**U.S. Securities and Exchange Commission**

**Washington,D.C. 20549**

 

**FORM 10-Q/A**

**(Amendment No. 1)**

 

| **ý**                          | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------------------------------------|----------------------------------------------------------------------------------------------|
|                                |                                                                                         |
| **For  the quarterly period ended** |
|                                |
| **February 28, 2003**          |
|                                |                                                                                         |
| **o**                               | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**      |

 

**Forthe transition period from N/A to N/A**

 

**Commissionfile no. 1-7755**

 
| **Summa  Industries**                                                 |
|-----------------------------------------------------------------------|
| (Name of  registrant as specified in its charter)                     |
|                                                                  |   |   |
| **Delaware**                                                          |   | **95-1240978** |
| (State or other  jurisdiction of  incorporation or organization)      |   | (I.R.S. employer  identification number) |
|                                                                  |   |   |
| **21250 Hawthorne Boulevard, Suite  500, Torrance, California 90503** |
| (Address of  principle executive offices, including zip code)         |
|                                                                  |   |   |
| Registrant’s  telephone number:  **(310)  792-7024**        |

 

Indicate by check markwhether 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 markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

Yes o    No ý

 

The number of shares ofcommon stock outstanding as of March 24, 2003 was 4,410,617.

 

 

----

 

**EXPLANATORYNOTE**

 

Summa Industries herebyamends its Quarterly Report on Form 10-Q for the fiscal quarter endedFebruary 28, 2003 (the “Form 10-Q”) (filed on March 31, 2003) as set forthin this Quarterly Report on Form 10-Q/A (Amendment No. 1) (the “Form10-Q/A”).  The purpose of this amendmentto the Form 10-Q is to report five business segments instead of the one segmentpreviously reported.  This Form 10-Q/Aincludes amendments for segment disclosure to the following sections of theForm 10-Q: Management’s Discussion and Analysis of Financial Condition andResults of Operations; and Note 7 (Segment Information) of the Notes toCondensed Consolidated Financial Statements.

 

**Summa Industries**

 

**INDEX**

 
| PART I - FINANCIAL  INFORMATION |                                                                                                                  |
|---------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|                            |                                                                                                                  |
| Item 1.                         | Financial Statements:                                                                                                 |
|                            |                                                                                                                  |
|                            | Condensed Consolidated  Balance Sheets - February 28, 2002, August 31, 2002 and  February 28, 2003     |
|                            |                                                                                                                  |
|                            | Condensed  Consolidated Statements of Operations - three months and six months ended  February 28, 2002 and 2003 |
|                            |                                                                                                                  |
|                            | Condensed  Consolidated Statements of Cash Flows - six months ended February 28,  2002 and 2003                  |
|                            |                                                                                                                  |
|                            | Notes  to Condensed Consolidated Financial Statements                                                                 |
|                            |                                                                                                                  |
| 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 2.                         | Changes in 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 and Reports on Form 8-K                                                                                      |
|                            |                                                                                                                  |
| Signature Page                  |                                                                                                                  |
|                                 |                                                                                                                       |  |

 

2

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**Summa Industries**

CONDENSED CONSOLIDATEDBALANCE SHEETS

 
|                                                                                                                                                                                          |   | **February  28, 2002** | ** **  | **August 31,  2002** | ** ** | **February  28, 2003** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|-------------|----------------------|------------|------------------------|------------|
|                                                                                                                                                                                          |   |                   |        |                 |       |                   |       |
| Current  assets:                                                                                                                                                                              |   |                   |        |                 |       |                   |       |
| Cash  and cash equivalents                                                                                                                                                                    |   | $                      | 410,000     |                 | $          | 690,000                |       | $ | 462,000 |   |
| Accounts  receivable                                                                                                                                                                          |   | 17,663,000             |        | 17,594,000           |       | 17,285,000             |       |
| Inventories                                                                                                                                                                                   |   | 14,254,000             |        | 12,313,000           |       | 11,928,000             |       |
| Prepaid  expenses and other                                                                                                                                                                   |   | 3,747,000              |        | 3,181,000            |       | 3,246,000              |       |
| Total  current assets                                                                                                                                                                         |   | 36,074,000             |        | 33,778,000           |       | 32,921,000             |       |
| Property,  plant and equipment                                                                                                                                                                |   | 52,232,000             |        | 51,845,000           |       | 54,151,000             |       |
| Less  accumulated depreciation                                                                                                                                                                |   | (23,265,000            | )           | (25,025,000          | )          | (27,382,000            | )          |
| Net  property, plant and equipment                                                                                                                                                            |   | 28,967,000             |        | 26,820,000           |       | 26,769,000             |       |
| Other  assets                                                                                                                                                                                 |   | 144,000                |        | 124,000              |       | 2,917,000              |       |
| Goodwill  and other intangibles, net                                                                                                                                                          |   | 37,454,000             |        | 36,843,000           |       | 9,566,000              |       |
| Total  assets                                                                                                                                                                                 |   | $                      | 102,639,000 |                 | $          | 97,565,000             |       | $ | 72,173,000 |   |
| Current  liabilities:                                                                                                                                                                         |   |                   |        |                 |       |                   |       |
| Accounts  payable                                                                                                                                                                             |   | $                      | 6,657,000   |                 | $          | 6,410,000              |       | $ | 5,440,000 |   |
| Accrued  liabilities                                                                                                                                                                          |   | 5,323,000              |        | 6,001,000            |       | 5,011,000              |       |
| Current  maturities of long-term debt                                                                                                                                                         |   | 5,791,000              |        | 5,066,000            |       | 4,597,000              |       |
| Total  current liabilities                                                                                                                                                                    |   | 17,771,000             |        | 17,477,000           |       | 15,048,000             |       |
| Long-term  debt, net of current maturities                                                                                                                                                    |   | 27,984,000             |        | 19,845,000           |       | 19,187,000             |       |
| Other  long-term liabilities                                                                                                                                                                  |   | 4,061,000              |        | 4,658,000            |       | 2,637,000              |       |
| Total  long-term liabilities                                                                                                                                                                  |   | 32,045,000             |        | 24,503,000           |       | 21,824,000             |       |
| Mandatorily  redeemable convertible preferred stock, par value $.001, 5,000 shares  authorized, issued and outstanding                                                                        |   | 5,116,000              |        | 5,366,000            |       | 5,735,000              |       |
| Mandatorily  redeemable common stock                                                                                                                                                          |   | 530,000                |        | —               |       | —                 |       |
| Stockholders’  equity:                                                                                                                                                                   |   |                   |        |                 |       |                   |       |
| Common  stock, par value $.001; 10,000,000 shares authorized;  issued and outstanding: 4,418,336 at  February 28, 2002, 4,401,769 at August 31, 2002 and 4,429,217 at February 28,  2003 |   | 18,439,000             |        | 18,894,000           |       | 19,111,000             |       |
| Retained  earnings                                                                                                                                                                            |   | 28,785,000             |        | 31,325,000           |       | 10,455,000             |       |
| Accumulated  other comprehensive (loss)                                                                                                                                                       |   | (47,000                | )           | —               |       | —                 |       |
| Total  stockholders’ equity                                                                                                                                                              |   | 47,177,000             |        | 50,219,000           |       | 29,566,000             |       |
| Total  liabilities and stockholders’ equity                                                                                                                                              |   | $                      | 102,639,000 |                 | $          | 97,565,000             |       | $ | 72,173,000 |   |

 

See accompanying notes to condensed consolidated financial statements*.*

 

3

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**Summa Industries**

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
|                                                                                           |   | **Three  months ended February 28** | ** ** | **Six months  ended February 28** | ** ** |
|------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|----------------------------------------|------------|
|                                                                                           |   | **2002**                                 |       | **2003**                               | ** ** | **2002** | ** ** | **2003** | ** ** |
| Net  sales                                                                                     |   | $                                        | 27,093,000 |                                   | $          | 27,562,000 |   | $ | 52,274,000 |   | $ | 56,110,000 |   |
| Cost  of sales                                                                                 |   | 20,553,000                               |       | 20,853,000                             |       | 38,833,000 |   | 41,743,000 |   |
| Gross  profit                                                                                  |   | 6,540,000                                |       | 6,709,000                              |       | 13,441,000 |   | 14,367,000 |   |
| Selling,  general, administrative and other expenses                                           |   | 5,271,000                                |       | 5,328,000                              |       | 10,652,000 |   | 10,827,000 |   |
| Operating  income                                                                              |   | 1,269,000                                |       | 1,381,000                              |       | 2,789,000 |   | 3,540,000 |   |
| Interest  expense                                                                              |   | 661,000                                  |       | 373,000                                |       | 1,396,000 |   | 778,000 |   |
| Income  before income taxes and cumulative effect of a change in accounting principle          |   | 608,000                                  |       | 1,008,000                              |       | 1,393,000 |   | 2,762,000 |   |
| Provision  for income taxes                                                                    |   | 215,000                                  |       | 321,000                                |       | 495,000 |   | 920,000 |   |
| Income  before cumulative effect of a change in accounting principle                           |   | 393,000                                  |       | 687,000                                |       | 898,000 |   | 1,842,000 |   |
| Cumulative  effect of a change in accounting principle, net of tax                             |   | —                                   |       | —                                 |       | — |   | (22,343,000 | ) |
| Net  income (loss)                                                                             |   | $                                        | 393,000    |                                   | $          | 687,000 |   | $ | 898,000 |   | $ | (20,501,000 | ) |
| Preferred  stock accretion                                                                     |   | $                                        | 116,000    |                                   | $          | 185,000 |   | $ | 116,000 |   | $ | 369,000 |   |
| Net  income (loss) available to common stockholders:                                           |   |                                     |       |                                   |       |   |   |   |   |
| Before  cumulative effect of a change in accounting principle                                  |   | $                                        | 277,000    |                                   | $          | 502,000 |   | $ | 782,000 |   | $ | 1,473,000 |   |
| After  cumulative effect of a change in accounting principle                                   |   | $                                        | 277,000    |                                   | $          | 502,000 |   | $ | 782,000 |   | $ | (20,870,000 | ) |
| Earnings  per common share before cumulative effect of a change in accounting principle        |   |                                     |       |                                   |       |   |   |   |   |
| Basic                                                                                          |   | $                                        | .06        |                                   | $          | .11 |   | $ | .18 |   | $ | .33 |   |
| Diluted                                                                                        |   | $                                        | .06        |                                   | $          | .11 |   | $ | .17 |   | $ | .32 |   |
| Earnings  (loss) per common share after cumulative effect of a change in accounting  principle |   |                                     |       |                                   |       |   |   |   |   |
| Basic                                                                                          |   | $                                        | .06        |                                   | $          | .11 |   | $ | .18 |   | $ | (4.70 | ) |
| Diluted                                                                                        |   | $                                        | .06        |                                   | $          | .11 |   | $ | .17 |   | $ | (4.58 | ) |

 

See accompanying notes tocondensed consolidated financial statements.

 

4

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**Summa Industries**

CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS

 
|                                                                               |   | **Six months  ended February 28** |    |
|------------------------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                                               |   | **2002**                               |    | **2003** | ** ** |
| Operating  activities:                                                             |   |                                   |    |   |   |
| Net  income (loss)                                                                 |   | $                                      | 898,000 |   | $ | (20,501,000 | ) |
| Adjustments  to reconcile net income to net cash provided by operating activities: |   |                                   |    |   |   |
| Depreciation                                                                       |   | 2,567,000                              |    | 2,385,000 |   |
| Amortization                                                                       |   | 619,000                                |    | 122,000 |   |
| Cumulative  effect of a change in accounting principle, net of tax                 |   | —                                 |    | 22,343,000 |   |
| (Gain)  on disposition of property, plant and equipment                            |   | (1,000                                 | )       | (15,000 | ) |
| Net  change in assets and liabilities, net of effects of acquisitions:             |   |                                   |    |   |   |
| Accounts  receivable                                                               |   | 94,000                                 |    | 309,000 |   |
| Inventories                                                                        |   | (348,000                               | )       | 385,000 |   |
| Prepaid  expenses and other assets                                                 |   | (417,000                               | )       | (59,000 | ) |
| Accounts  payable                                                                  |   | 5,000                                  |    | (970,000 | ) |
| Accrued  liabilities                                                               |   | (542,000                               | )       | (569,000 | ) |
| Total  adjustments                                                                 |   | 1,977,000                              |    | 23,931,000 |   |
| Net  cash provided by operating activities                                         |   | 2,875,000                              |    | 3,430,000 |   |
| Investing  activities:                                                             |   |                                   |    |   |   |
| Acquisition  of business, net of cash acquired                                     |   | (2,685,000                             | )       | — |   |
| Purchases  of property and equipment                                               |   | (1,491,000                             | )       | (2,335,000 | ) |
| Proceeds  from sale of property and equipment                                      |   | 36,000                                 |    | 16,000 |   |
| Net  cash (used in) investing activities                                           |   | (4,140,000                             | )       | (2,319,000 | ) |
| Financing  activities:                                                             |   |                                   |    |   |   |
| Net  proceeds from line of credit                                                  |   | 1,226,000                              |    | 1,490,000 |   |
| Proceeds  from issuance of long-term debt                                          |   | 4,007,000                              |    | — |   |
| Payments  on long-term debt                                                        |   | (9,069,000                             | )       | (2,617,000 | ) |
| Proceeds  from the exercise of stock options                                       |   | 267,000                                |    | 263,000 |   |
| Proceeds  from sale of redeemable convertible preferred stock                      |   | 5,000,000                              |    | — |   |
| Purchase  of common stock                                                          |   | —                                 |    | (475,000 | ) |
| Net  cash provided by (used in) financing activities                               |   | 1,431,000                              |    | (1,339,000 | ) |
| Effect  of exchange rate changes on cash                                           |   | (2,000                                 | )       | — |   |
| Net  increase (decrease) in cash and cash equivalents                              |   | 164,000                                |    | (228,000 | ) |
| Cash  and cash equivalents, beginning of period                                    |   | 246,000                                |    | 690,000 |   |
| Cash  and cash equivalents, end of period                                          |   | $                                      | 410,000 |   | $ | 462,000 |   |

 

See accompanying notes tocondensed consolidated financial statements*.*

 

5

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**Summa Industries**

**NOTES TO CONDENSED CONSOLIDATED FINANCIA****L STATEMENTS**

February 28,2003

 

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

 

The accompanyingunaudited condensed consolidated financial statements of Summa Industries (the“Company”) have been condensed in certain respects and should, therefor, beread in conjunction with the audited consolidated financial statements andnotes related thereto contained in the Company’s Annual Report on Form 10-K forthe year ended August 31, 2002.  Inthe opinion 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 six months ended February 28, 2003 are notnecessarily indicative of the results to be expected for the full year endingAugust 31, 2003.

 

**Recent accounting pronouncements**

 

The Company adoptedFinancial Accounting Standards Board (“FASB”) Statement of Financial AccountingStandards No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets” as ofSeptember 1, 2002, the beginning of its current fiscal year.  The effect of the adoption of SFAS 142 isdescribed in Note 3, below.

 

The Company adopted FASBStatement of Accounting Standards No. 143 (“SFAS 143”) “Accounting for AssetRetirement Obligations” as of September 1, 2002, the beginning of itscurrent fiscal year.  SFAS 143 addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets and the associated asset retirementcosts. The adoption of SFAS 143 had no effect on the Company’s financialposition or results of operations.

 

The Company adopted FASBStatement of Accounting Standards No. 144 (“SFAS 144”) “Accounting for the Impairment or Disposal of Long-LivedAssets” as of September 1, 2002, the beginning of its current fiscal year.  The adoption of SFAS 144 had no effect onthe Company’s financial position or results of operations.

 

The Company adopted FASBStatement of Accounting Standards No. 145 (“SFAS 145”) “Rescission of FASBStatements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections” as of September 1, 2002, the beginning of its current fiscalyear.  The adoption of SFAS 145 had noeffect on the Company’s financial position or results of operations.

 

The Company adopted FASBStatement of Financial Accounting Standards No. 146 (“SFAS 146”) “Accountingfor Costs Associated with Exit or Disposal Activities” as of January 1,2003. SFAS 146 requires that costs associated with an exit or disposal activitybe recognized only when the liability is incurred (that is, when it meets thedefinition of a liability in the FASB’s conceptual framework). SFAS 146 alsoestablishes fair value as the objective for initial measurement of liabilitiesrelated to exit or disposal activities. SFAS 146 is effective for exit or disposal activities that are initiatedafter December 31, 2002. The adoption of SFAS 146 did not have a materialimpact on the Company’s financial position or results of operations.

 

The Company adopted FASBInterpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness to Others” (“FIN 45”)as of January 1, 2003. This Interpretation elaborates on the disclosuresto be made by a guarantor in its interim and annual financial statements aboutits obligations under certain guarantees that it has issued. It also clarifiesthat a guarantor is required to recognize, at the inception of a guarantee, aliability for the fair value of the obligation undertaken in issuing theguarantee. This interpretation is effective for guarantees issued or modifiedafter December 31, 2002 for initial recognition and initial measurementprovisions and for interim financial statements of annual periods ending afterDecember 15, 2002 for disclosure requirements. The adoption of FIN 45 didnot have any effect on the Company’s financial position or results ofoperations. The Company has no such guarantees.

 

In December 2002,the FASB issued Statement of Financial Accounting Standards No. 148 (“SFAS148”) “Accounting for Stock-Based Compensation-Transition and Disclosure”,which provides alternative methods of transition for a voluntary change to thefair value based method of accounting for stock-based compensation. SFAS 148also requires certain disclosures about the method of accounting for stock-basedemployee compensation and the effect of the method used on reported results.SFAS 148 is effective for fiscal years ending after December 15, 2002 fortransition guidance and annual disclosure provisions and for interim periodsbeginning after December 15, 2002 for financial reports containingfinancial statements for interim periods.

 

6

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In January 2003, theFASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). Thisinterpretation clarifies the application of Accounting Research BulletinNo. 51, “Consolidated Financial Statements” and requires companies toevaluate variable interest entities for specific characteristics to determinewhether additional consolidation and disclosure requirements apply. Thisinterpretation is immediately applicable for variable interest entities createdafter January 31, 2003, and applies to fiscal periods beginning afterJune 15, 2003 for variable interest entities acquired prior toFebruary 1, 2003. The Company does not expect that the adoption of thisinterpretation will have any impact on our financial position or results ofoperations. The Company does not have any variable interest entities.

 

**2.****                                      Inventories**

 

Inventories were asfollows:

 
|                 |   | **February 28,  2002** |       | **August 31,  2002** |   | **February 28,  2003** |   |
|----------------------|--------|-----------------------------|------------|---------------------------|--------|-----------------------------|--------|
| Finished  goods      |   | $                           | 6,242,000  |                      | $      | 5,457,000                   |   | $ | 4,942,000 |   |
| Work  in process     |   | 710,000                     |       | 290,000                   |   | 369,000                     |   |
| Materials  and parts |   | 7,302,000                   |       | 6,566,000                 |   | 6,617,000                   |   |
|                 |   |                        |       |                      |   |                        |   |
|                 |   | $                           | 14,254,000 |                      | $      | 12,313,000                  |   | $ | 11,928,000 |   |

 

**3.****                                      Cumulativeeffect of a change in accounting principle**

 

The Company adopted FASBStatement of Financial Accounting Standards No. 142, “Goodwill and OtherIntangible Assets” (“SFAS 142”), effective September 1, 2002.  As a result, the Company discontinued theamortization of goodwill arising from business combinations consummated priorto June 30, 2001 that have been accounted for using the purchase method ofaccounting.  Goodwill aggregated to anet amount of $35,190,000 at August 31, 2002 and goodwill amortization was$278,000 for the three months ended November 30, 2001 and $556,000 for thesix months ended February 28, 2002.

 

SFAS 142 also requiresthe Company to assess the recoverability of recorded goodwill at the adoptiondate.  Impairments of goodwill that areidentified as a result of the assessment, if any, are to be reported as acumulative change in accounting principle as of the adoption date.  SFAS 142 requires that assessment to becompleted within six months of the date of adoption and to be reportedretroactively to the beginning of the year adopted.

 

The Company performed atransitional fair value based impairment test on its goodwill as ofSeptember 1, 2002.  As a result, animpairment charge of $22,343,000 was recorded as of September 1,2002.  The charge is presented as thecumulative effect of a change in accounting principle in the accompanyingcondensed consolidated statements of operations.  The charge is net of an income tax benefit of $4,812,000.

