<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from _________________ to _____________________
Commission file number 33-25126-D
----------
SEPTIMA ENTERPRISES, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 85-0368333
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
600 Sandtree Drive
Lake Park, FL 33403
----------------------------------------
(Address of Principal Executive Offices)
(561) 624-7299
----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Former Address: 600 Depot Street, Latrobe, PA 15650/Former Fiscal Year: May 31
- ------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 8,235,629 as of November 1,
1996.
Transitional Small Business Disclosure Format (Check one):
Yes No X
------ -------
<PAGE>
SEPTIMA ENTERPRISES, INC.
FORM 10-QSB
INDEX
-----
PAGE
PART I: FINANCIAL INFORMATION NUMBER
- ------ --------------------- ------
Item 1. Financial Statements:
Financial Statements of Septima Enterprises, Inc.:
Accountants' Report..................................... 1
Balance Sheet as of September 30, 1996.................. 2
Statements of Operations for the period
September 12, 1988 (Inception) to
September 30, 1996.................................... 3
Statements of Stockholder's Equity for the
period September 12, 1988 (Inception) to
September 30, 1996.................................... 4
Statements of Cash Flows for the period ended
September 30, 1996.................................... 8
Notes to Financial Statements........................... 10
Item 2. Management's Discussion and Analysis
or Plan of Operation.................................. 22
PART II: OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings................................ 25
Item 2. Changes in Securities............................ 25
Item 3. Defaults Upon Senior Securities.................. 25
Item 4. Submission of Matters to a Vote of
Security Holders............................... 25
Item 5. Other Information................................ 25
Item 6. Exhibits and Reports on Form 8-K................. 26
Signature........................................................... 27
Exhibits:
1. Manufacturing Agreement dated
September 4, 1996.................................... 1-1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
DELISI, HENNINGER AND ASSOCIATES CERTIFIED PUBLIC ACCOUNTANTS
================================================================================
235 Humphrey Road - Suite 3
David S. Delisi, C.P.A. Two Pineview Place
Greensburg, Pennsylvania 15601-4579
Martha Henninger, C.P.A. (412) 832-8585
FAX (412) 832-8590
Board of Directors and Shareholders
Septima Enterprises, Inc.
We have reviewed the accompanying balance sheet of Septima Enterprises, Inc. (a
development stage company) as of September 30, 1996, and the related statements
of operations, stockholders' equity, and cash flows for the three months then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Septima Enterprises, Inc. The financial statements for the short
year ended June 30, 1996 were reviewed by us. We were not aware of any
material modifications to the financial statements in order for them to be in
conformity with generally accepted accounting principles. The financial
statements for the year ended May 31, 1996 were audited by us, and we expressed
a qualified opinion that discussed the Company's ability to continue as a going
concern and the uncertain status of a marketing agreement, in our report dated
July 22, 1996. We have not performed any auditing procedures since that date.
The financial statements for the year ended May 31, 1995 were also audited by
us, and we expressed a qualified opinion citing uncertainties as to a land
purchase option and the status of a marketing agreement and the inability to
obtain a legal opinion from the Company's attorney, in our report dated May 24,
1996. The financial statements for the period September 12, 1988 (inception)
to May 31, 1994, were audited by other auditors whose reports dated October 5,
1994, on those statements included an explanatory paragraph that described
recurring losses from operation and cash flow problems that raise substantial
doubt about its ability to continue operations. They have not performed any
auditing procedures since that date.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than
an audit in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles. As discussed in Note
B, certain conditions indicate that the Company may be unable to continue as a
going concern. The accompanying financial statements do not include any
adjustments to the financial statements that might be necessary should the
Company be unable to continue as a going concern. Additionally, as discussed
in Note J, the Company considers a marketing agreement entered into with an
outside firm as void. It is uncertain as to the outside firm's view of the
agreement. The agreement could effect future marketing and distribution of the
firm's product. The accompanying financial statements do not include any
adjustments to the financial statements that might be necessary should the
marketing agreement be deemed valid.
