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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, 1999
[ ] 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)
DELAWARE 75-1535372
(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
2940 FM 3028, Mineral Wells, Texas 76067
(Address of principal executive office) (Zip Code)
(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, 1999 there were 3,145,838 shares of common stock outstanding.
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SUMMA RX LABORATORIES, INC.
TABLE OF CONTENTS
FORM 10-QSB
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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SUMMA RX LABORATORIES, INC.
BALANCE SHEET
(Unaudited)
January 31,
ASSETS 1999
-----------
Cash $ 283,603
Trade Accounts Receivable, less
allowance for doubtful accounts of $74,150 91,487
Inventory 228,995
Other Current Assets 77,798
-----------
Total Current Assets 681,883
Property, plant and equipment 1,693,702
Less accumulated depreciation 555,922
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Net property, plant and equipment 1,137,780
Land 5,798
Intangibles 36,676
Less accumulated amortization 33,549
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Net intangibles 3,127
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Total assets $ 1,828,588
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LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable to related parties $ 104,390
Accounts Payable 347,485
Accrued Liabilities 85,482
Customer Deposits 183,722
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Total current liabilities 721,079
Long Term Debt 570,000
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Total Liabilities 1,291,079
Common stock 31,458
Additional paid-in capital 3,219,379
Accumulated deficit (2,713,328)
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Stockholders' equity 537,509
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Total liabilities and stockholders' equity $ 1,828,588
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See accompanying notes to the financial statements.
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SUMMA RX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
January 31 January 31
1999 1998 1999 1998
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Net Sales $ 513,474 $ 501,236 $ 1,930,779 $ 2,883,441
Cost of Goods sold 443,770 358,806 1,332,225 1,334,542
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Gross Profit 69,704 142,430 598,554 1,548,899
Selling, general and administrative 231,153 179,373 717,521 1,159,310
----------- ----------- ----------- -----------
Operating profit (loss) (161,449) (36,943) (118,967) 391,589
Other income (expense) (18,459) (7,576) (55,290) (25,471)
----------- ----------- ----------- -----------
Net Income (loss) $ (179,908) $ (44,519) $ (174,257) $ 366,118
=========== =========== =========== ===========
Basic earnings (loss) per share (.06) (.01) (.06) .12
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Weighted average shares outstanding 3,145,838 3,548,012 3,145,838 3,563,388
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Fully diluted earnings (loss) per share (.05) (.01) (.05) .09
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Fully diluted shares outstanding 3,439,927 4,179,968 3,422,826 4,076,504
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See accompanying notes to the financial statements.
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SUMMA RX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
January 31
1999 1998
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Cash flows from operating activities:
Cash received from customers $ 2,031,596 $ 2,737,214
Cash paid to suppliers and employees (1,930,745) (2,419,545)
Interest paid (54,239) (31,997)
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Net cash used in operating activities 46,612 285,672
Cash flows from investing activities:
Capital expenditures (178,236) (407,348)
Proceeds from sale of assets
Cash effect of stock purchase (85,884)
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Net cash provided by (used in) investing activities (178,236) (493,232)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 0
Proceeds from issuance of common stock 0 0
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Net cash provided by financing activities 0 0
----------- -----------
Net increase (decrease) in cash (131,624) (207,560)
Cash at beginning of year 415,227 236,915
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Cash at end of year $ 283,603 $ 29,355
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Reconciliation of net loss to net cash used in operating activities:
Net profit (loss) $ (174,257) $ 366,118
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 70,032 46,196
Changes in assets and liabilities:
Accounts receivable 66,954 (91,714)
Inventories (96,363) (545)
Other current assets 6,667 (9,552)
Accounts payable and accrued expenses 173,579 (24,831)
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Net cash used in operating activities $ 46,612 $ 285,672
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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, 1999 and 3,145,838 shares
issued and outstanding at April 30, 1998. 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,
1999 and 1998. 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 during fiscal year 98. A mild cold season created a
surplus inventory in the market place, which dramatically decreased zinc sales
during the first three quarters of fiscal year 1999.
Three months Nine months
1999 1998 1999 1998
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Sales $ 513,474 $ 501,236 $ 1,930,779 $ 2,883,441
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 71% to 86% and increased from
46% to 68% for the comparable prior periods. The increase was a direct result
from a lack of sales of the patented zinc product in the third quarter which has
a lower cost of goods but has higher royalty and commission expenses.
Three months Nine months
1999 1998 1999 1998
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Cost of Goods $ 443,770 $ 358,806 $ 1,332,225 $ 1,334,542
The dollar value of general and administrative expenses has remained constant
excluding legal and professional fees due to management's diligence to control
expenses. General and administrative expenses increased from 19% to 39% and from
15% to 21% of sales respectfully for the comparable periods last year. Of the
increase during the three month and nine month periods 19% and 5% respectfully
is associated with legal and professional fees incurred during arbitration over
the patented zinc product. Selling expenses have decreased from 17% to 6% and
from 25% to 16% of sales respectfully for the comparable periods last year. The
decrease in selling expenses is directly associated to the royalty agreement
with the patent holder on the zinc lozenges and the sales commissions relating
to those sales.
Three months Nine months
1999 1998 1999 1998
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Selling, general and administrative $ 231,153 $ 179,373 $ 717,521 $ 1,159,310
Interest expense was primarily on loans from stockholders.
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FINANCIAL CONDITION
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.
In May 1998, the company issued ten percent (10%) subordinated callable notes in
the amount of $380,000 due May 15, 2003. The funds were generated and set aside
for capital expenditures.
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 export sales have been negligible, it has sought to increase sales
the 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 15, 1999 /s/ Pauline G. Lee
Pauline G. Lee
Secretary and
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule