Supreme-Technology, Inc., No. 4092 (August 31, 1995)
Docket No. SIZ-95-4-13-34


                    UNITED STATES OF AMERICA

                  SMALL BUSINESS ADMINISTRATION

                 OFFICE OF HEARINGS AND APPEALS

                        WASHINGTON, D.C.


_______________________________
                               )
SIZE APPEAL OF:                )
                               )
Supreme-Technology, Inc.       )
                               )
     Appellant                 )  Docket No. SIZ-95-4-13-34
                               )
8(a) Size Determination        ) 
Case No. 03-SD-95-048          )
Philadelphia Regional Office   )
Philadelphia, Pennsylvania     )
_______________________________)


                             DIGEST

Where, in the two years before application to the 8(a) program, a
firm receives 62% of its revenues from contracts with a single
large business, the two firms are affiliated and other than
small.

Where two companies that are owned by a father and son
individually are in similar lines of business, the son's company
leases space in two locations from the father's company, the
son's company receives 62% of its revenues from contracts with
the father's company, the son formerly worked for the father's
company, and there is no clear fracture between father and son,
the two firms are affiliated based on identity of interest.


                            DECISION

                         August 31, 1995

BLAZSIK, Administrative Judge:

Jurisdiction

     This appeal is decided under the Small Business Act of 1958,
15 U.S.C. Sections 631 et seq., and 13 C.F.R. Part 121.


Issues

     Whether a firm that receives 62% of its annual receipts from
contracts with a single company in the two years before it
applied to the 8(a) program is affiliated with that company
because its viability is in jeopardy without those contracts.

     Whether a son's company, which is in the same industry as
his father's company, receives 62% of its revenues from contracts
with the father's firm, leases office space in two locations on
favorable terms from the father's firm both of which are adjacent
to the father's business addresses, and where the son was
formerly the Special Assistant to the President at the father's
company, is affiliated with his father's business because they
have an identity of interest.

Facts

     On January 9, 1995, the Associate Administrator for Minority
Enterprise Development (AA/MED) requested that the Small Business
Administration (SBA) Philadelphia Regional Office (Regional
Office) make a size determination on Supreme-Technology, Inc.
(Supreme) in connection with its application for participation in
the section 8(a) Program.  Specifically, the AA/MED questioned
whether Supreme is affiliated with Sonicraft, Inc. (Sonicraft),
an allegedly large business and, therefore, is other than small. 

     The basic facts are undisputed.  Supreme is a communications
company deriving a majority of its revenues from SIC codes 4813
(Telephone Communications, Except Radiotelephone) and 4899,
(Communications Services, N.E.C.). [1]  It is wholly owned by
Bretrand F. Jones, Supreme's Chief Executive Officer and sole
director, and is headquartered in Alexandria, Virginia with a
branch office in Chicago, Illinois.  Bretrand Jones has held all 
corporate offices since 1986.  Before he founded Supreme, from
1984 to 1986, Bretrand Jones was Special Assistant to the
President of Sonicraft.  



     Sonicraft is a communications manufacturing company with a
primary SIC code of 3663 (Radio and Television Broadcasting and
Communications Equipment).  Sonicraft's president and majority
shareholder, Jerry T. Jones, is also the father of Supreme's
owner, Bretrand F. Jones.  Sonicraft's headquarters is at 8859   
S. Greenwood Avenue, Chicago, Illinois, and it has a branch 
office at 6303 Little River Turnpike, #320, Alexandria, Virginia. 
Sonicraft rents office space to Supreme at 8849 S. Greenwood
Avenue, Chicago, Illinois, and at 6303 Little River Turnpike,
#340, Alexandria, Virginia.  The terms of the leases permit
Supreme to defer all rent payments until January 1996, when all
prior monthly payments will be due with the 1996 monthly
payments. 