Greensburg, Pennsylvania
October 23, 1996 /s/ Delisi, Henninger and Associates
MEMBER PENNSYLVANIA AND AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
1
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents (note A3) $ 72,506
Accounts receivable--trade -0-
Inventories (note A4)
Finished products -0-
Products in progress -0-
Raw materials and supplies -0-
Prepaid expenses 92,946
Deposits 20,250
----------
Total current assets 185,702
Equipment (net of accumulated depreciation
of $56,049) (note A5) 28,095
----------
Other assets
Organization costs (net of accumulated
amortization of $250) (note A5) -0-
Technology license (note G) -0-
-----------
Total assets $ 213,797
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable--trade $ 51,382
Note payable--SMC (note C) 267,992
Deposits from customers 125,000
Accrued expenses 24,416
----------
Total current liabilities 468,790
----------
Stockholders' equity
Preferred stock, no par value, 10,000,000
shares authorized no shares issued -0-
Common stock, no par value, 25,000,000 shares
authorized 7,785,629 shares issued and
outstanding (note E) 1,029,292
Deficit accumulated during the development
stage (note A2) (1,284,285)
---------
Total stockholders' equity ( 254,993)
---------
Total liabilities and stockholders' equity $ 213,797
==========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
2
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Period September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
September 12, 1988
Three Months Ended (inception) to
September 30, 1996 September 30, 1996
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Sales $ - 0 - $ 3,126
Interest income - 0 - 64,583
Other income - 0 - 199,381
---------- -----------
Total Income - 0 - 267,090
---------- -----------
Costs and expenses
General and administrative 35,141 964,767
Research and development (note A8) 3,193 362,680
Loss on debt extinguishment--related party - 0 - 50,452
Depreciation and amortization 4,165 58,263
Selling expenses - 0 - 5,893
Cost of products sold - 0 - 47,049
---------- -----------
Total Expenses 42,499 1,489,104
---------- -----------
(Loss) before income taxes
and other expenses (42,499) (1,222,014)
Other expenses
Loss on marketable equity securities - 0 - (58,924)
Income tax (note D) - 0 - (3,347)
---------- ------------
Net income/(loss) $ (42,499) $(1,284,285)
========== ============
Weighted average number of common
shares outstanding 7,785,629 7,354,515
---------- -----------
Net income/(loss) per share $(.00546) $(.17463)
========= ========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
3
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred stock Common stock
------------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common stock issued on
September 12, 1988 for
$.00009 per share -0- $-0- 165,000,000 $ 15,000
Common stock issued on
March 10, 1989 for
$0.01 per share, net of
underwriter's fees and
other costs -0- -0- 33,005,800 257,753
Donated services -0- -0- -0- 2,945
Net loss -0- -0- -0- -0-
------- ------- --------------- --------
Balance at May 31, 1989 -0- -0- 198,005,800 275,698
Donated services -0- -0- -0- 14,135
Net loss -0- -0- -0- -0-
------- ------- --------------- --------
Balance at May 31, 1990 -0- -0- 198,005,800 289,833
Donated services -0- -0- -0- 13,559
Net loss -0- -0- -0- -0-
------- ------- --------------- --------
Balance at May 31, 1991 -0- -0- 198,005,800 303,392
Donated services -0- -0- -0- 18,280
Net loss -0- -0- -0- -0-
------- ------- --------------- --------
Balance at May 31, 1992 -0- -0- 198,005,800 321,672
One for two hundred reverse
stock split on October 23,
1992 -0- -0- (197,015,771) -0-
Common stock subscribed on
May 25, 1993 for $1.00 per
share -0- -0- -0- -0-
Donated services -0- -0- -0- 73,670
Net loss -0- -0- -0- -0-
------- ------- --------------- --------
Balance at May 31, 1993 -0- -0- 990,029 395,342
Common stock issued between
July 15, 1993 and October 25,
1993 for $1.00 per share, net
of costs -0- -0- 275,000 256,052
Common stock issued on March 8,
1994 for services rendered,
valued at $1.00 per share -0- -0- 25,500 25,500
Donated services -0- -0- -0- 102,147
Net loss -0- -0- -0- -0-
------- ------- --------------- --------
Balance at May 31, 1994 -0- $-0- 1,290,529 $779,041
------- ------- --------------- --------
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
4
<PAGE>
<TABLE>
<CAPTION>
Deficit accumulated during
Common stock subscribed the development stage Total
----------------------- -------------------------- -----
Shares Amount
------ ------
<S> <C> <C> <C>
-0- $ -0- $ -0- $ 15,000
-0- -0- -0- 257,753
-0- -0- -0- 2,945
-0- -0- ( 517) ( 517)
------ ------- --------- ---------
-0- -0- ( 517) 275,181
-0- -0- -0- 14,135
-0- -0- ( 12,099) ( 12,099)
------ ------- --------- ---------
-0- -0- ( 12,616) 277,217
-0- -0- -0- 13,559
-0- -0- ( 71,687) ( 71,687)
------ ------- --------- ---------
-0- -0- ( 84,303) 219,089
-0- -0- -0- 18,280
-0- -0- ( 28,122) ( 28,122)
------ ------- --------- ---------
-0- -0- (112,425) 209,247
-0- -0- -0- -0-
30,000 30,000 -0- 30,000
-0- -0- -0- 73,670
-0- -0- (253,334) (253,334)
------ ------- --------- ---------
30,000 30,000 (365,759) 59,583
(30,000) (30,000) -0- 226,052
-0- -0- -0- 25,500
-0- -0- -0- 102,147
-0- -0- (422,723) (422,723)
------ ------- --------- ---------
-0- $ -0- $(788,482) $ (9,441)
------ ------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
5
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY--CONTINUED
For the Period September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred stock Common stock
--------------- ------------
Shares Amount Shares Amount
------ ------ ------ -------
<S> <C> <C> <C> <C>
Common stock issued on
August 8, 1994 for services
rendered, valued at $.77
per share -0- -0- 325,000 $250,251
Common stock acquired on
May 26, 1994 due to the
liquidation of
Eco-Logics, Inc. -0- -0- 6,170,100 -0-
Donated services -0- -0- -0- -0-
Net loss -0- -0- -0- -0-
----- ----- --------- ----------
Balance at May 31, 1995 -0- -0- 7,785,629 1,029,292
----- ----- --------- ----------
Net gain -0- -0- -0- -0-
----- ----- --------- ----------
Balance at May 31, 1996 -0- -0- 7,785,629 1,029,292
----- ----- --------- ----------
Net loss -0- -0- -0- -0-
----- ----- --------- ----------
Balance at June 30, 1996 -0- -0- 7,785,629 1,029,292
----- ----- --------- ----------
Net loss -0- -0- -0- -0-
----- ----- --------- ----------
Balance at September 30, 1996 -0- $-0- 7,785,629 $1,029,292
===== ===== ========= ==========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
6
<PAGE>
<TABLE>
<CAPTION>
Deficit accumulated during
Common stock subscribed the development stage Total
----------------------- -------------------------- -----
Shares Amount
- ------ ------
<S> <C> <C> <C>
-0- $ -0- $ -0- $ 250,251
-0- -0- -0- -0-
-0- -0- -0- -0-
-0- -0- ( 467,600) ( 467,600)
----- ------ ----------- ----------
-0- -0- (1,256,082) ( 226,790)
----- ------ ----------- ----------
-0- -0- 21,551 21,551
----- ------ ----------- ----------
-0- -0- (1,234,531) ( 205,239)
----- ------ ----------- ----------
-0- -0- ( 7,255) ( 7,255)
----- ------ ----------- ----------
-0- -0- (1,241,786) ( 212,494)
----- ------ ----------- ----------
-0- -0- ( 42,499) ( 42,499)
----- ------ ----------- ----------
-0- $ -0- $(1,284,285) $( 254,993)
===== ====== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
7
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Period Ended September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
September 12, 1988
Three Months Ended (inception) to
September 30, 1996 September 30, 1996
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ -0- $ 16,811
Interest received -0- 59,879
Cash paid to suppliers (97,891) (751,405)
Income taxes paid -0- (3,704)
Customer deposits 125,000 125,000
------- -------
Cash provided by/(used) in
operating activities 27,109 (553,419)
------- --------
Cash flows from investing activities:
Purchase of equipment -0- (77,289)
Purchase of certificates of deposit -0- (250,473)
Maturity of certificates of deposit -0- 250,473
Purchase of marketable equity securities -0- (293,385)
Proceeds from sale of marketable equity
securities -0- 231,961
Loan disbursements -0- (15,000)
Loan proceeds from related parties 40,000 315,261
Repayments to related parties -0- (9,889)
Advances to related parties -0- (44,539)
Acquisition of purchase option -0- (20,000)
Repayment of note receivable -0- 10,000
------- ---------
Cash provided by investing activities 40,000 97,120
------- ---------
Cash flows from financing activities:
Proceeds from issuing common stock -0- 620,050
Proceeds from stock subscription -0- 30,000
Exercise of stock subscription -0- (30,000)
Costs associated with public offering
of common stock -0- (72,297)
Costs associated with private offering
of common stock -0- (18,948)
------- ---------
Cash provided by financing activities -0- 528,805
------- ---------
Net increase (decrease) in cash
and cash equivalents 67,109 72,506
Cash and cash equivalents at beginning
of period 5,397 - 0 -
------- ---------
Cash and cash equivalents at end of period $72,506 $72,506
======= =======
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
8
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS--CONTINUED
For the Period September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
September 12, 1988
Three Months Ended (inception) to
September 30, 1996 September 30, 1996
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Reconciliation of net loss to cash
used in operating activities
Net income/(loss) $(42,499) $(1,284,284)
Noncash charges to net loss
Depreciation 4,165 56,050
Write-off of prepaid parts and freight - 0 - 4,951
Amortization of organization costs - 0 - 250
Donated services - 0 - 474,987
Write-off related payables/inventory - 0 - (4,649)
Write-off note receivable - 0 - 5,000
Forfeited purchase option - 0 - 20,000
Write-down on marketable securities - 0 - 2,500
Loss on sale of marketable equity
securities - 0 - 58,924
Increase in prepaid expenses (57,813) (64,386)
Increase in prepaid expenses
(Advertising) (6,714) (28,561)
Increase in deposits - 0 - (20,249)
Increase in organization costs - 0 - (250)
Increase in accounts payable (2,307) 51,382
Increase in accrued expenses 7,277 24,416
Common stock issued for services - 0 - 25,500
Increase in customer deposits 125,000 125,000
-------- -----------
Cash provided by/(used) in
operating activities $27,109 $ (553,419)
======== ===========
</TABLE>
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT.
