**U.S. Securities and ExchangeCommission**

**Washington, D.C. 20549**

 

**FORM 10-Q**
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|------------|----------------------------------------------------------------------------------------------|

 

**For thequarterly period ended**

 

**February28, 2006**

 
| **o** | ** ** | **TRANSITION REPORT UNDER SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-----------------------------------------------------------------------------------------|

 

**For thetransition period from    N/A    to   N/A  **

 

**Commissionfile no. 1-7755**

 

**Summa Industries**

(Name ofregistrant as specified in its charter)

 

| **Delaware**                     | ** ** | **95-1240978**                           |
|----------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of |       | (I.R.S. employer  identification number) |
| incorporation or  organization)  |       |                                     |

 

**21250Hawthorne Boulevard, Suite 500, Torrance, California 90503**

**www.summaindustries.com**

(Address ofprinciple executive offices, including zip code)

 

Registrant’stelephone number:  **(310)792-7024**

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the preceding 12 months (or forsuch 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  ý  No  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer (as “large acceleratedfiler” and “accelerated filer” are defined in Rule 12b-2 of the Exchange Act).
| Large Accelerated Filer    o |   | Accelerated Filer    o |   | Non-Accelerated Filer    ý |
|---------------------------------------------|--------|---------------------------------------|--------|------------------------------------------------|

 

Indicate by check mark whether the registrant is as shell company (asdefined in Rule 12b-2 of the Exchange Act).

Yes   o  No   ý  

 

The number of shares of common stock outstanding as of March 31, 2006was 3,904,453

 

 

----

 

**SummaIndustries**

 

**INDEX**

 
| PART I -  FINANCIAL INFORMATION |
|---------------------------------|
|                            |   |
| Item 1.                         | Financial Statements: |
|                            |   |
|                            | Condensed Consolidated  Balance Sheets (unaudited) -  February 28, 2005, August 31, 2005 and February 28, 2006 |
|                            |   |
|                            | Condensed Consolidated  Income Statements (unaudited) -  three months and six months ended February 28, 2005 and February 28, 2006 |
|                            |   |
|                            | Consolidated Statement of  Stockholders’ Equity (unaudited) - six months ended February 28, 2006 |
|                            |   |
|                            | Condensed Consolidated  Statements of Cash Flows (unaudited) -  six months ended February 28, 2005 and February 28, 2006 |
|                            |   |
|                            | Notes to Condensed  Consolidated Financial Statements (unaudited) |
|                            |   |
| Item 2.                         | Management’s Discussion and  Analysis of  Financial  Condition and Results of Operations |
|                            |   |
| Item 3.                         | Quantitative and Qualitative  Disclosure about Market Risk. |
|                            |   |
| Item 4.                         | Controls and Procedures. |
|                            |   |
| PART II - OTHER INFORMATION     |
|                            |   |
| Item 1.                         | Legal Proceedings |
| Item 1A.                        | Risk Factors |
| Item 2.                         | Unregistered Sales of Equity  Securities and Use of Proceeds |
| Item 3.                         | Defaults upon Senior  Securities |
| Item 4.                         | Submission of Matters to a  Vote of Security Holders |
| Item 5.                         | Other Information |
| Item 6.                         | Exhibits |
|                            |   |
| Signature Page                  |
|                                 |  |  |

 

2

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**Summa Industries**

CONDENSED CONSOLIDATEDBALANCE SHEETS

(unaudited)

 
|                                                                                                                                                                                                 |       | **February 28, 2005** | ** ** | **August 31, 2005** | ** ** | **February 28, 2006** |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                           |       | ** **                      | ** ** | ** **                    | ** ** | ** **                      |       |
| Current assets:                                                                                                                                                                                      |       | ** **                      | ** ** | ** **                    | ** ** | ** **                      |       |
| Cash and cash  equivalents                                                                                                                                                                           |       | $                               | 930,000    |                          | $          | 1,233,000                       |       | $ | 1,105,000 |   |
| Accounts  receivable                                                                                                                                                                                 |       | 19,251,000                      |       | 16,919,000                    |       | 17,633,000                      |       |
| Inventories                                                                                                                                                                                          |       | 15,213,000                      |       | 12,665,000                    |       | 16,398,000                      |       |
| Prepaid expenses  and other                                                                                                                                                                          |       | 4,188,000                       |       | 3,471,000                     |       | 3,874,000                       |       |
| Assets held for  sale                                                                                                                                                                                |       | —                          |       | 3,641,000                     |       | —                          |       |
| Total current  assets                                                                                                                                                                                |       | 39,582,000                      |       | 37,929,000                    |       | 39,010,000                      |       |
| Property, plant  and equipment                                                                                                                                                                       |       | 67,483,000                      |       | 62,629,000                    |       | 58,247,000                      |       |
| Less accumulated  depreciation                                                                                                                                                                       |       | (34,638,000                     | )          | (33,416,000                   | )          | (33,085,000                     | )          |
| Net property,  plant and equipment                                                                                                                                                                   |       | 32,845,000                      |       | 29,213,000                    |       | 25,162,000                      |       |
| Other assets                                                                                                                                                                                         |       | 1,852,000                       |       | 1,454,000                     |       | 1,433,000                       |       |
| Goodwill and  other intangibles, net                                                                                                                                                                 |       | 9,117,000                       |       | 8,981,000                     |       | 8,892,000                       |       |
| Assets held for  sale                                                                                                                                                                                |       | —                          |       | 2,458,000                     |       | 1,967,000                       |       |
| Total assets                                                                                                                                                                                         |       | $                               | 83,396,000 |                          | $          | 80,035,000                      |       | $ | 76,464,000 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                       | ** ** | ** **                      | ** ** | ** **                    | ** ** | ** **                      | ** ** |
| Current  liabilities:                                                                                                                                                                                |       |                            |       |                          |       |                            |       |
| Accounts payable                                                                                                                                                                                     |       | $                               | 8,793,000  |                          | $          | 8,731,000                       |       | $ | 8,958,000 |   |
| Accrued  liabilities                                                                                                                                                                                 |       | 5,450,000                       |       | 5,774,000                     |       | 6,153,000                       |       |
| Current  maturities of long-term debt                                                                                                                                                                |       | 4,955,000                       |       | 3,069,000                     |       | 2,940,000                       |       |
| Liabilities held  for sale                                                                                                                                                                           |       | —                          |       | 1,280,000                     |       | —                          |       |
| Total current  liabilities                                                                                                                                                                           |       | 19,198,000                      |       | 18,854,000                    |       | 18,051,000                      |       |
| Long-term debt,  net of current maturities                                                                                                                                                           |       | 30,603,000                      |       | 27,520,000                    |       | 23,857,000                      |       |
| Other long-term  liabilities                                                                                                                                                                         |       | 2,492,000                       |       | 2,441,000                     |       | 3,048,000                       |       |
| Total long-term  liabilities                                                                                                                                                                         |       | 33,095,000                      |       | 29,961,000                    |       | 26,905,000                      |       |
| Minority  interest in subsidiary                                                                                                                                                                     |       | 172,000                         |       | 132,000                       |       | 95,000                          |       |
| Stockholders’  equity:                                                                                                                                                                          |       |                            |       |                          |       |                            |       |
| Common  stock,  par value $.001; 10,000,000 shares  authorized;  issued and outstanding: 4,002,022  at February 28, 2005, 3,940,041 at August 31, 2005 and 3,892,628 at February  28, 2006 |       | 15,561,000                      |       | 15,046,000                    |       | 14,727,000                      |       |
| Retained  earnings                                                                                                                                                                                   |       | 15,370,000                      |       | 16,042,000                    |       | 16,686,000                      |       |
| Total  stockholders’ equity                                                                                                                                                                     |       | 30,931,000                      |       | 31,088,000                    |       | 31,413,000                      |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                     |       | $                               | 83,396,000 |                          | $          | 80,035,000                      |       | $ | 76,464,000 |   |