     On January 13, 1995, the Regional Office requested that
Supreme provide a breakdown of its revenues received from
contracts with Sonicraft for its three most recent completed
fiscal years, information on any other transactions with
Sonicraft during the last three years, a breakdown of Supreme's
revenues by SIC code, evidence and documentation of Supreme's
principal place of business and Bretrand Jones' personal
residence, and evidence of payment of rent to Sonicraft.  In
response to the Regional Office's request, Supreme provided
financial information from fiscal years 1992, 1993, and 1994,
during which Supreme received, respectively, 88%, 50%, and 30% of
its annual receipts from contracts with Sonicraft.

     On March 8, 1995, the Regional Office determined that
Supreme is affiliated with Sonicraft through identity of
interest, contractual relationships, and common facilities.  The
Regional Office based its determination on Supreme's SBA Form
355, its financial records from fiscal years 1992 and 1993, its
Federal tax returns for the applicable years, its responses to
requests for information, and Dun & Bradstreet reports for both
Supreme and Sonicraft.

     The Regional Office issued its determination on March 9,
1995, and Supreme filed an appeal postmarked April 10, 1995. 

Arguments on Appeal

     In its appeal, Appellant asserts that the Regional Office
incorrectly found affiliation because Supreme is not reliant for
contracts on Sonicraft.  Appellant asserts that the Regional
Office erred in using only the 1992 and 1993 financial
information in computing the percentage of revenue attributable
to contracts with Sonicraft, and that the Regional Office should
have evaluated the 1994 revenues as well.  This would have shown
only 52% of the average annual receipts attributable to Supreme-
Sonicraft contracts.  Further, Appellant asserts that the
contract revenues need not be included in analyzing affiliation
because all its contracts with Sonicraft were awarded
competitively.

     Appellant further asserts that no identity of interest
exists between Supreme and Sonicraft as a result of the father-
son relationship because there is a remoteness of business
interests, amounting to a clear fracture between Bretrand and
Jerry Jones.

Discussion
     
     This appeal was timely filed within 30 days of receipt of the
Regional Office determination.  See 13 C.F.R. Section
121.1705(a)(1).[2] 

     Appellant's first assertion, that it does not rely on
contracts with Sonicraft for its economic viability, is without
merit.  The regulation governing affiliation through contractual
relationships, 13 C.F.R. Section 121.401(k), provides:

     Affiliation through contractual relationships.  Affiliation
generally arises where one concern is dependent on another
concern for contracts and business to such a degree that its
economic viability would be in jeopardy without such
contracts/business. 

     It is undisputed that during 1992 and 1993, Supreme received
approximately 62% of its total annual revenues contracts with
Sonicraft. [3]  It is reasonable to conclude that, without these
contracts, Supreme could not generate adequate profits to remain
an economically viable business.  Because Supreme's economic
viability would be in jeopardy without the Sonicraft contracts,
the firms are generally affiliated.  See Size Appeal of AA
Engineers & Associates, Inc., No. 3824 (1993). 

     Appellant's assertion, that the Regional Office erred in not
considering Appellant's 1994 financial information in determining
contractual reliance, is incorrect.  Although the Regional Office
may have requested Appellant's fiscal year 1994 financial
information, the request does not automatically make that
information relevant to the analysis.  

     The issue in this case is not Supreme's size based on its
average annual receipts for the last three completed fiscal
years.  See 13 C.F.R. Section 121.402(a), (c).  Rather, the issue
is whether Appellant is affiliated with Sonicraft through
contractual relationships.  The regulations specifically provide
that all size and affiliation issues are determined at the time
the concern applied to the 8(a) program.  See 13 C.F.R.          
Section 121.1103(a).  Hence, affiliation through contractual
relationships may be based on findings from a single fiscal year;
in fact, the Regional Office could have made a determination
using only Supreme's 1993, rather than 1992 and 1993, financial
information.  Because Supreme applied for participation in the
8(a) program before the close of its 1994 fiscal year, the 1994
financial information is not relevant to the Regional Office
determination. 