9
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
1. Basis of Presentation
- -------------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
The accompanying financial statements, presented on the accrual basis, include
the balances and accounts of Septima Enterprises, Inc. They do reflect the
balances or accounts of Eco-Logics, Inc., a related party, which was liquidated
on May 26, 1994, since its efforts to obtain a permit from the State of New
Mexico to operate a bio-medical incineration plant were unsuccessful.
On May 31, 1992, the Company issued shares of its common stock to Cottonbloom,
Inc., in exchange for all of the outstanding stock of Eco-Logics. The
transaction effected control of the Company by Cottonbloom and has been
accounted for as a reverse acquisition of the Company by Eco-Logics.
Consolidated financial statements for Eco-Logics previously included the
balances and accounts of the Company.
The 3,960,100 shares issued in the May 31, 1992 transaction, considered to be
recapitalization equity of Eco-Logics, and 2,210,000 shares subsequently issued
to Cottonbloom for certain licenses and technology, were not included in the
Company's stockholders' equity as of May 31, 1994. However, due to the
liquidation of Eco-Logics, Inc., these 6,170,000 shares were included in
Septima's stockholders' equity as of May 31, 1995. Previously, the shares of
common stock were reflected on the financial statements of Eco-Logics, Inc.
2. Organization and Development Stage Activities
- -------------------------------------------------
Septima Enterprises, Inc. was incorporated on September 12, 1988, for the
purpose of acquiring interests in other business entities and commercial
technologies. Operations to date have consisted of acquiring capital, evaluating
investment opportunities, acquiring interests in other businesses and
technologies, establishing a business concept, conducting research and
development activities, and manufacturing. An insignificant amount of revenue
from sales has been generated to date. The Company intends to market an ignition
enhancer marketed under the registered name of Swaser. Swaser is a registered
name of HDI Systems, Inc.
Accordingly, the costs and expenses related to these activities are accumulated
and reported in the financial statements as "deficit accumulated during the
development stage".
10
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
3. Cash and Cash Equivalents
- -----------------------------
The Company considers all investment instruments with original maturities of
three months or less when purchased to be cash equivalents.
4. Inventory Pricing
- ---------------------
As of September 30, 1996, no inventory exists.
5. Depreciation and Amortization
- ---------------------------------
Costs of organizing the Company have been capitalized and are being amortized by
the straight-line method over sixty (60) months.
The Company's equipment is recorded at cost and depreciated using the straight-
line method over sixty (60) months.
Depreciation expense for the three months ending September 30, 1996, is $4,165.
6. Advertising
- ---------------
Management has elected to capitalize costs associated with designing advertising
and promotional formats in connection with the peaking capacitor product
incurred in a prior year. These costs are being amortized over a twenty-four
month period. The amortization expense for the three month period is $4,080.
7. Net Loss Per Common Share
- -----------------------------
Net loss per share is based on the weighted average number of shares issued and
outstanding during the periods presented, giving retroactive effect to a one for
two hundred reverse stock split. As of May 31, 1995, all Class A and B warrants
have expired, per legal counsel.
8. Research and Development Expenses
- -------------------------------------
Research and development expenses are expensed as incurred.
9. Compensation Costs
- ----------------------
Compensation costs are charged to expense for the period in which stock bonus
and award plans are granted.