 

7

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A reconciliation ofpreviously reported net income and earnings per share to the amounts adjustedfor the exclusion of goodwill amortization follows:

 
|                                                  |   | **Three  months ended  February 28** | ** ** | **Six months  ended  February 28** | ** ** |
|-------------------------------------------------------|--------|-------------------------------------------|------------|-----------------------------------------|------------|
|                                                  |   | **2002**                                  |       | **2003**                                | ** ** | **2002** | ** ** | **2003** | ** ** |
| Reported  net income                                  |   | $                                         | 393,000    |                                    | $          | 687,000 |   | $ | 898,000 |   | $ | 1,842,000 |   |
| Add  back:  Goodwill amortization, net of  taxes |   | 220,000                                   |       | —                                  |       | 440,000 |   | — |   |
| Adjusted  net income                                  |   | $                                         | 613,000    |                                    | $          | 687,000 |   | $ | 1,338,000 |   | $ | 1,842,000 |   |
|                                                  |   |                                      |       |                                    |       |   |   |   |   |
| Basic  earnings per share:                            |   |                                      |       |                                    |       |   |   |   |   |
|                                                  |   |                                      |       |                                    |       |   |   |   |   |
| Reported  net income                                  |   | $                                         | .06        |                                    | $          | .11 |   | $ | .18 |   | $ | .33 |   |
| Goodwill  amortization                                |   | .05                                       |       | —                                  |       | .10 |   | — |   |
| Adjusted  net income                                  |   | $                                         | .11        |                                    | $          | .11 |   | $ | .28 |   | $ | .33 |   |
|                                                  |   |                                      |       |                                    |       |   |   |   |   |
| Diluted  earnings per share:                          |   |                                      |       |                                    |       |   |   |   |   |
|                                                  |   |                                      |       |                                    |       |   |   |   |   |
| Reported  net income                                  |   | $                                         | .06        |                                    | $          | .11 |   | $ | .17 |   | $ | .32 |   |
| Goodwill  amortization                                |   | .05                                       |       | —                                  |       | .10 |   | — |   |
| Adjusted  net income                                  |   | $                                         | .11        |                                    | $          | .11 |   | $ | .27 |   | $ | .32 |   |

 

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

 

Basic earnings per share(“EPS”) was computed by dividing net income available to common stockholders bythe weighted average number of common shares outstanding during each period.The Company has 5,000 shares of redeemable convertible preferred stockoutstanding with an original issue price of $5,000,000.  No dividends are required to be paid on thestock, but the preferred stockholders have the right, provided the preferredstock has not been converted to common shares, to require the Company torepurchase the stock during a one year period beginning December 14, 2004at an aggregate price which increases daily from $7,025,000 onDecember 14, 2004 to $7,868,000 on December 13, 2005.  The net income available to commonstockholders used in the EPS calculations is the net income less the reportedaccretion in the value of the preferred stock for that period.

 

Diluted EPS reflects thepotential dilution that could occur if securities or other contracts to issuecommon stock were exercised or converted into common stock.  Diluted EPS was calculated using the “treasurystock” method as if dilutive options had been exercised and the funds were usedto purchase common shares at the average market price during the period.  Options to purchase 624,634 common shares asof February 28, 2002 and 600,837 common shares as of February 28,2003 were excluded from the calculation of equivalent shares, as they wouldhave been anti-dilutive.  The 5,000shares of outstanding preferred stock, convertible into 625,000 shares ofcommon stock, were excluded from the calculation of equivalent shares for thethree and six month periods ended February 28, 2002 and February 28,2003, as they would have been anti-dilutive.

 

8

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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,“Earnings per Share”:

 
|                                                                   |   | **Three  months ended  February 28** | ** ** | **Six months  ended  February 28** | ** ** |
|------------------------------------------------------------------------|--------|-------------------------------------------|------------|-----------------------------------------|------------|
|                                                                   |   | **2002**                                  |       | **2003**                                | ** ** | **2002** | ** ** | **2003** | ** ** |
| Numerators:                                                            |   |                                      |       |                                    |       |   |   |   |   |
|                                                                   |   |                                      |       |                                    |       |   |   |   |   |
| Before  cumulative effect of a change in accounting principle:         |   |                                      |       |                                    |       |   |   |   |   |
| Net  income                                                            |   | $                                         | 393,000    |                                    | $          | 687,000 |   | $ | 898,000 |   | $ | 1,842,000 | ) |
| Preferred  stock accretion                                             |   | (116,000                                  | )          | (185,000                                | )          | (116,000 | ) | (369,000 | ) |
| Income  available to common stockholders                               |   | $                                         | 277,000    |                                    | $          | 502,000 |   | $ | 782,000 |   | $ | 1,473,000 |   |
|                                                                   |   |                                      |       |                                    |       |   |   |   |   |
| After  cumulative effect of a change in accounting principle:          |   |                                      |       |                                    |       |   |   |   |   |
| Net  income (loss)                                                     |   | $                                         | 393,000    |                                    | $          | 687,000 |   | $ | 898,000 |   | $ | (20,501,000 | ) |
| Preferred  stock accretion                                             |   | (116,000                                  | )          | (185,000                                | )          | (116,000 | ) | (369,000 | ) |
| Income  (loss) available to common stockholders                        |   | $                                         | 277,000    |                                    | $          | 502,000 |   | $ | 782,000  |   | $ | (20,870,000 | ) |
|                                                                   |   |                                      |       |                                    |       |   |   |   |   |
| Denominators:                                                          |   |                                      |       |                                    |       |   |   |   |   |
|                                                                   |   |                                      |       |                                    |       |   |   |   |   |
| Weighted  average shares outstanding – basic                      |   | 4,405,000                                 |       | 4,450,000                               |       | 4,371,000 |   | 4,444,000 |   |
| Impact  of common shares assumed to be issued under stock option plans |   | 104,000                                   |       | 106,000                                 |       | 110,000 |   | 110,000 |   |
| Weighted  average shares outstanding – diluted                    |   | 4,509,000                                 |       | 4,556,000                               |       | 4,481,000  |   | 4,554,000 |   |

 

**5.****                                      Supplementalcash flow information**

 
|                                         |   | **Six months  ended  February 28** | ** ** |
|----------------------------------------------|--------|-----------------------------------------|------------|
|                                         |   | **2002**                                |       | **2003** | ** ** |
| Cash  paid during the period:                |   |                                    |       |   |   |
| Interest                                     |   | $                                       | 1,375,000  |   | $ | 765,000 |   |
| Income  taxes                                |   | $                                       | 226,000    |   | $ | 1,652,000 |   |
|                                         |   |                                    |       |   |   |
| Non-cash  financing activity:                |   |                                    |       |   |   |
| Details  of acquisition                      |   | $                                       | 5,283,000  |   | $ | — |   |
| Fair  value of assets acquired               |   | 2,598,000                               |       | — |   |
| Liabilities  assumed or incurred             |   | 2,685,000                               |       | — |   |
| Cash  paid                                   |   | —                                  |       | — |   |
| Less  cash acquired                          |   | $                                       | 2,685,000  |   | $ | — |   |
| Net  cash used in acquisition                |   |                                    |       |   |   |
|                                         |   |                                    |       |   |   |
| Common  stock issued to ESOP and 401(k) Plan |   | $                                       | 240,000    |   | $ | 429,000 |   |

 

**6.****                                      Comprehensiveincome (loss)**

 

As part of its interestrate management program, the Company periodically enters into interest rateswap agreements with respect to portions of its outstanding debt.  The purpose of these swaps is to mitigatethe adverse effect on cash flows of an increase in interest rates.  There was no swap agreement in place as ofFebruary 28, 2003.

