option activity under the qualified stock option plan for the
two years ended April 30, 1999:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
------- --------
<S> <C> <C>
Options outstanding at May 1, 1997 -- $ --
Granted 80,000 .50
------- -------
Options outstanding and exercisable at April 30, 1998 80,000 .50
Granted 60,000 .50
------- -------
Options outstanding and exercisable at April 30, 1999 140,000 $ .50
======= =======
Weighted average fair value per share of
options granted during 1998 $ .13
=======
Weighted average fair value per share of
options granted during 1999 $ .17
=======
Weighted average remaining contractual life 4.7 years
</TABLE>
As permitted under Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation", the Company measures
stock-based compensation cost as the excess of the quoted market price of
the Company's common stock at the grant date over the amount the employee
must pay for the stock. SFAS 123 requires disclosure of pro forma net
earnings (loss) and pro forma net income (loss) per share as if the fair
value based method had been applied in measuring compensation cost for
stock-based awards granted after 1995. There were no stock-based awards
prior to 1997.
F-13
<PAGE> 30
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - STOCKHOLDERS' EQUITY - CONTINUED
Reported and pro forma net earnings and net earnings per share amounts are
set forth below:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net earnings (loss) allocable to common stockholders
As reported $ (162,178) $ 336,181
Pro forma $ (177,425) $ 320,581
Net earnings (loss) per share
As reported $ (.05) $ .10
Pro forma $ (.06) $ .09
</TABLE>
The fair value of these options was estimated at the date of grant using
the minimum value option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6 percent; no dividend yield; and
expected lives ranging from 5 to 10 years. Due to the lack of an active
market in the Company's common stock, the minimum value option pricing
model was not used to value options granted.
At various times, the Company has issued warrants to purchase common stock
to certain employees, directors, creditors and stockholders. The warrants
are exercisable within one year of the date of grant. The following
summarizes warrant activity for each of the two years ended April 30, 1999:
<TABLE>
<CAPTION>
Warrant
weighted
Fiscal average
Number year of price
of shares expiration per share
--------- ---------- ---------
<S> <C> <C> <C>
Warrants outstanding at May 1, 1997 400,000 2001 0.50
Granted 606,664 2003 .71
--------- ---------
Warrants outstanding at April 30, 1998 and 1999 1,006,664 2001-2003 $ .63
========= =========
</TABLE>
F-14
<PAGE> 31
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - MAJOR CUSTOMERS
A significant portion of the Company's net sales have been derived from
major customers as follows:
Three customers in 1999 accounted for 20%, 14%, and 13% of sales of
the Company, respectively.
Three customers in 1998 accounted for 37%, 20% and 12% of sales of the
Company, respectively.
Although management believes its relations with these customers are
currently good, it is reasonably possible that the Company could lose one
or more of these customers which could result in a material adverse effect
on the Company's financial position and results of operations.
NOTE F - EMPLOYEE BENEFIT PLAN
In 1998 the Company adopted an employee benefit plan which provides for tax
deferred contributions from employees, together with certain matching
contributions from the Company. The Plan qualifies under section 401(k) of
the Internal Revenue Code. Under the Plan, employees are permitted to
contribute up to 15% of their gross compensation into the retirement plan
and the Company will match 50% of each employee's contribution up to a
maximum rate of 6%. Benefit plan expense was approximately $7,000 and
$3,000 in 1999 and 1998, respectively.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation arising in the ordinary
course of business. Management believes that the ultimate outcome of
litigation will not have a material adverse effect on the future results of
operations or financial position of the Company.
F-15
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
23 -- Consent of Independent Certified Public Accountants
27 -- Financial Data Schedule
</TABLE>