11
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
10. Qualified Retirement/Profit Sharing Plan
- ---------------------------------------------
The Company does not maintain a qualified pension or profit sharing plan.
11. Finance Charges
- --------------------
It is the Company's policy to reflect accounts payable net of finance charges.
12. Employees
- --------------
All persons working for Septima are paid through Spark Management Corporation, a
related party. Septima has no payroll. The Company did not have compensated
employees during the review period.
13. Risks and Uncertainties
- ----------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
14. Change of Fiscal Year
- --------------------------
The Company changed its fiscal year from June 1 through May 31 of each calendar
year to July 1 through June 30 of each calendar year commencing with the fiscal
year ended June 30, 1996.
15. Revenue Recognition
- ------------------------
The Company recognizes revenue when the product is manufactured and shipped to
the customer. At September 30, 1996, the Company had received $125,000
considered as a deposit on a total order of $282,000.
NOTE B--GOING CONCERN
- ---------------------
As shown in the accompanying financial statements, the Company has incurred
recurring losses during the development stage and has experienced cash flow
problems.
As of September 30, 1996, the issue of going concern is relevant due to a
financing arrangement with Spark Management Corporation providing Septima
Enterprises, Inc., with up to $400,000 of funding. This arrangement will not
continue if Spark Management Corporation does not exercise their $935,000 option
to purchase 51 percent of the outstanding shares of Septima Enterprises, Inc.,
by September 26, 1997.
12
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE B--GOING CONCERN--(CONTINUED)
- ----------------------------------
If this option is not exercised, there will be substantial doubt raised about
the Company's ability to continue as a going concern without new capital
investment to complete development, manufacturing and marketing of products.
NOTE C--NOTE PAYABLE
- --------------------
Spark Management Corporation has agreed to advance Septima Enterprises a line of
credit in the amount of $400,000 to provide working capital. This demand note
bears an interest rate of twelve percent per annum. As of September 30, 1996,
the balance due to Spark Management by Septima was $267,992. Also, $24,354 of
accrued interest was due.
NOTE D--INCOME TAXES
- --------------------
The Company has elected for tax purposes to amortize research and development
costs rather than expensing them. The following is a summary of these intangible
assets as of September 30, 1996:
<TABLE>
<S> <C>
Organization costs $ 250
Reorganization costs 9,075
Stock offering costs 4,910
Sales brochures 2,726
Capitalized R & D 248,496
--------
$ 265,457
========
</TABLE>
The deferred expenses will be amortized over 60 months, beginning in the month
the Company realizes benefit from such expenses. As of September 30, 1996,
accumulated amortization of these assets was $118,062. The amortization expense
for the current period is $12,580. For tax purposes, assets are being
depreciated using the modified accelerated cost recovery system. The tax
depreciation expense for the period is $2,419. See note A5 for description of
book depreciation.
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
Period from
9/12/88
Three Months Ended (inception)
September 30, 1996 to 9/30/96
------------------ -----------
<S> <C> <C>
Federal $ -0- $3,091
State -0- 256
------ ------
$ -0- $3,347
====== ======
</TABLE>
13
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE D--INCOME TAXES--(CONTINUED)
- ---------------------------------
The reconciliation of income tax computed at statutory tax rates to income tax
expense is:
<TABLE>
<CAPTION>
Period from
9/12/88
Three Months Ended (inception)
September 30, 1996 to 9/30/96
------------------ ----------
<S> <C> <C>
Expected tax benefit $(30,801) $(403,579)
Nondeductible expenses -0- 350,049
Provision of deferred tax
valuation allowance 30,801 56,877
-------- ---------
Deferred expense $ -0- $ 3,347
======== =========
</TABLE>
At September 30, 1996, the Company had net operating losses totaling $560,584
available to offset future income.
If not used, they will expire as follows:
<TABLE>
<CAPTION>
Operating
Year Losses
---- ---------
<S> <C>
2008 $101,787
2009 185,068
2010 249,748
2011 13,127
2012 10,854
--------
$560,584
========
</TABLE>
The net deferred tax asset in the accompanying Balance Sheet consists of the
following:
Deferred tax asset $403,579
Deferred tax valuation
allowance $(403,579)
---------
Deferred income taxes $ -0-
=========
A deferred tax valuation allowance has been provided because it is more likely
than not that the related deferred tax benefit will not be realized in the
future.
The Internal Revenue Service approved the change in fiscal year (See Note A14)
submitted on Form 1128 on August 9, 1996.