 

9

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The reconciliation of netincome to total comprehensive income for the three and six month periods endingFebruary 28, 2002 and 2003 is as follows:

 
|                                      |   | **Three  months ended  February 28** | ** ** | **Six months  ended  February 28** | ** ** |
|-------------------------------------------|--------|-------------------------------------------|------------|-----------------------------------------|------------|
|                                      |   | **2002**                                  |       | **2003**                                | ** ** | **2002** | ** ** | **2003** | ** ** |
| Net  income (loss)                        |   | $                                         | 393,000    |                                    | $          | 687,000 |   | $ | 898,000 |   | $ | (20,501,000 | ) |
| Foreign  currency translation adjustments |   | (9,000                                    | )          | —                                  |       | (9,000 | ) | — |   |
| Changes  in value of interest rate swaps  |   | 66,000                                    |       | —                                  |       | 90,000 |   | — |   |
|                                      |   |                                      |       |                                    |       |   |   |   |   |
| Total  comprehensive income (loss)        |   | $                                         | 450,000    |                                    | $          | 687,000 |   | $ | 979,000 |   | $ | (20,501,000 | ) |

 

**7.****                                      Segmentinformation**

 

Financial information byreportable business segment is reported in the following tables:

 
|                              |   | **Three  months ended  February 28** | ** ** | **Six months  ended  February 28** | ** ** |
|-----------------------------------|--------|--------------------------------------|------------|------------------------------------|------------|
|                              |   | **2002**                             |       | **2003**                           | ** ** | **2002** | ** ** | **2003** | ** ** |
| External  sales                   |   |                                 |       |                               |       |   |   |   |   |
| Optical  components               |   | $                                    | 14,377,000 |                               | $          | 14,297,000 |   | $ | 27,808,000 |   | $ | 30,412,000 |   |
| Material  handling components     |   | 5,857,000                            |       | 6,613,000                          |       | 11,581,000 |   | 12,474,000 |   |
| Electrical  components            |   | 3,028,000                            |       | 2,973,000                          |       | 6,184,000 |   | 6,247,000 |   |
| Irrigation  components            |   | 3,135,000                            |       | 3,348,000                          |       | 5,462,000 |   | 6,108,000 |   |
| Miscellaneous  plastic components |   | 696,000                              |       | 331,000                            |       | 1,239,000 |   | 869,000 |   |
| Other                             |   | —                               |       | —                             |       | — |   | — |   |
| Consolidated                      |   | $                                    | 27,093,000 |                               | $          | 27,562,000 |   | $ | 52,274,000 |   | $ | 56,110,000 |   |
|                              |   |                                 |       |                               |       |   |   |   |   |
|                              |   |                                 |       |                               |       |   |   |   |   |
| Inter-segment  sales              |   |                                 |       |                               |       |   |   |   |   |
| Optical  components               |   | $                                    | —     |                               | $          | — |   | $ | — |   | $ | — |   |
| Material  handling components     |   | —                               |       | —                             |       | — |   | — |   |
| Electrical  components            |   | —                               |       | —                             |       | — |   | — |   |
| Irrigation  components            |   | —                               |       | —                             |       | — |   | — |   |
| Miscellaneous  plastic components |   | 439,000                              |       | 873,000                            |       | 933,000 |   | 1,525,000 |   |
| Other                             |   | (439,000                             | )          | (873,000                           | )          | (933,000 | ) | (1,525,000 | ) |
| Consolidated                      |   | $                                    | —     |                               | $          | — |   | $ | — |   | $ | — |   |
|                              |   |                                 |       |                               |       |   |   |   |   |
| Total  sales                      |   |                                 |       |                               |       |   |   |   |   |
| Optical  components               |   | $                                    | 14,377,000 |                               | $          | 14,297,000 |   | $ | 27,808,000 |   | $ | 30,412,000 |   |
| Material  handling components     |   | 5,857,000                            |       | 6,613,000                          |       | 11,581,000 |   | 12,474,000 |   |
| Electrical  components            |   | 3,028,000                            |       | 2,973,000                          |       | 6,184,000 |   | 6,247,000 |   |
| Irrigation  components            |   | 3,135,000                            |       | 3,348,000                          |       | 5,462,000 |   | 6,108,000 |   |
| Miscellaneous  plastic components |   | 1,135,000                            |       | 1,204,000                          |       | 2,172,000 |   | 2,394,000 |   |
| Other                             |   | (439,000                             | )          | (873,000                           | )          | (933,000 | ) | (1,525,000 | ) |
| Consolidated                      |   | $                                    | 27,093,000 |                               | $          | 27,562,000 |   | $ | 52,274,000 |   | $ | 56,110,000 |   |
|                              |   |                                 |       |                               |       |   |   |   |   |
|                              |   |                                 |       |                               |       |   |   |   |   |
| Operating  income (loss)          |   |                                 |       |                               |       |   |   |   |   |
| Optical  components               |   | $                                    | 1,321,000  |                               | $          | 1,427,000 |   | $ | 3,083,000 |   | $ | 3,798,000 |   |
| Material  handling components     |   | 356,000                              |       | 538,000                            |       | 835,000 |   | 1,046,000 |   |
| Electrical  components            |   | 159,000                              |       | 43,000                             |       | 139,000 |   | 193,000 |   |
| Irrigation  components            |   | 202,000                              |       | 151,000                            |       | 1,000 |   | 82,000 |   |
| Miscellaneous  plastic components |   | (516,000                             | )          | (385,000                           | )          | (746,000 | )  | (786,000 | ) |
| Other                             |   | (253,000                             | )          | (393,000                           | )          | (523,000 | ) | (793,000 | ) |
| Consolidated                      |   | $                                    | 1,269,000  |                               | $          | 1,381,000 |   | $ | 2,789,000 |   | $ | 3,540,000 |   |
|                                   |        |                                      |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

10

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|                              | ** ** | **February 28  2002** | ** **  | **August 31  2002** | ** ** | **February 28  2003** | ** ** |
|-----------------------------------|------------|----------------------------|-------------|--------------------------|------------|----------------------------|------------|
| Assets                            |       |                       |        |                     |       |                       |       |
| Optical  components               |       | $                          | 40,354,000  |                     | $          | 38,643,000                 |       | $ | 30,238,000 |   |
| Material  handling components     |       | 17,364,000                 |        | 17,063,000               |       | 16,968,000                 |       |
| Electrical  components            |       | 21,502,000                 |        | 20,973,000               |       | 8,085,000                  |       |
| Irrigation  components            |       | 15,540,000                 |        | 13,679,000               |       | 7,967,000                  |       |
| Miscellaneous  plastic components |       | 4,826,000                  |        | 4,583,000                |       | 3,362,000                  |       |
| Other                             |       | 3,053,000                  |        | 2,624,000                |       | 5,553,000                  |       |
| Consolidated                      |       | $                          | 102,639,000 |                     | $          | 97,565,000                 |       | $ | 72,173,000 |   |

 

Interest expense andincome taxes are not shown in the above table, as they are not fully allocatedby segment.  “Other” includesinter-company eliminations and corporate and other expenses not allocated bysegment.