 

See accompanying notes to condensed consolidated financial statements*.*

 

3

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**Summa Industries**

CONDENSED CONSOLIDATEDINCOME STATEMENTS

(unaudited)

 
| ** **                                                                                               | ** ** | **Three months ended February 28** | ** ** | **Six months ended February 28** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2005**                                               | ** ** | **2006**                                             | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net sales                                                                                                |       | $                                                      | 26,686,000 |                                                 | $          | 27,510,000 |   | $ | 52,174,000 |   | $ | 55,250,000 |   |
| Cost of sales                                                                                            |       | 20,746,000                                             |       | 20,955,000                                           |       | 39,790,000 |   | 41,911,000 |   |
| Gross profit                                                                                             |       | 5,940,000                                              |       | 6,555,000                                            |       | 12,384,000 |   | 13,339,000 |   |
| Selling,  general, administrative and other expenses                                                     |       | 4,574,000                                              |       | 4,919,000                                            |       | 9,355,000 |   | 9,892,000 |   |
| (Gain) on sale  of real estate                                                                           |       | —                                                 |       | —                                               |       | (43,000 | ) | 205,000 | ) |
| Operating income                                                                                         |       | 1,366,000                                              |       | 1,636,000                                            |       | 3,072,000 |   | 3,652,000 |   |
| Interest expense                                                                                         |       | 408,000                                                |       | 524,000                                              |       | 717,000 |   | 972,000 |   |
| Income from  continuing operations before income taxes and minority interest                             |       | 958,000                                                |       | 1,112,000                                            |       | 2,355,000 |   | 2,680,000 |   |
| Provision for  income taxes                                                                              |       | 341,000                                                |       | 402,000                                              |       | 836,000 |   | 963,000 |   |
|                                                                                                     |       |                                                   |       |                                                 |       |   |   |   |   |
| Income from  continuing operations before minority interest                                              |       | 617,000                                                |       | 710,000                                              |       | 1,519,000 |   | 1,717,000 |   |
| Minority  interest in net loss of subsidiary                                                             |       | 33,000                                                 |       | 6,000                                                |       | 33,000 |   | 37,000 |   |
|                                                                                                     |       |                                                   |       |                                                 |       |   |   |   |   |
| Income from  continuing operations                                                                       |       | 650,000                                                |       | 716,000                                              |       | 1,552,000 |   | 1,754,000 |   |
| (Loss) from  discontinued operations, net of tax benefit of $197,000, $9,000, $341,000 and $208,000 |       | (374,000                                               | )          | (18,000                                              | )          | (666,000 | ) | (405,000 | ) |
| Net income                                                                                               |       | $                                                      | 276,000    |                                                 | $          | 698,000 |   | $ | 886,000 |   | $ | 1,349,000 |   |
| Earnings (loss)  per common share                                                                        |       |                                                   |       |                                                 |       |   |   |   |   |
| Basic                                                                                                    |       |                                                   |       |                                                 |       |   |   |   |   |
| Continuing  operations                                                                                   |       | $                                                      | 0.16       |                                                 | $          | 0.18 |   | $ | 0.39 |   | $ | 0.45 |   |
| Discontinued  operations                                                                                 |       | $                                                      | (0.09      | )                                                    | —     |   | $ | (0.17 | ) | $ | (0.10 | ) |
| Net income                                                                                               |       | $                                                      | 0.07       |                                                 | $          | 0.18 |   | $ | 0.22 |   | $ | 0.35 |   |
| Diluted                                                                                                  |       |                                                   |       |                                                 |       |   |   |   |   |
| Continuing  operations                                                                                   |       | $                                                      | 0.16       |                                                 | $          | 0.18 |   | $ | 0.38 |   | $ | 0.44 |   |
| Discontinued  operations                                                                                 |       | $                                                      | (0.09      | )                                                    | —     |   | $ | (0.16 | ) | $ | (0.10 | ) |
| Net income                                                                                               |       | $                                                      | 0.07       |                                                 | $          | 0.18 |   | $ | 0.22 |   | $ | 0.34 |   |
| Weighted average  common shares outstanding:                                                             |       |                                                   |       |                                                 |       |   |   |   |   |
| Basic                                                                                                    |       | 4,002,000                                              |       | 3,893,000                                            |       | 3,993,000 |   | 3,910,000 |   |
|  Diluted                                                                                            |       | 4,079,000                                              |       | 3,926,000                                            |       | 4,071,000 |   | 3,943,000 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

4

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**Summa Industries**

CONDENSEDCONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

for the six monthsended February 28, 2006

(unaudited)

 
| ** **                                                  | ** ** | **Common  Shares** | ** ** | **Common  Stock** | ** **       | **Retained  Earnings** | ** ** | **Total**        | ** ** |
|-------------------------------------------------------------|------------|--------------------|------------|-------------------|------------------|------------------------|------------|------------------|------------|
| Balance at  August 31, 2005                                 |       | 3,940,041          |       | $                 | 15,046,000       |                   | $          | 16,042,000       |       | $ | 31,088,000 |   |
| Exercise of  stock options, including tax benefit of $3,000 |       | 10,000             |       | 59,000            |             | —                 |       | 59,000           |       |
| Repurchases of  common stock                                |       | (57,413            | )          | (448,000          | )                | —                 |       | (448,000         | )          |
| Net income                                                  |       | —             |       | —            |             | 1,349,000              |       | 1,349,000        |       |
| Stock-based  compensation                                   |       | —             |       | 70,000            |             | —                 |       | 70,000           |       |
| Payment of  dividends                                       |       | —             |       | —            |             | (471,000               | )          | (471,000         | )          |
| Declaration of  pending dividend                            |       | —             |       | —            |             | (234,000               | )          | (234,000         | )          |
| Balance at  February 28, 2006                               |       | 3,892,628          |       | $                 |  14,727,000 |                   | $          |  16,686,000 |       | $ |  31,413,000 |   |
|                                                             |            |                    |            |                   |                  |                        |            |                  |            |  |  |  |  |  |  |

 

See accompanyingnotes to condensed consolidated financial statements*.*

 

5

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**SummaIndustries**

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(unaudited)