     Even if Appellant is not affiliated with Sonicraft through
contractual relationships, there is affiliation because Supreme
and Sonicraft have an identity of interest based on a family
relationship.  13 C.F.R. Section 121.401(d).  Indeed, it is
presumed that Jerry Jones and Bretrand Jones, as father and son,
have an identity of interest and that their companies are
affiliated.  Supreme's assertion to the contrary is without merit

     Notwithstanding the presumption of identity of interest
between family members, an appellant may rebut the presumption by
presenting evidence, such as lack of close involvement in
business matters or by other factors that would render the
application of the regulation unjust or inequitable under the
circumstances.  See Size Appeal of Maria Elena Torano &
Associates, No. 4010 (1995), citing Size Appeal of Golden Bear
Arborists, Inc., No. 1899 (1984).  Supreme asserts that there is
a lack of involvement in "each other's business transactions"
which amounts to a clear fracture between Jerry and Bretrand
Jones.  The facts, however, do not support this assertion and the
record clearly shows interaction between the Supreme and
Sonicraft creating an identity of interest.  

     First, the firms both are in the communications industry;
Sonicraft manufactures broadcast and telecommunications
equipment, while Supreme provides communications services.       
See Size Appeal of Pershield, Inc., No. 3952 (1994). 
Additionally, Supreme receives well over half its revenues from
Sonicraft contracts in the communications industry.  

     Second, Sonicraft leases office space to Supreme both in
Chicago and Alexandria.  In each location, Supreme's office is
adjacent to Sonicraft's office.  Further, the leases are not
arm's length agreements; the terms are highly favorable to 
Supreme and permit Supreme to defer its current rental payments
until 1996.  See Size Appeal of Bordges Timber, Inc., No. 3649
(1992). [4] 

     Third, from 1984 to 1986, Bretrand Jones was the Special
Assistant to his father, Jerry Jones, President of Sonicraft.  He
left Sonicraft and founded Supreme, which now derives a
substantial amount of revenue from contracts with his former
employer, Sonicraft.  In light of the above facts, Appellant has
failed to rebut the presumption of identity of interest between
the two firms based on family relationships between the two firms
by showing a remoteness between, or a fracture in, the family
ties.  Appellant's assertion that Bretrand Jones left Sonicraft
because of a fracture of business interests is simply not
consistent with the facts, which clearly show continuing close
business and personal ties, amounting to an identity of familial
interest.

     In summary, Appellant is affiliated with Sonicraft through
contractual relationships on which Supreme relies for its
economic viability.  See 13 C.F.R. Section 121.401(k).  The firms
also are affiliated because Appellant has failed to rebut the
presumption that there is an identity of interest between Supreme
and Sonicraft based on the family relationship between Bretrand
and Jerry Jones.  See 13 C.F.R. Section 121.401(d).

Conclusion

     The Regional Office determination is AFFIRMED, and the
appeal is DENIED.

     This constitutes the final decision of the Small Business
Administration.  See 13 C.F.R. Section 121.1720(b).




                                   ___________________________
                                   Gloria E. Blazsik
                                   Administrative Judge     
____________________
 [1]      Supreme also receives some revenue from SIC code 8742,
          Management Consulting Services; SIC code 7373, Computer
          Integrated Systems Design; SIC code 8711, Engineering
          Services; SIC code 1522, General Contractors, Other
          than Single Family.  In 1992 and 1993, 61% of Supreme's
          revenues were from its primary SIC codes, 4813 and
          4899.

 [2]      The appeal is timely because the Regional Office mailed
          its  determination on Thursday, March 9, 1995, and,
          allowing a 
     reasonable time for delivery, receipt is presumed on March
     13, 1995. 

 [3]      Even if the 1994 financial information were relevant,
          by Appellant's own admission, Supreme's revenues from
          contracts with Sonicraft still accounted for a majority
          (52%) of its total 1992-1994 revenue.

 [4]      These facts also could support a separate finding of
          affiliation (even absent familial relationship).  See
          13 C.F.R. Section 121.401(i).