14
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE E--COMMON STOCK
- --------------------
Donated Services
- ----------------
None of the officers or directors received cash compensation for services
rendered the Company. These services have been valued by the Company and charged
to expense and common stock (donated capital) at $0 and $474,987 for the three
months ended September 30, 1996, and for the period from September 12, 1988
(inception) to September 30, 1996, respectively.
Private Offering
- ----------------
On July 24, 1994, the Company prepared a private offering pursuant to Regulation
D, in which is offered to accredited investors, 1,000,000 units, at a price of
$2.50 per unit. Each unit consists of one share of restricted common stock and
one warrant to purchase one share of common stock at an exercise price of $4.75
per share. The securities comprising the units are immediately separable. The
warrants are exercisable for a period of 18 months commencing on the date of
their issuance and redeemable by the Company at $0.01 per warrant. Costs
associated with this private offering amount to $6,573 at May 31, 1994, and have
been recorded as a prepaid expense. The offering expired September 1, 1994, but
can be extended by the Company. The Company has not released this offering.
Management has indicated they intend to withdraw this offering. In written
action dated September 9, 1996 in lieu of a special meeting of the Board of
Directors, the Company has indicated a private offering authorizing the sell of
1,000,000 to 1,200,000 shares of Septima common stock at a price of $2.00 to
$2.50 per share. The Company intends to complete the offering pursuant to
Regulation D.
13-D Registration
- -----------------
On September 26, 1995, Spark Management Corporation filed a 13-D Registration
Statement related to the common stock, no par value per share of Septima
Enterprises, Inc.
Spark and Cottonbloom, Inc., a New Mexico Corporation and controlling
shareholder of Septima, executed an Option Agreement on September 26, 1995,
granting Spark the option to acquire at least 51 percent of the outstanding
stock of Septima.
The option is presently exercisable and will expire on September 26, 1997. While
the option remains outstanding, the option stock is held in a voting trust by
David Norvell, as Trustee, pursuant to the terms of a Voting Trust Agreement
dated September 26, 1995.
Spark possesses the right to vote all the option stock prior to the expiration
of the option.
Pursuant to the Option Agreement and the Voting Trust Agreement, Spark possesses
the right to vote 4,307,270 shares of Septima common stock, representing what is
presently believed to be 55 percent of the outstanding shares of Septima common
stock. Also pursuant to the Option Agreement, Spark
15
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE E--COMMON STOCK--(CONTINUED)
- ---------------------------------
possesses the option to acquire 4,307,270 shares of Septima common stock from
Cottonbloom at any time prior to September 26, 1997. The directors and executive
officers of Spark do not beneficially own any shares of common stock of Septima.
In a document dated September 26, 1995, between a former officer/director of the
Company and the Company, the officer agreed to release and quit claim all of his
interest in a stock option. The stock option was originally dated May 1, 1994,
granting an option to purchase 250,000 shares of common stock of Septima within
five years of the date at one dollar per share. (See Note F)
In connection with the Option Agreement, Septima and Hensley Plasma Plug
Partnership, a Colorado partnership, executed an agreement for Assignment of
Technology and Patents and Assignment of Technology. The intellectual property
assigned pursuant to these agreements had been licensed to Cottonbloom which had
assigned its rights to Septima. The Technology Assignment replaced the previous
agreements and directly granted Septima rights in the Intellectual Property.
While Spark was negotiating on behalf of Septima to obtain the Technology
Assignment, other partners of the Hensley Partnership were assigning rights in
the Intellectual Property to Pulse Power Technologies Co., Ltd., a New Mexico
limited liability company. Litigation ensued among the various entities
regarding the rights to the Intellectual Property. The litigation was resolved
pursuant to a Settlement Memorandum dated November 16, 1995. The Settlement
Memorandum upholds the Technology Assignment and Option Agreement.
Under the Agreement for Assignment of Technology and Patents, Septima
Enterprises, Inc. is to make royalty payments to Hensley Plasma Plug Partnership
for as long as one or more patents remain in effect according to the following
schedule:
a. A royalty of four percent (4%) of Adjusted Gross Revenues realized
from the sale of Products which first total One (1) Million Dollars;
plus
b. A royalty of three percent (3%) of Adjusted Gross Revenues realized
from the sale of Products which next total One (1) Million Dollars;
plus
c. A royalty of two percent (2%) of Adjusted Gross Revenues realized
from the sale of Products which next total One (1) Million Dollars;
plus
d. A royalty of one percent (1%) of all Adjusted Gross Revenues
realized from the sale of Products thereafter.