 

**MANAGEMENT’SDISCUSSION****AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

Statements contained inthis Quarterly Report on Form 10-Q/A, which are not purely historical, areforward-looking statements within the meaning of Section 27A of the Securities Actof 1933 and Section 21E of the Securities Exchange Act of 1934, including butnot limited to statements regarding Summa’s expectations, hopes, beliefs,intentions or strategies regarding the future, such as those set forth in PartII, Item 1 “Legal Proceedings” below. Actual results could differ materially from those projected in anyforward-looking statements as a result of a number of factors, including thosedetailed in this “Management’s Discussion and Analysis” section and elsewhereherein and in the Company’s Annual Report on Form 10-K for the fiscal yearended August 31, 2002.  Theforward-looking statements are made as of the date hereof, and the Companyassumes no obligation to update the forward-looking statements, or to updatethe reasons why actual results could differ materially from those projected inthe forward-looking statements.  For adiscussion of risks and uncertainties that should be considered and which couldmaterially adversely affect the Company, please see “Risk Factors” in the“Management Discussion and Analysis” section of the Company’s Annual Report onForm 10-K for the fiscal year ended August 31, 2002.

 

Summa manufacturesplastic products for diverse commercial and industrial markets. Growth has beenachieved by acquisition, development of new products and expansion of theCompany’s sales organization. Through its five reportable segments, Summadesigns and manufactures injection-molded and thermo-formed plastic opticalcomponents for OEM customers in the lighting industry; modular plastic conveyorbelt and chain for the food processing industry; engineered plastic fittings,valves, filters and tubing for the agricultural irrigation industry; moldedplastic coil forms (“bobbins”) for use in transformers, motors, relays and switches;and other molded and extruded plastic components for diverse industries.

 

#### ***Critical AccountingPolicies and Estimates***

 

Thefollowing discussion and analysis of the Company’s financial condition andresults of operations are based upon the consolidated financial statements ofthe Company, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The preparation of suchfinancial statements requires management to make estimates and assumptions inapplying certain critical accounting policies. Certain accounting estimates areparticularly sensitive because of their significance to the Company’s condensedconsolidated financial statements and because of the possibility that futureevents affecting the estimates could differ markedly from current expectations.The Company believes that the following are some of the more critical judgmentareas in the application of its accounting policies that affect the Company’sfinancial statements.

 

###### ***Impairment of Long-Lived Assets and Long-Lived Assets to beDisposed of.***  The Company reviews its long-lived assets and certainidentifiable 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.

###### * *

The Company has asignificant amount of property and equipment and intangible assets. Thedetermination as to whether events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable involves management’sjudgment. In addition, should the Company conclude that recoverability of anasset is in question, the

 

11

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estimate of undiscountedfuture operating cash flows to determine whether an asset is recoverable and,if not, the final determination of the fair value of the asset are also basedon the judgment 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.

 

Newaccounting standards adopted by the Company effective September 1, 2002eliminated the impairment recoverability tests for goodwill and certain otherintangible assets with indefinite lives and require that such assets be valuedat the lower of their carrying value or fair value.  For a summary of the impairment charge to goodwill taken by theCompany effective September 1, 2002, see Note 3 in the “Notes to CondensedConsolidated Financial Statements”, above. Significant management judgment is involved in determining the fairvalue of assets. Accordingly, future changes in management’s estimates couldresult in additional impairment charges of goodwill and indefinite livedintangible assets.

 

###### ***Valuation of Inventory. ***The Company values itsinventories at the lower of cost or market using the first-in, first-out (FIFO)method. Accordingly, the Company records adjustments to the value of inventorybased upon obsolescence and changes in market value as permanent changes in thecarrying amount of such inventory until its ultimate sale or other disposition.The Company has evaluated the current level of inventories considering plannedsales volume and other factors and, based on this evaluation, has recordedadjustments to cost of goods sold to adjust inventory to lower of cost ormarket.  These adjustments areestimates, which could vary significantly, either favorably or unfavorably,from actual requirements if future economic conditions, customer demand orcompetition differ from expectations.

###### * *

***Results of Operations***

 

The following table setsforth certain information, derived from Summa’s unaudited condensedconsolidated statements of operations, as a percent of sales for the threemonth and six month periods ended February 28, 2002 and 2003, and theCompany’s effective income tax rate during those periods:

 
|                                                                         |   | **Three  months ended  February 28** | ** ** | **Six months  ended  February 28** | ** ** |
|------------------------------------------------------------------------------|--------|-------------------------------------------|------------|-----------------------------------------|------------|
|                                                                         |   | **2002**                                  |       | **2003**                                | ** ** | **2002** | ** ** | **2003** | ** ** |
| Net  sales                                                                   |   | 100.0                                     | %          | 100.0                                   | %          | 100.0 | % | 100.0 | % |
| Cost  of sales                                                               |   | 75.9                                      | %          | 75.7                                    | %          | 74.3 | % | 74.4 | % |
|                                                                         |   |                                      |       |                                    |       |   |   |   |   |
| Gross  profit                                                                |   | 24.1                                      | %          | 24.3                                    | %          | 25.7 | % | 25.6 | % |
| S,G  & A and other expenses, net                                         |   | 19.4                                      | %          | 19.3                                    | %          | 20.4 | % | 19.3 | % |
|                                                                         |   |                                      |       |                                    |       |   |   |   |   |
| Operating  income                                                            |   | 4.7                                       | %          | 5.0                                     | %          | 5.3 | % | 6.3 | % |
| Interest  expense, net                                                       |   | 2.4                                       | %          | 1.3                                     | %          | 2.7 | % | 1.4 | % |
|                                                                         |   |                                      |       |                                    |       |   |   |   |   |
| Income  before tax and cumulative effect of a change in accounting principle |   | 2.3                                       | %          | 3.7                                     | %          | 2.6 | % | 4.9 | % |
| Provision  for income taxes                                                  |   | 0.8                                       | %          | 1.2                                     | %          | 0.9 | % | 1.6 | % |
| Income  before cumulative effect of a change in accounting principle         |   | 1.5                                       | %          | 2.5                                     | %          | 1.7 | % | 3.3 | % |
|                                                                         |   |                                      |       |                                    |       |   |   |   |   |
| Effective  tax rate                                                          |   | 35.4                                      | %          | 31.9                                    | %          | 35.5 | % | 33.3 | % |

 

Sales for the secondquarter ended February 28, 2003 increased $469,000, or 2%, compared to thesame period in the prior year, due to the inclusion of the sales of recentlyacquired operations in the Optical Components Segment for a full three months,versus two months in the prior year, partially offset by a slight decrease inthe sales of other operations, primarily due to the general economicdownturn.  Same business sales in thesecond quarter were about 1% higher than in the second quarter of the priorfiscal year.  Sales in the OpticalComponents segment were flat; increased 13% in the Material Handling Componentssegment, due to timing of several large retrofit orders; decreased 2% in theElectrical Components segment; increased 7% in the Irrigation Componentssegment, primarily due to improved off-season sales promotions and improvedmarket conditions; and decreased 52% in the Miscellaneous Plastic Componentssegment, primarily due to continued market weakness and the shift towardintercompany sales.

 

Sales for the six monthsended February 28, 2003 increased $3,836,000, or 7%, compared to the sameperiod in the prior year, primarily due to the inclusion of the sales ofrecently acquired operations in the Optical Components segment.  Same

 

12

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business unit sales inthe period increased 2%, compared to the first six months of fiscal 2002.  Sales in the Material Handling Componentssegment increased 8%, due to timing of several large orders; increased 1% inthe Electrical Components segment; sales increased 12% in the Irrigation Components segment, primarily dueto improved off-season sales promotions and improved market conditions; anddecreased 30% in the Miscellaneous Plastic Components segment, primarily due tocontinued market weakness and the shift toward intercompany sales.