 
| ** **                                                                       | ** ** | **Six months ended  February 28, 2005** | ** ** | **Six months ended  February 28, 2006** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Operating  activities:                                                           |       |                                                        |       |                                                        |       |
| Net income                                                                       |       | $                                                           | 886,000    |                                                        | $          | 1,349,000 |   |
| Adjustments to  reconcile net income to net cash (used in) operating activities: |       |                                                        |       |                                                        |       |
| Depreciation                                                                     |       | 2,566,000                                                   |       | 2,322,000                                                   |       |
| Amortization                                                                     |       | 137,000                                                     |       | 89,000                                                      |       |
| (Gain) on  disposition of property, plant and equipment                          |       | (114,000                                                    | )          | (300,000                                                    | )          |
| Minority  interest in net loss of subsidiary                                     |       | (33,000                                                     | )          | (37,000                                                     | )          |
| Stock-based  compensation                                                        |       | —                                                      |       | 70,000                                                      |       |
| Net changes in  assets and liabilities:                                          |       |                                                        |       |                                                        |       |
| Accounts  receivable                                                             |       | (1,024,000                                                  | )          | (714,000                                                    | )          |
| Inventories                                                                      |       | (464,000                                                    | )          | (3,733,000                                                  | )          |
| Prepaid expenses  and other assets                                               |       | (454,000                                                    | )          | (601,000                                                    | )          |
| Accounts payable                                                                 |       | (295,000                                                    | )          | 227,000                                                     |       |
| Accrued  liabilities                                                             |       | (1,734,000                                                  | )          | 751,000                                                     |       |
| Total  adjustments                                                               |       | (1,415,000                                                  | )          | (1,926,000                                                  | )          |
| Net cash (used  in) operating activities                                         |       | (529,000                                                    | )          | (577,000                                                    | )          |
| Investing  activities:                                                           |       |                                                        |       |                                                        |       |
| Purchases of  property and equipment                                             |       | (5,223,000                                                  | )          | (1,744,000                                                  | )          |
| Proceeds from  sale of property and equipment                                    |       | 979,000                                                     |       | 4,265,000                                                   |       |
| Proceeds from  sale of note receivable                                           |       | —                                                      |       | 2,280,000                                                   |       |
| Proceeds from  sale of business                                                  |       | —                                                      |       | 300,000                                                     |       |
| Net cash  provided by (used in) investing activities                             |       | (4,244,000                                                  | )          | 5,101,000                                                   |       |
| Financing  activities:                                                           |       |                                                        |       |                                                        |       |
| Net proceeds  from line of credit                                                |       | 2,152,000                                                   |       | 1,187,000                                                   |       |
| Proceeds from  issuance of long-term debt                                        |       | 3,789,000                                                   |       | 2,952,000                                                   |       |
| Payments on  long-term debt                                                      |       | (1,241,000                                                  | )          | (7,931,000                                                  | )          |
| Proceeds from  the exercise of stock options                                     |       | —                                                      |       | 59,000                                                      |       |
| Purchases of  common stock                                                       |       | (5,000                                                      | )          | (448,000                                                    | )          |
| Payments of cash  dividends                                                      |       | (240,000                                                    | )          | (471,000                                                    | )          |
| Net cash  provided by (used in) financing activities                             |       | 4,455,000                                                   |       | (4,652,000                                                  | )          |
| Net (decrease)  in cash and cash equivalents                                     |       | (318,000                                                    | )          | (128,000                                                    | )          |
| Cash and cash  equivalents, beginning of period                                  |       | 1,248,000                                                   |       | 1,233,000                                                   |       |
| Cash and cash  equivalents, end of period                                        |       | $                                                           | 930,000    |                                                        | $          | 1,105,000 |   |

 

See accompanyingnotes to condensed consolidated financial statements*.*

 

6

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**SummaIndustries**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

(unaudited)

February 28, 2006

 

**1.****                                      Basisof presentation**

 

The accompanyingunaudited condensed consolidated financial statements of Summa Industries (the “Company”)have been condensed in certain respects and should, therefore, be read inconjunction with the audited consolidated financial statements and notesrelated thereto contained in the Company’s Annual Report on Form 10-K for theyear ended August 31, 2005.  In theopinion of the Company, these financial statements contain all adjustmentsnecessary for a fair presentation for the interim period, all of which werenormal recurring adjustments.  Theresults of operations for the three month and six month periods ended February28, 2006 are not necessarily indicative of the results to be expected for thefull year ending August 31, 2006.

 

**Recentaccounting pronouncements**

 

In December 2004, the Financial Accounting StandardsBoard (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R,“Share-Based Payments,” which requires companies to recognize in the incomestatement the grant-date fair value of stock options and equity-basedcompensation issued to employees. Prior to its adoption in the first quarter offiscal 2006, the Company reported equity based compensation in accordance withAccounting Principles Board (“APB”) Opinion No. 25 and FinancialInterpretation No. 44, and accordingly, no compensation expense wasrecognized in the financial statements prior to September 1, 2005. The proforma effect of equity-based compensation under SFAS No. 123, “Accountingfor Stock-Based Compensation,” for the period prior to the adoption of SFAS No,123R and the expense charged to earnings since its adoption are disclosed inNote 5, below.

 

InOctober 2005, the FASB issued Staff Position Financial Accounting Standard (“FAS”)13-1,“Accounting for Rental Costs Incurred during a Construction Period,” whichrequires rental costs associated with ground or building operating leases thatare incurred during a construction period to be recognized as rentalexpense.  This Staff Position is effective for reporting periods beginningafter December 15, 2005, and retrospective application is permitted but notrequired. The Company does not believeits adoption will have a material impact on its consolidated results ofoperations or financial position.

 

In June 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections, a Replacement of APB No. 20 and FAS No.3”. SFAS No.154 provides guidance on the accounting for and reporting of accounting changesand error calculations. It establishes, unless impracticable, retrospectiveapplication as the required method forreporting a change in accounting principle in the absence of explicittransition requirements specific to the newly adopted accounting principle.SFAS No. 154 also provides guidance for determining whether retrospective application is impracticable. The correction ofan error in previously issued financial statements is not an accounting change.However, the reporting of an error correction involves adjustments topreviously issued financial statements similar to those generally applicable toreporting an accounting change retrospectively. Therefore, the reporting of a correction of an error by restatingpreviously issued financial statements is also addressed by SFAS No. 154. SFAS No.154 is required to be adopted for reporting periods beginning after December15, 2005. The Company does not believe its adoption will have a material impacton its consolidated results of operations or financial position.

 

7

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**2.****                                      Inventories**

 

Inventories wereas follows:

 
| ** **           | ** ** | **February 28, 2005** | ** ** | **August 31, 2005** | ** ** | **February 28, 2006** | ** ** |
|----------------------|------------|---------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| Finished goods       |       | $                               | 7,135,000  |                          | $          | 6,097,000                       |       | $ | 7,787,000 |   |
| Work in process      |       | 234,000                         |       | 199,000                       |       | 200,000                         |       |
| Materials and  parts |       | 7,844,000                       |       | 6,369,000                     |       | 8,411,000                       |       |
|                 |       | $                               | 15,213,000 |                          | $          | 12,665,000                      |       | $ | 16,398,000 |   |

 

**3.****                                      Assetsheld for sale**

 

The net bookvalues of assets held for sale were:

 
| ** **                                  | ** ** | **August 31, 2005** | ** ** | **February 28, 2006** | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| Vacant real  estate                         |       | $                             | 2,373,000  |                            | $          | 1,961,000 |   |
| Machinery &  equipment                  |       | 85,000                        |       | 6,000                           |       |
| Working capital  of discontinued operations |       | 2,361,000                     |       | —                          |       |
| Total assets  held for sale                 |       | $                             | 4,819,000  |                            | $          | 1,967,000 |   |

 

The workingcapital of discontinued operations at August 31, 2005 was net of liabilitiesheld for sale of $1,280,000.  See Note 6below.

 

**4.****                                      Earningsper share**

 

Basic earnings pershare (“EPS”) was computed by dividing net income by the weighted averagenumber of common shares outstanding during each period.

 

Diluted EPSreflects the potential dilution that could occur if securities or othercontracts to issue common stock were exercised or converted into commonstock.  Diluted EPS was calculated usingthe “treasury stock” method as if dilutive options had been exercised and thefunds were used to purchase common shares at the average market price duringthe period.  Options to purchase 314,000shares of common stock as of February 28, 2005 and 836,693 shares of commonstock as of February 28, 2006 were excluded from the calculation of equivalentshares, as they would have been anti-dilutive.