16
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE E--COMMON STOCK--(CONTINUED)
---------------------------------
During the first two years of the agreement, there are no minimum royalty
payments. The minimum royalty payment for year three is $100,000 and the
minimum for years four and beyond is $150,000.
NOTE F--RELATED PARTY TRANSACTIONS
----------------------------------
On September 26, 1995, an agreement was entered into between George H.
Hensley, individually and as a partner in Hensley Plasma Plug Partnership;
James Robert Hensley, individually, as a partner in Hensley Plasma Plug
Partnership, and as co-trustee under the Ronald Hensley Irrevocable Trust
dated February 2, 1982; Raymond E. Hensley, individually, as a partner in
Hensley Plasma Plug Partnership, and as a co-trustee under the Ronald Hensley
Irrevocable Trust dated February 2, 1982; Cottonbloom, Inc., a New Mexico
corporation to release Septima of all claims, suits, demands, debts, dues,
accounts, bonds, covenants, contracts, promises, agreements, judgments,
liabilities, obligations, rights, costs, expenses, attorney's fees, and
actions from the beginning of the world to the date of the release. As a
result of this agreement, the following related party amounts were written
off:
<TABLE>
<CAPTION>
Related Party Amount
------------- ------
<S> <C>
Amarillo Valley Ridge $ 13,013.31
CAMI 13,233.56
Cottonbloom 66,080.82
Ecologics 3,735.50
HDI Partner/CB 10,255.49
HDI Partnership 7,939.44
George Hensley 57,750.00
-----------
Total $172,008.12
===========
</TABLE>
A prior officer and current stockholder of the Company is owed $9,415 for
funds advanced and reimbursable costs. This related party payable was not
covered by the September 26, 1995 agreement.
Under stock options, related parties, a marketing company, and a former
director were granted or resolved to be granted five year options to acquire
960,000 shares of the Company's common stock at $1.00 per share.
As part of the 960,000 shares, in written action in lieu of a special meeting
of the Board of Directors, a former director of the Company was granted an
option to purchase 200,000 shares of stock at an exercise price of $1.00 per
share exercisable at any time prior to October 1, 2001.
17
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE F--RELATED PARTY TRANSACTIONS--(CONTINUED)
-----------------------------------------------
The stock options are due to expire five years from grant date:
<TABLE>
<CAPTION>
Option Price per share Number of Options Date of Grant
---------------------- ----------------- -------------
<S> <C> <C>
$1.00 160,000 February 22, 1994
$1.00 500,000 May 1, 1994
$1.00 50,000 November 16, 1995
$1.00 25,000 April 1, 1996
$1.00 25,000 July 1, 1996
$1.00 200,000 September 4, 1996
</TABLE>
The Company has developed a compensation arrangement whereby a marketing
consultant will be granted (upon quarterly review by Septima) the option to
purchase 110,000 total shares at $1.00/share for fiscal quarters ending
October 1, 1996 until January 1, 1999. The grant is for 25,000 shares for the
first two quarters and 7,500 shares for the subsequent eight quarters.
A former director of the Company was previously granted 250,000 options at
$1.00 per share on May 1, 1994. In an agreement dated September 26, 1995, the
former director released and quit claim all interest in the options.
In a written action in lieu of a special meeting, the Board of Directors on
September 9, 1996 granted stock options to two Board members. The options are
exercisable at $.20/share within ten years.
Option Price
Per Share Number of Options Date of Grant Expiration of Grant
--------- ----------------- ------------- -------------------
$.20 312,500 Sept. 9, 1996 Sept. 9, 2006
Additionally, the Board authorized annual compensation to the members of the
Company's Board of Directors by issuing to each of them options to purchase
20,000 shares of common stock at an exercise price of $1.00 per share.
18
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE F--RELATED PARTY TRANSACTIONS--(CONTINUED)
-----------------------------------------------
The Company has negotiated with Worldwide Associates, an entity in which a
prior officer and current stockholder of the Company have an interest, whereby
Worldwide would be given nearly exclusive distribution rights outside the
United States for the Company's products. The Company considers the agreement
void.
No confirmation was received, in a prior period, from Worldwide Associates
regarding their view of the status of the agreement (See Note J).
The Company has negotiated a Manufacturing and Distribution Agreement for
Mexico sales with a company operated by a former director and current
shareholder (See Note H). The Company has entered into a Master Licensing
Agreement with Spark Management Corporation (See Note G). Spark Management is
owned by two directors of the Company. The Company has entered into a
Manufacturing Agreement with a company owned by two former directors (See Note
H).