 

Gross profit for thesecond quarter increased $169,000, or 3%, from the comparable prior yearperiod, primarily due to production efficiencies and a favorable mix ofproducts sold, partially offset by facility consolidation costs incurred.  Gross margin increased slightly from 24.1%to 24.3% primarily due to cost reductions and product mix, partially offset byexpenses related to facility consolidation.

 

Gross profit for the sixmonths ended February 28, 2003 increased $926,000, or 7%, from thecomparable prior year period, due to the inclusion of the gross profit ofrecently acquired operations and increased sales.  Gross margin decreased slightly from 25.7% to 25.6%, due to expensesrelated to facility consolidations, partially offset by cost reductions.

 

Operating expenses forthe three months ended February 28, 2003 increased $57,000, or 1%, fromthe comparable prior year period, primarily due to costs related to facilityconsolidations, partially off-set by the elimination of goodwill amortizationwhich was $278,000 in the quarter ended February 28, 2002.  As a percent of sales, operating expensesdecreased slightly from 19.4% to 19.3%.

 

Operating expenses forthe six months ended February 28, 2003 increased $175,000, or 2%, from thecomparable prior year period, primarily due to the inclusion of operatingexpenses of newly acquired operations, and other operating expense increasesincluding facility consolidation costs, partially off-set by the elimination ofgoodwill amortization which was $556,000 in the comparable prior yearperiod.  As a percent of sales,operating expenses decreased from 20.4% to 19.3%.

 

Operating income for thesecond quarter was $112,000, 9% higher than in the comparable prior yearperiod, due to the changes discussed above. By segment, operating incomeincreased $106,000 in the Optical Components segment, due primarily to theinclusion of recently acquired operations; increased $182,000 in the Material HandlingComponents segment, primarily due to increased sales volume; decreased $116,000in the Electrical Components segment, primarily due to decreased sales andcontinuing pricing pressures; decreased $51,000 in the Irrigation Componentssegment; primarily due to unfavorable product mix and costs of off-season salespromotions; and increased $131,000 in the Miscellaneous Plastic Componentssegment, primarily due to cost reductions and decreased expenses relating torepatriation of Company tools from third party vendors as compared to the priorperiod. Operating margin for the quarter increased to 5.0% from 4.7% in thesecond quarter of fiscal 2002.

 

Operating income for thesix months ended February 28, 2003 was $751,000, 27% higher than in thecomparable prior year period, primarily due to the elimination of goodwillamortization of $556,000 in the period ended February 28, 2002. Bysegment, operating income increased $715,000 in the Optical Components segment,due primarily to the inclusion of recently acquired operations; increased$211,000 in the Material Handling Components segment, primarily due toincreased sales volume; increased $54,000 in the Electrical Components segment; increased $81,000 in the IrrigationComponents segment; and decreased $40,000 in the Miscellaneous PlasticComponents segment.  Operating marginimproved from 5.3% in the six months ended February 28, 2002 to 6.3% inthe six months ended February 28, 2003, due to the factors discussedabove.

 

Net interest expense forthe second quarter ended February 28, 2003 decreased $288,000 from theprior year second quarter, due to decreased average debt levels and decreasedinterest rates.  Net interest expensefor the six months ended February 28, 2003 decreased $618,000 from thecomparable prior year period due to decreased average debt levels and decreasedinterest rates.

 

The decrease in theeffective tax rate in the second quarter of fiscal 2003 versus fiscal 2002,from 35.4% to 31.8%, was primarily due to the elimination of the amortizationof goodwill, a substantial portion of which was not tax deductible.

 

The Company’s backlog ofunfilled orders, believed to be firm, was $9,721,000 at February 28, 2002,$9,225,000 at August 31, 2002 and $9,058,000 at February 28,2003.  Because the time between enteringan order and shipping the product and recording a sale is typically shorterthan one month, backlog levels are not a reliable indicator of future salesvolume.

 

13

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***Liquidity and Capital Resources***

 

*Working Capital. *TheCompany’s working capital was $18,303,000 at February 28, 2002,$16,301,000 at August 31, 2002 and $17,873,000 at February 28, 2003.

 

*Financing Arrangements.*  The Company has several debt relationshipsas described below.  Substantially allof the Company’s assets are pledged to secure debt.  The term debt and revolving line of credit require compliancewith financial and operating covenants.

 

Summary of the Company’sdebt at February 28, 2003:

 
| **Description of Debt**     |   | **Balance** |       | **Weighted  Average  Interest  Rate** |   | **Additional  Availability** |   | **Fiscal Year Due** |   |
|-----------------------------|--------|-------------|------------|---------------------------------------|--------|------------------------------|--------|---------------------|--------|
| **2003**                    |   | **2004**    |       | **2005**                              |   | **2006**                     |   | **2007**            |
| Revolving line of credit    |   | $           | 7,000,000  |                                  | 3.7    | %                            | $      | 11,302,000          |   | $ | — |   | $ | — |   | $ | 7,000,000 |   | $ | — |   | $ | — |   |
| Bank term loans             |   | 8,190,000   |       | 8.0                                   | %      | —                       |   | 2,189,000           |   | 3,014,000 |   | 2,560,000 |   | 427,000 |   | — |   |
| Real estate and other loans |   | 8,594,000   |       | 3.9                                   | %      | 2,000,000                    |   | 338,000             |   | 761,000 |   | 1,002,000 |   | 3,442,000 |   | 3,051,000 |   |
|                        |   |        |       |                                  |   |                         |   |                |   |   |   |   |   |   |   |   |   |
| Total debt                  |   | $           | 23,784,000 |                                  | 5.2    | %                            | $      | 13,302,000          |   | $ | 2,527,000 |   | $ | 3,775,000 |   | $ | 10,562,000 |   | $ | 3,869,000 |   | $ | 3,051,000 |   |

 

Interest rates on thebank term loans are fixed for periods of one month to four years.  Interest rates on the bank line of creditare subject to market fluctuation and are subject to reduction as the Company achievescertain financial milestones.  Interestrates on most of the real estate and other loans are subject to marketfluctuation.

 

The Company previouslyannounced a plan to repurchase up to $2,000,000 of its common stock with notime limit.  As of February 28,2003, the Company had purchased 51,000 shares in the open market at an averagecost of $9.31 per share, pursuant to this buy-back plan.

 

Net cash provided byoperating activities in the first six months of fiscal 2003 was $3,431,000,$556,000 more than in the first six months of fiscal 2002, primarily due toincreased operating income.  Net cashused in investing activities was $2,319,000 in the first six months of fiscal2003, $1,821,000 less than in the first six months of fiscal 2002, primarily dueto an acquisition in the prior year period. $1,339,000 in cash was used in financing activities in the first sixmonths of fiscal 2003 versus $1,431,000 provided in the first six months offiscal 2002, primarily due to financings in the prior year period to fund anacquisition.