 

The following is areconciliation of the numerators and denominators of the basic and diluted EPScomputations for “income available to common stockholders” and otherdisclosures required by FASB Statement of Accounting Standards No. 128, “Earningsper Share”:

 
| ** **                                                             | ** ** | **Three months ended February 28** | ** ** | **Six months ended February 28** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------|------------|----------------------------------|------------|
| ** **                                                             | ** ** | **2005**                           | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2006** | ** ** |
| Numerators:                                                            |       |                               |       |                             |       |   |   |   |   |
|                                                                   |       |                               |       |                             |       |   |   |   |   |
| Net income                                                             |       | $                                  | 276,000    |                             | $          | 698,000 |   | $ | 886,000 |   | $ | 1,349,000 |   |
|                                                                   |       |                               |       |                             |       |   |   |   |   |
| Denominators:                                                          |       |                               |       |                             |       |   |   |   |   |
|                                                                   |       |                               |       |                             |       |   |   |   |   |
| Weighted average  shares outstanding- basic                            |       | 4,002,000                          |       | 3,893,000                        |       | 3,993,000 |   | 3,910,000 |   |
| Impact of common  shares assumed to be issued under stock option plans |       | 77,000                             |       | 33,000                           |       | 78,000 |   | 33,000 |   |
| Weighted average  shares outstanding- diluted.                         |       | 4,079,000                          |       | 3,926,000                        |       | 4,071,000 |   | 3,943,000 |   |
|                                                                        |            |                                    |            |                                  |            |  |  |  |  |  |  |  |  |

 

8

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**5.****                                     ****Stock-based compensation**

 

Effective September 1, 2005, the Company adopted SFAS No. 123R, “Share-Based Payment,” which revised SFAS No.123, “Accounting for Stock-Based Compensation”, and superseded AccountingPrincipals Board Opinion (“APB”) No. 25 “Accounting for Stock Issued toEmployees”, and its related interpretations.  SFAS 123R requires that new, modified andunvested share-based payment transactions with employees, such as stockoptions, be recognized in the financial statements based on their fair valueand recognized as compensation expense over the vesting period.  The Company has elected to use themodified prospective method, under which previously reported financial resultsare not restated to reflect the stock-based compensation formerly recognized inthe required pro forma footnote disclosures.

 

The Company deemed it to be in the best interests of the Company and itsstockholders to minimize the compensation expense that would be required to berecognized under SFAS No. 123R for “out-of -the-money” or “underwater” stockoptions. Consequently, in the fiscal year ended August 31, 2005, the Companyaccelerated the vesting of most of the then outstanding stock options thatcontained exercise prices greater than the market trading price at that time.As a result of this early vesting, employee compensation expense of $380,000,net of tax, was recognized in the pro forma footnote disclosure for the yearended August 31, 2005 and will not be recognized in the reported results ofoperations in the periods following the adoption of SFAS No. 123R.

 

As a result of adopting SFAS 123R, the Company recognized compensationexpense for stock options of $28,000 in the three month period ended February28, 2006 and $ 43,000 in the six month period ended February 28, 2006, net oftax benefit.  Prior to the adoption ofSFAS 123R, the Company applied the provisions of APB No. 25 and FinancialInterpretation No. 44. Consequently, no compensation expense was recognized forstock options in the three-month and six-month periods ended February 28, 2005.

 

The following tableillustrates the effect on net earnings and net earnings per share if theCompany had applied the fair value recognition provisions of SFAS No. 123 as ofSeptember 1, 2004.  Since the amountsattributable to forfeitures of stock options for the three and six monthperiods ended February 28, 2005 exceeded the amount allocable to expense forstock option grants, the pro forma impact of expensing stock options was a netbenefit for each of the periods. The fair value estimate was computed using theBlack-Scholes option pricing model.

 
| ** **                                                                                   | ** ** | **Three months ended** | ** ** | **Six months ended**  | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                   | ** ** | **February 28, 2005**  | ** ** | **February 28, 2005** | ** ** |
| Net income                                                                                   |       | $                                | 276,000    |                            | $          | 886,000 |   |
| Share-based  compensation included in net income                                             |       | —                           |       | —                          |       |
| Pro forma impact  of expensing stock options net of the effect of tax of $42,000 and $22,000 |       | 68,000                           |       | 37,000                          |       |
|                                                                                         |       | $                                | 344,000    |                            | $          | 923,000 |   |
|                                                                                         |       |                             |       |                            |       |
| Earnings per  share:                                                                         |       |                             |       |                            |       |
|                                                                                         |       |                             |       |                            |       |
| As reported:                                                                                 |       |                             |       |                            |       |
| Basic                                                                                        |       | $                                | 0.07       |                            | $          | 0.22 |   |
| Diluted                                                                                      |       | $                                | 0.07       |                            | $          | 0.22 |   |
|                                                                                         |       |                             |       |                            |       |
| Pro forma:                                                                                   |       |                             |       |                            |       |
| Basic                                                                                        |       | $                                | 0.09       |                            | $          | 0.23 |   |
| Diluted                                                                                      |       | $                                | 0.08       |                            | $          | 0.23 |   |

 

**6.****                                      Discontinuedoperations**

 

As previously disclosed, in September 2005, the Company sold certainassets and liabilities of its former Electrical Components segment at theirbook value to an investor group for $300,000 cash and a $2,280,000 note due inAugust 2006, and leased related equipment and facilities to the investor groupfor five years. During the second fiscal quarter, the Company sold the note,the leased fixed assets and substantially all of the remaining assets ofPlastron, other than real estate, for $5,698,000, the aggregate book value. Theproceeds were used to pay off related equipment financing and other debt. Additionalassets, principally real estate located in Illinois, are reported in assetsheld for sale. The financial results of Plastron, which were formerly reportedas the Electrical Components segment, have been excluded from results ofoperations for the periods presented herein and have been presented as adiscontinued operation.

 

9

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**7.****                                      Supplementalcash flow information**

** **
| ** **                          | ** ** | **Six months ended February 28** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                             | ** ** | **2006** | ** ** |
| Cash paid during  the period:       |       |                                                 |       |   |   |
| Interest                            |       | $                                                    | 1,111,000  |   | $ | 1,053,000 |   |
| Income taxes                        |       | $                                                    | 1,488,000  |   | $ | 1,072,000 |   |
| Non-cash financing  activity:       |       |                                                 |       |   |   |
| Common stock  issued to 401(k) Plan |       | $                                                    | 261,000    |   | $ | — |   |
| Dividend  declared                  |       | $                                                    | —     |   | $ | 234,000 |   |

** **

**8*.*****                                      Segmentinformation**

 

The Company has threereportable segments identified by differences in products and distributionchannels.  The accounting policies of thesegments are the same as those described in the summary of significantaccounting polices described in the Company’s Annual Report on Form 10-K forthe year ended August 31, 2005.  TheCompany’s operations are reported in the following business segments:

 

***OpticalComponents.***  In itsOptical Components segment, Summa designs and manufactures plastic prismaticlenses, reflectors and diffusers and other plastic products, which are used incommercial and industrial lighting fixtures and other applications.

 

***MaterialHandling Components.**** *In its Material HandlingComponents segment, Summa designs and manufactures engineered plasticcomponents, which form conveyer belts and chains and other plastic products foruse in food processing.

 

***IrrigationComponents.***  Inits Irrigation Components segment, Summa designs and manufactures plasticinjection-molded fittings, micro-sprinklers, emitters, valves, filters andaccessories, extruded tubing and other plastic products for drip irrigationsystems used in agriculture, commercial landscape and other applications.

 

Formerly, theCompany also operated in an Electrical Components segment which wasdiscontinued in the first quarter of fiscal 2006 and has been reported asdiscontinued operations at August 31, 2005 and for the periods ended February28, 2006.

 

10

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Financialinformation by reportable business segment follows:

 
| ** **                    | ** ** | **Three months ended February 28** | ** ** | **Six months ended February 28** | ** ** |
|-------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                    | ** ** | **2005**                                               | ** ** | **2006**                                             | ** ** | **2005** | ** ** | **2006** | ** ** |
| External sales                |       |                                                   |       |                                                 |       |   |   |   |   |
| Optical  components           |       | $                                                      | 13,718,000 |                                                 | $          | 13,973,000 |   | $ | 27,868,000 |   | $ | 28,496,000 |   |
| Material  handling components |       | 6,206,000                                              |       | 7,187,000                                            |       | 12,615,000 |   | 13,712,000 |   |
| Irrigation  components        |       | 6,762,000                                              |       | 6,350,000                                            |       | 11,691,000 |   | 13,042,000 |   |
| Consolidated                  |       | $                                                      | 26,686,000 |                                                 | $          | 27,510,000 |   | $ | 52,174,000 |   | $ | 55,250,000 |   |
|                          |       |                                                   |       |                                                 |       |   |   |   |   |
| Inter-segment  sales          |       |                                                   |       |                                                 |       |   |   |   |   |
| Optical  components           |       | $                                                      | 18,000     |                                                 | $          | 34,000 |   | $ | 309,000 |   | $ | 34,000 |   |
| Material  handling components |       | —                                                 |       | —                                               |       | — |   | — |   |
| Irrigation  components        |       | —                                                 |       | —                                               |       | — |   | — |   |
| Other                         |       | (18,000                                                | )          | (34,000                                              | )          | (309,000 | ) | (34,000 | ) |
| Consolidated                  |       | $                                                      | —     |                                                 | $          | — |   | $ | — |   | $ | — |   |
|                          |       |                                                   |       |                                                 |       |   |   |   |   |
| Total sales                   |       |                                                   |       |                                                 |       |   |   |   |   |
| Optical  components           |       | $                                                      | 13,736,000 |                                                 | $          | 14,007,000 |   | $ | 28,177,000 |   | $ | 28,530,000 |   |
| Material  handling components |       | 6,206,000                                              |       | 7,187,000                                            |       | 12,615,000 |   | 13,712,000 |   |
| Irrigation  components        |       | 6,762,000                                              |       | 6,350,000                                            |       | 11,691,000 |   | 13,042,000 |   |
| Other                         |       | (18,000                                                | )          | (34,000                                              | )          | (309,000 | ) | (34,000 | ) |
| Consolidated                  |       | $                                                      | 26,686,000 |                                                 | $          | 27,510,000 |   | $ | 52,174,000 |   | $ | 55,250,000 |   |
|                          |       |                                                   |       |                                                 |       |   |   |   |   |
| Operating income  (loss)      |       |                                                   |       |                                                 |       |   |   |   |   |
| Optical  components           |       | $                                                      | 1,228,000  |                                                 | $          | 908,000 |   | $ | 2,510,000 |   | $ | 2,712,000 |   |
| Material  handling components |       | 370,000                                                |       | 1,072,000                                            |       | 1,080,000 |   | 1,795,000 |   |
| Irrigation  components        |       | 260,000                                                |       | 323,000                                              |       | 418,000 |   | 486,000 |   |
| Other                         |       | (492,000                                               | )          | (667,000                                             | )          | (936,000 | ) | (1,341,000 | ) |
| Consolidated                  |       | $                                                      | 1,366,000  |                                                 | $          | 1,636,000 |   | $ | 3,072,000 |   | $ | 3,652,000 |   |

 
| ** **                    | ** ** | **February 28, 2005** | ** ** | **August 31, 2005** | ** ** | **February 28, 2006** | ** ** |
|-------------------------------|------------|---------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| **Assets**                    | ** ** | ** **                      | ** ** | ** **                    | ** ** | ** **                      | ** ** |
| Optical  components           |       | $                               | 29,818,000 |                          | $          | 28,668,000                      |       | $ | 29,973,000 |   |
| Material  handling components |       | 22,543,000                      |       | 23,270,000                    |       | 25,252,000                      |       |
| Irrigation  components        |       | 15,230,000                      |       | 13,046,000                    |       | 13,539,000                      |       |
| Assets held for  sale         |       | —                          |       | 6,099,000                     |       | 1,967,000                       |       |
| Other                         |       | 15,805,000                      |       | 8,952,000                     |       | 5,733,000                       |       |
|                          |       |                            |       |                          |       |                            |       |
| Consolidated                  |       | $                               | 83,396,000 |                          | $          | 80,035,000                      |       | $ | 76,464,000 |   |

 

Interest expense andincome taxes are not shown in the preceding table, as they are not fullyallocated by segment.  “Other” includesinter-company eliminations, corporate and other expenses and assets notallocated by segment.

 

**MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

Statementscontained in this Quarterly Report on Form 10-Q, which are not purelyhistorical, are forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933 and Section 21E of the Securities Exchange Act of1934, including but not limited to statements regarding Summa’s expectations,hopes, beliefs, intentions or strategies regarding the future, such as thoseset forth in Part II, Item 1 “Legal Proceedings” below.  Actual results could differ materially fromthose projected in any forward-looking statements as a result of a number offactors, including those detailed in this “Management’s Discussion and Analysis”section and elsewhere herein and in the Company’s Annual Report on Form 10-Kfor the fiscal year ended August 31, 2005. The forward-looking statements are made as of the date hereof, and theCompany assumes no obligation to update the forward-looking statements, or toupdate the reasons why actual results could differ materially from thoseprojected in the forward-looking statements. For a discussion of risks and uncertainties that should be consideredand which could materially adversely affect the Company, please see “RiskFactors” in the “Management Discussion and Analysis” section of the Company’sAnnual Report on Form 10-K for the fiscal year ended August 31, 2005.

 

11

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Summa manufacturesplastic products for diverse commercial and industrial markets. Through its threereportable segments, Summa designs and manufactures injection-molded and formedplastic optical components for OEM customers in the lighting industry; modularplastic conveyor belt and chain for the food processing industry; engineeredplastic fittings, micro-sprinklers, emitters, valves, filters and tubing forirrigation systems used in agriculture, commercial landscape and otherapplications; and other molded and extruded plastic components for diverseindustries.

 

**Significantevents and developments during the second quarter of fiscal 2006, endedFebruary 28, 2006**

 

As previouslyannounced, during the first quarter of fiscal 2006, the Company sold certaincurrent assets of its subsidiary, Plastron Industries, Inc., at their bookvalue and leased certain retained fixed assets of Plastron to an investor group**. **Plastron comprisedSumma’s former Electrical Components segment, which is now reported as adiscontinued operation.  A substantialportion of the consideration for the assets sold was in the form of apromissory note.  During the secondfiscal quarter, the Company sold the note and the leased fixed assets for $5.7million in cash to a private company. Summa did not report a significant gain or loss as a result of thistransaction. The transaction accelerated the usability of certain deferred taxassets, which can offset approximately $2 million of current income taxobligations.  The proceeds from thistransaction were used to reduce debt. Plastron real estate remains held forsale.

 

In recent periods,plastic resin, the principal raw material used by the Company, has experiencedextreme price inflation and volatility, as a result of a number of factorsincluding petrochemical plant interruptions related to hurricanes in the Gulfof Mexico.  The price volatility wasparticularly evident with respect to polyethylene, a primary material used inthe Irrigation Components segment. During the second fiscal quarter, price volatility abated and theCompany now has passed through all the price increases resulting from rawmaterial cost increases, to the extent possible.  Sales of certain polyethylene based productsmanufactured in the Irrigation Components segment were artificially low in thesecond quarter of fiscal 2006 as a result of higher than normal sales of thoseproducts in the first quarter of fiscal 2006 due to speculative purchases tohedge against anticipated future higher prices for resin.