 

Summa believes that cashflows from operations and existing credit facilities will be sufficient to fundworking capital requirements, planned investments and debt service for the nexttwelve months.  The Company has astrategy of growth by acquisition.  Inthe event an acquisition plan is adopted which requires funds exceeding theavailability described above, an alternate source of funds to accomplish theacquisition would have to be developed. The Company has 10,000,000 shares of common stock authorized, of which4,429,217 shares were outstanding at February 28, 2003 and 5,000,000shares of “blank check” preferred stock authorized, of which 5,000 shares wereoutstanding as mandatorily redeemable convertible preferred stock atFebruary 28, 2003.  The Companycould issue additional shares of common or preferred stock or enter into new orrevised borrowing arrangements to raise funds.

 

### ***Off-Balance SheetArrangements***

 

The Company’s materialoff-balance sheet arrangements are as follows:

 

*Future lease payments.*  The Company leases offices and manufacturingfacilities and certain equipment under non-cancelable operating leases.  Future payments under these leases atFebruary 28, 2003 are approximately as follows:

 

14

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| **Fiscal Year**      |   | **Amount** |      |
|----------------------|--------|------------|-----------|
|                 |   |       |      |
| 2003                 |   | $          | 750,000   |   |
| 2004                 |   | $          | 1,178,000 |   |
| 2005                 |   | $          | 872,000   |   |
| 2006                 |   | $          | 693,000   |   |
| 2007                 |   | $          | 472,000   |   |
| 2008  and thereafter |   | $          | 799,000   |   |

 

In recent years theCompany has consolidated and/or abandoned several facilities in an effort toimprove efficiencies and operating results and plans furtherconsolidations.  In the event theCompany were to abandon a facility prior to its being leased to a new tenant,the Company could become obligated for accelerated payments or other expenses.

 

*Contingent preferred stock redemption obligation.*  In December 2001, in order to financean acquisition, reduce outstanding debt and strengthen the Company’s financialposition, the Company issued and sold 5,000 shares of newly-authorized Series APreferred Stock (the “Preferred Stock”) in a private sale for an aggregatepurchase price of $5,000,000.  The termsof the Preferred Stock were negotiated at arms length, including (i) non-voting,(ii) no dividend, (iii) liquidation preference, (iv) convertible into commonstock, (v) redeemable by the holder’s election commencing on the thirdanniversary of the date of issuance and ending immediately prior to the fourthanniversary at a price which equals a twelve percent annual increase over theoriginal issuance price in cash, subject to adjustment, (vi) redeemable at theCompany’s option commencing on the fourth anniversary of the date of issuanceand ending immediately prior to the fifth anniversary at a price which equals atwenty percent annual increase over the original issuance price in cash,subject to adjustment, and (vii) if outstanding, redeemable on the fifthanniversary of the date of issuance by the Company at the original issuanceprice, subject to adjustment.

 

If redemption is electedby the holder of the Preferred Stock during the one-year time period referencedabove, the contingent preferred stock redemption obligation would require theCompany to pay an aggregate price which increases daily from $7,025,000 on December 14,2004 to $7,868,000 on December 13, 2005. For related disclosure, see Note 4 in the “Notes to CondensedConsolidated Financial Statements” above.

 

**QUANTITATIVE****ANDQUALITATIVE DISCLOSURES 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, 2002. The Company has no market risk sensitive instruments entered into fortrading purposes.

 

**EFFECTIVENES****S OF DISCLOSURE CONTROLS AND PROCEDURES**

 

Within the ninety daysprior to the date of this report, the Company carried out an evaluation, underthe supervision and with the participation of the Company’s management,including the Company’s Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Exchange Act Rule 13a – 14.  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 the Company’s internalcontrols or in other factors that could significantly affect these controlssubsequent to the date of their evaluation.

 

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**PART II****- OTHERINFORMATION**

 

### ***Item 1***.  Legal Proceedings

 

The Company encounterslawsuits from time to time in the ordinary course of business and, atFebruary 28, 2003, the Company and/or its affiliates were parties toseveral civil lawsuits.  Summa does notexpect that the resolution of these lawsuits will have a material adverseimpact on future results of operations or financial position.   Certain lawsuits filed against the Companyfrom time to time contain claims not covered by insurance, or seek damages inexcess of policy limits, and such claims could be filed in the future.  In addition, the Company recently filedseveral lawsuits in U.S. District Court against unrelated third parties forinfringement of a patent and trade dress owned by a Company subsidiary, and theCompany may file additional infringement and/or other types of lawsuits in thefuture which may result in materially increased costs and other adverseconsequences.  Any costs and/or lossesthat Summa may suffer from such lawsuits, and the effect such litigation mayhave upon the reputation and marketability of Summa’s products, could have amaterial adverse impact on the future results of operations, financialcondition and/or prospects of the Company.

 

###### ***Item2*****.  Changes inSecurities and Use of Proceeds**

###### * *

None.

 

#### ***Item 3***.  Defaults upon Senior Securities

 

None.

 

***Item 4******. Submission of Matters to a Vote of Security Holders***

 

At the Company’s AnnualMeeting of Stockholders held on January 8, 2003, incumbent directors DavidMcConaughy and Josh T. Barnes were re-elected to the Board of Directors of theCompany to serve as one Class of the Board of Directors for a three year termand until their successors are elected and qualified.  Messr. McConaughy received 3,925,840 votes in his favor, with28,931 votes withheld, and Messr. Barnes received 3,943,940 votes in his favor,with 10,831 votes withheld.  The were novotes against and no broker non-votes. Incumbent directors Michael L. Horst, William R. Zimmerman, James R.Swartwout, Jack L. Watts and Charles A. Tourville are members of two additionalClasses of the Board of Directors, and their terms of office continued afterthe Annual Meeting.

 

***Item 5******. Other Information***

 

None.

 

***Item 6******. Exhibits and Reports on Form 8-K***

 
| **(a)** |   | **Exhibits**                                                                                                                                                                               |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                       |
|    |   | 99.1  Certification pursuant to 18 U.S.C.  Section 1350                                                                                                                               |
|    |   |                                                                                                                                                                                       |
| **(b)** |   | **Current Reports on Form 8-K**                                                                                                                                                            |
|    |   |                                                                                                                                                                                       |
|    |   | Form 8-K dated  December 13, 2002 relating to the adoption by the Company of Statement  of Financial Accounting Standards No. 142, “Goodwill and Other Intangible  Assets”. |

 

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**SIGNATUR****ES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized on  July 18, 2003.

 

**Summa Industries**
|                                   |                          |
|----------------------------------------|-------------------------------|
| /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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**CERTIFICATION PURSUANT TO RULE 13a –14OF THE SECURITIES EXCHANGE ACT OF 1934**

 

I, James R. Swartwout,certify that:

 

1.                                       Ihave reviewed this Quarterly Report on Form 10-Q/A of Summa Industries;

 

2.                                       Basedon my knowledge, this Quarterly Report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this QuarterlyReport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this Report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this Quarterly Report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a)                                  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this Quarterly Report is being prepared;

 

(b)                                 evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing of this Quarterly Report (the“Evaluation Date”); and

 

(c)                                  presentedin this Quarterly Report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

(a)                                  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)                                 anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this QuarterlyReport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
|   |    /s/  James R. Swartwout |   |
|--------|-------------------------------------------|--------|
|   | James R. Swartwout                        |
|   | Chief Executive Officer                   |
|   | Chief Financial Officer                   |
|   | July 18, 2003                        |

 

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