 

***Resultsof Operations***

 

The followingtable sets forth certain information regarding continuing operations, derivedfrom Summa’s unaudited condensed consolidated statements of income, as apercent of sales for the three month and six month periods ended February 28,2005 and February 28, 2006, and the Company’s effective income tax rate duringthose periods:

 
| ** **                               | ** ** | **Three months ended February 28** | ** ** | **Six months ended February 28** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                               | ** ** | **2006**                                             | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net sales                                |       | 100.0                                                  | %          | 100.0                                                | %          | 100.0 | % | 100.0 | % |
| Cost of sales                            |       | 77.7                                                   | %          | 76.2                                                 | %          | 76.3 | % | 75.9 | % |
| Gross profit                             |       | 22.3                                                   | %          | 23.8                                                 | %          | 23.7 | % | 24.1 | % |
| S,G & A and  other expenses          |       | 17.2                                                   | %          | 17.9                                                 | %          | 17.9 | % | 17.9 | % |
| (Gain) on sale  of real estate           |       | —                                                 | %          | —                                               | %          | (0.1 | )% | (0.4 | )% |
| Operating income                         |       | 5.1                                                    | %          | 5.9                                                  | %          | 5.9 | % | 6.6 | % |
| Interest  expense, net                   |       | 1.5                                                    | %          | 1.9                                                  | %          | 1.4 | % | 1.7 | % |
| Income before  tax and minority interest |       | 3.6                                                    | %          | 4.0                                                  | %          | 4.5 | % | 4.9 | % |
|                                     |       |                                                   |       |                                                 |       |   |   |   |   |
| Effective tax  rate                      |       | 35.6                                                   | %          | 36.2                                                 | %          | 35.5 | % | 35.9 | % |

 

**Quarterended February 28, 2006 compared to the quarter ended February 28, 2005**

 

Sales for thesecond quarter ended February 28, 2006, increased $824,000, or 3%, primarilydue to the effects of price increases (approximately $1,200,000), partiallyoffset by intentionally eliminated unprofitable sales (approximately $300,000)and lower unit sales due to speculative buying in the first quarter byIrrigation Components segment customers. Sales increased $255,000, or 2%, in the Optical Components segment,primarily due to price increases (approximately $500,000), substantially offsetby business lost due to competitive pricing; increased $981,000, or 16%, in theMaterial Handling Components segment, primarily due to strength in core marketsand price increases (approximately $200,000);

 

12

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and decreased$412,000, or 6%, in the Irrigation Components segment, primarily due tospeculative buying in the first quarter, and intentionally eliminatedunprofitable sales (approximately $300,000), partially offset by priceincreases (approximately $500,000).

 

Gross profit forthe second quarter increased $615,000, or 10%, from the comparable prior yearperiod, primarily due to increased sales, partially offset by increasedmaterial costs.  Gross margin increasedfrom 22.3% to 23.8%, primarily due to resin price increases passed through tocustomers, favorable business mix, improved labor efficiency and managementcost reduction initiatives.

 

Operating expensesfor the second quarter increased $345,000, or 8%, from the comparable prioryear period, primarily due to the benefit of $186,000 in the prior year secondquarter from partial collection of a fully reserved note receivable,  unusually high recruiting and consultingexpense, the inclusion of $45,000 of stock based compensation in the mostrecent quarter as a result of the adoption of SFAS 123R and increased variablesales expenses related to higher sales, partially offset by management costreduction initiatives.  As a percent ofsales, operating expenses increased from 17.2% to 17.9%.

 

Operating incomefor the second quarter was $1,636,000, which was $270,000, or 20%, higher thanin the comparable prior year period.  Bysegment, operating income decreased $320,000 in the Optical Components segment,primarily due to price pressure and unfavorable product mix; increased $702,000in the Material Handling Components segment, primarily due to the effects ofhigher sales volume and continuing benefits of a previous facilityconsolidation; and increased $63,000 in the Irrigation Components segment,despite lower sales volume, primarily due to favorable product mix andmanagement cost reduction initiatives. Operating margin for the quarterincreased from 5.1% in the second quarter of fiscal 2005 to 5.9% in the secondquarter of fiscal 2006, due to the factors discussed above.

 

Net interestexpense for the quarter ended February 28, 2006 was $524,000, $116,000 higherthan in the prior year second quarter, due to the effects of higher averageinterest rates in the most recent period and debt prepayment costs related tothe sale of Plastron assets, partially offset by lower average debt levelsduring the most recent quarter. The weighted average interest rate was 6.1% on$26.8 million in debt at February 28, 2006, versus 5.0% on $35.6 million indebt a year earlier.

 

The provision forincome taxes in the second quarter of fiscal 2006 was $402,000, $61,000 higherthan in the prior year second quarter, due to higher income before taxes and ahigher tax rate. The effective income tax rate was 36.2% in the most recentquarter versus 35.6% a year earlier.

 

**Sixmonths ended February 28, 2006 compared to the six months ended February 28,2005**

 

Sales for the sixmonths ended February 28, 2006 increased $3,076,000, or 6%, primarily due toprice increases (approximately $2,300,000) and increases in unit sales,partially offset by the intentionally eliminated unprofitable sales(approximately $300,000).  Salesincreased $628,000, or 2%, in the Optical Components segment due to priceincreases (approximately $1,200,000), partially offset by business lost due tocompetitive pricing; increased $1,097,000, or 9%, in the Material HandlingComponents segment, primarily due to strength in core markets and priceincreases (approximately $200,000); and increased $1,351,000, or 12%, in theIrrigation Components segment, primarily due to price increases (approximately$900,000), increased sales to existing customers and favorable marketconditions, partially offset by intentionally eliminated unprofitable sales(approximately $300,000).

 

Gross profit forthe six months ended February 28, 2006 increased $955,000, or 8%, from thecomparable prior year period, primarily due to increased sales.  Gross margin increased from 23.7% to 24.1%,primarily due to the effects of higher sales volume and favorable business mix.

 

Operating expensesfor the six months ended February 28, 2006, excluding a $205,000 gain from thesale of excess real estate in the most recent six month period, versus a$43,000 gain from a real estate sale in the comparable prior year period,increased $537,000, or 6%, from the comparable prior year period, primarily dueto the benefit of $186,000 from partial collection in the comparable prior yearperiod of a fully reserved note receivable, unusually high recruiting andconsulting expense in the most recent six month period, the inclusion of $70,000of stock based compensation in the most recent six month period as a result ofthe adoption of SFAS 123R and increased variable sales expenses related tohigher sales, partially offset by management cost reduction initiatives.  As a percent of sales, operating expenseswere unchanged at 17.9%.

 

13

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Operating incomefor the six months ended February 28, 2006, including a gain on sales of realestate which was $162,000 greater than in the prior year six month period, was$3,652,000, which was $580,000, or 19%, higher than in the comparable prioryear period.  By segment, operatingincome increased $202,000 in the Optical Components segment, primarily due to again of $205,000 on the sale of an excess building, implementation of priceincreases and management cost reduction initiatives, partially offset byunusually high recruiting and consulting expense; increased $715,000 in theMaterial Handling Components segment, primarily due to the effects of highersales volume and continuing benefits of a previous facility consolidation; andincreased $68,000 in the Irrigation Components segment, primarily due to theeffects of higher sales volume. Operating margin increased to 6.6% in the sixmonths ended February 28, 2006 from 5.9% in the comparable prior year period,due to the factors discussed above.

 

Net interestexpense for the six months ended February 28, 2006 was $972,000, $255,000higher than in the comparable prior year period, due to the effects of higheraverage interest rates in the most recent period and debt prepayment costsrelated to the sale of Plastron assets, partially offset by lower average debtlevels during the most recent period.

 

The provision for incometaxes for the six months ended February 28, 2006 was $963,000, $127,000 higherthan in the comparable prior year period, due to higher income beforetaxes.  The effective income tax rate was35.9% in the most recent six month period versus 35.5% a year earlier.

 

The Company’s backlogof unfilled orders, believed to be firm, was $6,940,000 at February 28, 2005,$5,592,000 at August 31, 2005 and $6,656,000 at February 28, 2006.  Because the time between entering an orderand shipping the product and recording a sale is typically shorter than onemonth, backlog levels are not a reliable indicator of future sales volume.

 

***Liquidity and Capital Resources***

 

*WorkingCapital. *The Company’sworking capital was $20,384,000 at February 28, 2005; $19,075,000 at August 31,2005 and $20,959,000 at February 28, 2006.

 

Summary of theCompany’s debt at February 28, 2006:

 
| ** **                        | ** ** | ** **  | ** ** | ** **                            | ** ** | ** **                   | ** ** | **Fiscal Year Due** | ** ** |
|-----------------------------------|------------|-------------|------------|---------------------------------------|------------|------------------------------|------------|-------------------------------|------------|
| **Description of Debt** | ** ** | **Balance** | ** ** | **Weighted  Average  Interest  Rate** | ** ** | **Additional  Availability** | ** ** | **2006**                      | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010 and  thereafter** |   |
| Revolving line of  credit         |       | $           | 13,370,000 |                                  | 6.2        | %                            | $          | 6,475,000                     |       | $ | — |   | $ | 13,370,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Bank term loan                    |       | 3,065,000   |       | 4.7                                   | %          | —                       |       | 493,000                       |       | 1,022,000 |   | 1,071,000 |   | 479,000 |   | — |   |
| Real estate and  other loans      |       | 10,362,000  |       | 6.5                                   | %          | —                       |       | 382,000                       |       | 1,926,000 |   | 730,000 |   | 416,000 |   | 6,908,000 |   |
| Total debt                        |       | $           | 26,797,000 |                                  | 6.1        | %                            | $          | 6,475,000                     |       | $ | 875,000 |   | $ | 16,318,000 |   | $ | 1,801,000 |   | $ | 895,000 |   | $ | 6,908,000 |   |

 

The interest rate on thebank term loan is fixed for five years. Interest rates on the bank line of credit are subject to marketfluctuation and are subject to reduction as the Company achieves certainfinancial milestones.  Interest rates onmost of the real estate and other loans are subject to market fluctuation.

 

*Sources and Uses of Funds*.  Net cash used in operating activities for thefirst six months of fiscal 2006 was $577,000 compared to $529,000 used inoperating activities for the first six months of fiscal 2005.  The decrease was primarily due to a largerincrease in inventory than in the comparable prior year period, substantiallyoffset by higher net income, a smaller increase in accounts receivable in themost recent six month period than in the prior year and increases in accountspayable and accrued liabilities in the most recent period versus decreases in theprior year period. The increase in inventory in the most recent period wasprimarily due to a level loaded manufacturing initiative in the seasonalirrigation business, price inflation, selected increases to improve customerservice levels and the accumulation of excess regrind at an extrusionplant.  Increases in accounts payablewere primarily related to inventory increases. Net cash provided by investing activities was $5,101,000 in the sixmonths, versus $4,244,000 used in the first six months of fiscal 2005,primarily due to an unusually large investment in a new facility in theMaterial Handling Components segment and investments in equipment in the first halfof fiscal 2005 and substantially higher proceeds from sales of assets and thesale of the note receivable in the first six months of fiscal 2006.  Net cash of $4,652,000 was used in financingactivities for the six months of fiscal 2006, compared to $4,455,000 in netcash provided in the prior year first six months.  The change primarily represents retirement ofdebt in the most recent period, versus increase in debt in the prior yearassociated with the new facility investment. Additionally, the Company used $448,000 for the repurchase of stock inthe open market and $471,000 for the payment of dividends in the first sixmonths of fiscal 2006 versus $5,000 for stock repurchases and $240,000 fordividends in the first six months of fiscal 2005.

 

14

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In October 2004,the Company announced a plan to repurchase up to $2,000,000 of its Common Stockwith no time limit (the “2005 Buy Back”). As of February 28, 2006, the status of the 2005 Buy Back was as follows:

 
| ** **              | ** ** | **Shares repurchased** | ** ** | **Average cost per share** | ** ** | **Repurchase cost** | ** ** |
|-------------------------|------------|-----------------------------|------------|-------------------------------------------|------------|--------------------------|------------|
| Prior to  December 2005 |       | 84,796                      |       | $                                         | 8.17       |                     | $          | 693,000 |   |
|                    |       |                        |       |                                      |       |                     |       |
| December 2005           |       | 30,051                      |       | $                                         | 7.84       |                     | $          | 235,000 |   |
| January 2006            |       | 5,000                       |       | $                                         | 7.77       |                     | $          | 39,000 |   |
| February 2006           |       | 47                          |       | $                                         | 7.81       |                     | —     |   |
| Total for the  quarter  |       | 35,098                      |       | $                                         | 7.83       |                     | $          | 274,000 |   |
|                    |       |                        |       |                                      |       |                     |       |
| Total for the  plan     |       | 119,894                     |       | $                                         | 8.07       |                     | $          | 967,000 |   |

 

The cost per shareincludes commissions where applicable.

 

Summa believesthat cash flows from operations and existing credit facilities will besufficient to fund working capital requirements, planned investments and debtservice for the next twelve months.  Inaddition, funds may be generated from a limited number of sales of certainnon-core assets of the Company.  TheCompany has a strategy which includes growth by acquisition.  In the event an acquisition plan is adoptedwhich requires funds exceeding the availability described above, an alternatesource of funds to accomplish the acquisition would have to be developed.  The Company has 10,000,000 shares of commonstock authorized, of which 3,892,628 shares were outstanding at February 28,2006 and 5,000,000 shares of “blank check” preferred stock authorized, of whichnone was outstanding at February 28, 2006. The Company could issue additional shares of common or preferred stockor enter into new or revised borrowing arrangements to raise funds.

 

***Off-Balance Sheet Arrangements***

 

The Company’smaterial off-balance sheet arrangements are as follows:

 

*FutureLease Payments.*  TheCompany leases offices and manufacturing facilities and certain equipment undernon-cancelable operating leases.  Futurepayments under these leases at February 28, 2006 are approximately as follows:

 
| **Fiscal Year** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|
| 2006                 |       | $          | 542,000    |   |
| 2007                 |       | $          | 915,000    |   |
| 2008                 |       | $          | 787,000    |   |
| 2009                 |       | $          | 573,000    |   |
| 2010                 |       | $          | 18,000     |   |
| 2011 and  thereafter |       | —     |       |

 

***CriticalAccounting Policies and Estimates***

 

The foregoing discussion and analysis of the Company’s financialcondition and results of operations are based upon the consolidated financialstatements of the Company, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thepreparation of such financial statements requires management to make estimatesand assumptions in applying certain critical accounting policies. Certainaccounting estimates are particularly sensitive because of their significanceto the Company’s consolidated financial statements and because of thepossibility that future events affecting the estimates could differ markedlyfrom current expectations. The Company believes that the following are some ofthe more critical judgment areas in the application of its accounting policiesthat affect the Company’s financial statements:

 

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###### *Impairment of Long-Lived Assetsand Long-Lived Assets to be Disposed of*.  The Company reviews its long-lived assets andcertain identifiable intangibles for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to the undiscounted futureoperating cash flows expected to be generated by the asset. If such assets areconsidered to be impaired, the impairment to be recognized is measured by theamount by which the carrying amount of the assets exceeds the fair value of theassets. Assets to be disposed of by sale are reported at the lower of thecarrying amount or fair value less costs to sell.

 

TheCompany has a significant amount of property and equipment and intangibleassets. The determination as to whether events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable involvesmanagement’s judgment. In addition, should the Company conclude thatrecoverability of an asset is in question, the estimate of undiscounted futureoperating cash flows to determine whether an asset is recoverable and, if not,the final determination of the fair value of the asset, is also based on thejudgment of management. These judgments can be impacted by a variety ofunderlying assumptions, such as the general business climate, effectiveness ofcompetition and supply and cost of resources. Accordingly, actual results can differ significantly from theassumptions made by management in making its estimates. Future changes inmanagement’s estimates could result in indicators of impairment and futureimpairment charges.

 

###### *Valuation of Inventory.** ***TheCompany values its inventories at the lower of cost or market using thefirst-in, first-out (FIFO) method. The Company records adjustments to the valueof inventory based upon obsolescence and changes in market value as permanentchanges in the carrying amount of such inventory until its ultimate sale orother disposition. The Company has evaluated the current level of inventoriesconsidering historical sales and other factors and, based on this evaluation,has recorded adjustments to cost of goods sold to adjust inventory to netrealizable value.  These adjustments areestimates, which could vary significantly, either favorably or unfavorably,from actual requirements if future economic conditions, customer demand orcompetition differ from expectations.

 

*Accounts Receivable.******* **The Company performs ongoingevaluations of customers and adjusts credit limits based upon each customer’spayment history and credit worthiness, as determined by credit informationavailable at that time.  The Companymonitors collections and payments from customers and maintains allowances fordoubtful accounts for the inability of customers to make requiredpayments.  If the financial condition ofcustomers were to deteriorate resulting in an impairment of their ability tomake payments, additional allowances may be required.

 

*Goodwill.** ***Goodwillrepresents the excess of purchase price over fair value of net assetsacquired.  Goodwill is tested forimpairment annually in the fourth quarter, after completion of an annualplanning process, or earlier if events occur which require an impairmentanalysis to be performed.  With respectto each reporting unit which has any goodwill, the fair value is determinedusing traditional valuation methodology, and compared with its carryingvalue.  If the fair value exceeds theunit’s carrying value, goodwill of the reporting unit is considered not to beimpaired.  If the unit’s carrying valueexceeds its fair value, assets of the unit are individually valued to determinethe implied fair value of the reporting unit goodwill.  Impairment loss is recognized to the extentthat the carrying value of the goodwill exceeds its implied fair value.  Significantmanagement judgment is involved in determining the fair value of assets. Futurechanges in management’s estimates could result in additional impairment chargesto goodwill.

 

*IncomeTaxes.*  Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to temporary differences between the financial statement carryingamounts of assets and liabilities and their respective tax bases.  Deferred tax assets are also recognized fortax credit carryforwards and then assessed (including the anticipation offuture income) to determine the likelihood of realization.  Deferred tax assets and liabilities aremeasured using the rates expected to apply to taxable income in the years inwhich the temporary differences are expected to reverse and the credits areexpected to be used.  The effect of achange in tax rates on deferred tax assets and liabilities is recognized inincome in the period that includes the enactment date.

 

*Accounting for Stock Options.***** TheCompany accounts for stock-based compensation in accordance with SFASNo. 123(R), Share-Based Payment. Under the fair value recognition provisions of this statement,share-based compensation cost is measured at the grant date based on the valueof the award and is recognized as expense over the vesting period.  The Company uses the Black-Scholes model tocalculate the fair value and is required to exercise judgment and makeassumptions concerning the expected term, the expected volatility, and theexpected dividends. If actual results differ significantly from theseestimates, stock-based compensation expense and results of operations could beimpacted. The Company has elected to use the modified prospective method, underwhich previously reported financial results are not restated to reflect thestock-based compensation expense formerly recognized in pro forma footnotedisclosures and could affect comparability of historical results to resultsreported subsequent to the adoption of SFAS No. 123R.

 

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**QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Except for theoutstanding debt and related variable interest rates set forth in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Liquidity and Capital Resources” above, there are no material changes to thedisclosure set forth in Item 7A of the Company’s Annual Report on Form 10-K forthe fiscal year ended August 31, 2005. The Company has no market risk sensitive instruments entered into fortrading purposes.

 

**CONTROLSAND PROCEDURES**

 

As of the end of theperiod covered by this report, the Company carried out an evaluation, under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures pursuant to Exchange Act Rules 13a-14 and 13a-15.  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective.  There were no significant changes in theCompany’s internal controls that could significantly affect these controlssubsequent to the date of their evaluation.

 

The Company is currently not an accelerated filerunder applicable rules and regulations of the Securities and ExchangeCommission and, as such, has not been required to comply with all of the regulationsrecently adopted by the Commission, particularly the requirement that theCompany include in its Annual Report on Form 10-K a report of management andaccompanying auditor’s report on the Company’s internal control over financialreporting (“404 reporting”).  Compliancewith the 404 reporting rules and regulations has been extended fornon-accelerated filers to fiscal years ending on or after July 15, 2007.

 

**PART II -OTHER INFORMATION**

 

***Item1.  Legal Proceedings***

 

The Companyencounters lawsuits from time to time in the ordinary course of business and,at February 28, 2006, the Company and/or its affiliates were parties to severalcivil lawsuits. Summa does not expect that the resolution of these lawsuitswill have a material adverse impact on future results of operations orfinancial position.  Certain lawsuitsfiled against the Company from time to time contain claims not covered byinsurance, or seek damages in excess of policy limits, and such claims could befiled in the future.

 

***Item1A.  Risk Factors***

 

As of the date of this filing, there has been nomaterial change to the risk factors previously disclosed in the Company’sAnnual Report on Form 10-K, other than the Company believes that the riskassociated with the following risk factor has been substantially eliminated dueto the sale of the remaining assets (including the promissory note butexcluding real estate) of this discontinued operation during the quarter:

 

“***Discontinued Operations.***  In September 2005, the Company sold certaincurrent assets and current liabilities of its former Electrical Componentssegment at their book value and agreed to lease certain retained fixed assetsof that Segment, which is now reported as a discontinued operation.  Summa does not expect to report a materialgain or loss as a result of the transaction. However, a substantial portion of the consideration for the assets soldwas in the form of a promissory note due August 30, 2006 and various leases ofequipment and real property.  In theevent the buyer fails to fulfill its obligations under the note and/or theasset leases, the Company will incur significant legal expenses and asubstantial loss in reclaiming and liquidating the assets.”

 

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###### ***Item 2. Unregistered Sales of Equity Securities and Use of Proceeds***

 

In October 2004,the Company announced a plan to repurchase up to $2,000,000 of its Common Stockwith no time limit (the “2005 Buy Back”). As of February 28, 2006, the status of the 2005 Buy Back was as follows:

 
| ** **              | ** ** | **Shares repurchased** | ** ** | **Average cost per share** | ** ** | **Repurchase cost** | ** ** |
|-------------------------|------------|-----------------------------|------------|-------------------------------------------|------------|--------------------------|------------|
| Prior to  December 2005 |       | 84,796                      |       | $                                         | 8.17       |                     | $          | 693,000 |   |
|                    |       |                        |       |                                      |       |                     |       |
| December 2005           |       | 30,051                      |       | $                                         | 7.84       |                     | $          | 235,000 |   |
| January 2006            |       | 5,000                       |       | $                                         | 7.77       |                     | $          | 39,000 |   |
| February 20006          |       | 47                          |       | $                                         | 7.81       |                     | —     |   |
| Total for the  quarter  |       | 35,098                      |       | $                                         | 7.83       |                     | $          | 274,000 |   |
|                    |       |                        |       |                                      |       |                     |       |
| Total for the  plan     |       | 119,894                     |       | $                                         | 8.07       |                     | $          | 967,000 |   |

 

The cost per shareincludes commissions where applicable.

 

***Item3.  Defaults upon Senior Securities***

 

None.

 

***Item4.  Submission of Matters to a Vote ofSecurity Holders***

 

At the Company’s AnnualMeeting of Stockholders held on January 26, 2006, incumbent director DavidMcConaughy and nominee Robert L. Underwood were elected to the Board ofDirectors of the Company to serve as one Class of the Board of Directors for athree year term and until their successors are elected and qualified.  Messr. McConaughy received 3,369,877 votes inhis favor, with 165,117 votes withheld, and Messr. Underwood received 3,381,677votes in his favor, with 153,317 votes withheld.  There were no broker non-votes.  Incumbent directors William R. Zimmerman,Michael L. Horst, James R. Swartwout, Jack L. Watts and Charles A. Tourvilleare members of two additional Classes of the Board of Directors, and their termsof office continued after the Annual Meeting.

 

***Item 5.  Other Information***

 

None.

 

***Item 6.  Exhibits***

 

31.1                           Section302 Certification

32.1                           Section906 Certification

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized on April 6, 2006.

 

**SummaIndustries**

 
| /s/ James R. Swartwout                |                         | /s/ Trygve M. Thoresen |   |
|---------------------------------------|------------------------------|------------------------|--------|
| James R. Swartwout                    | Trygve M. Thoresen           |
| President and Chief Financial Officer | Vice President and Secretary |

 

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