NOTE G--TECHNOLOGY LICENSE
--------------------------
Currently, Spark Management Corporation (Spark) anticipates that Septima will
sublicense certain Intellectual Property obtained pursuant to the Technology
Assignment to Spark for the manufacture of certain aftermarket auto parts. As
of September 30, 1996, Spark intends that another corporation will manufacture
various components of the products and sell them to Septima.
Spark Management Corporation entered into a Master Licensing Agreement dated
September 10, 1996 with the Company. The Company acquired developments,
information, proprietary rights, and trade secrets collectively referred to as
Ignition Systems and Processes (See Note H). Unless terminated or canceled,
the Agreement will terminate ten (10) years following the last expired patent
acquired by Spark Management.
Spark intends to periodically review and evaluate the market for Septima's
common stock; Septima's business, prospects, and financial condition; general
economic conditions, and other opportunities available to Spark. On the basis
of such periodic reviews and evaluations, Spark may determine to increase or
decrease its investments in Septima through exercise of the option in whole or
in part or not at all.
NOTE H--COMMITMENTS
-------------------
The Company's research, development, and manufacturing activities are
conducted from facilities leased under short-term operating leases. The
facilities are leased by Spark Management Corporation.
An agreement dated March 22, 1994, exists between Septima Enterprises, Inc.,
and a company, whereby the company will pursue capital and licensing
endeavors. Septima is to pay the company six percent of any funds, money, or
renumeration, plus any applicable taxes received by Septima as a result of the
company's efforts.
19
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE H--COMMITMENTS--(CONTINUED)
--------------------------------
In consideration of the Master Licensing Agreement (See Note G), Spark
Management Corporation will receive 450,000 shares of Company stock. The
Company will pay Spark Management one dollar ($1.00) for each Product/Insert
until one million aggregate Products/Inserts are sold; fifty cents ($.50) for
each Product/Insert sold on the next million aggregate units; and twenty-five
cents ($.25) for each Product/Insert sold thereafter.
The Company entered into a Consulting Agreement with Spark Management
Corporation. Spark Management will provide services to the Company as a
consultant for a five year period commencing September 10, 1996. Spark
Management will be compensated on a cost plus 10 percent basis for the first
year. During the final four years, the compensation will be $250,000
annually, paid quarterly.
The company entered into a Manufacturing and Distribution Agreement dated
August 23, 1996 with a company. The company is required to order a minimum
aggregate of Products/Inserts per year from Septima Enterprises.
The Company entered into a Manufacturing Agreement dated September 4, 1996
(See Note F). The Company engaged the manufacturer as its exclusive producer
for the entire requirements for the product produced in the United States.
The initial term is for four (4) years automatically renewable for one (1)
year periods.
NOTE I--UNCERTAINTIES
---------------------
The Company accounts payable listing differs materially from an amount
confirmed, in a prior period, directly with a vendor. The vendor has
indicated legal action will be pursued to collect the difference between
Company account payable amount and vendor amount. The Company has filed a
declaratory action against the vendor.
NOTE J--DEMAND FOR ARBITRATION-WORLDWIDE ASSOCIATES, INC.
---------------------------------------------------------
On June 17, 1996, a demand for arbitration was filed with the American
Arbitration Association in Phoenix, Arizona relating to an agreement dated
May 27, 1994. The nature of the dispute: 1) Failure of Worldwide Associates,
Inc. to make payment for product delivered as per Article 5.03 of the
agreement in the amount of $1,050 and 2) Failure of consideration to support
the Agreement. The claim or relief being sought: 1) Award of damages on
invoice stated above plus costs and attorney's fees, and 2) Declaration that
the agreement was void at its inception for failure of consideration or, in
the alternative, that the agreement is terminated because of Worldwide breach.
An arbitration hearing has been scheduled for the week of December 9, 1996.
20
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE K--WITHDRAWAL OF DIRECTORS
-------------------------------
Effective September 4, 1996, an individual has resigned as a Director of
Septima Enterprises, Inc. The individual was later replaced by another
individual, as indicated in written action in lieu of a special meeting of the
Board of Directors dated September 9, 1996.
NOTE L--SUBSEQUENT EVENTS
--------------------------
The Company intends to reimburse Spark Management Corporation for Company
related start-up and travel costs incurred in 1995-1996 in the second quarter
of the 1996-1997 fiscal year. Amounts of the reimbursement are being
calculated by the Company.
The Company has assumed a lease for office space in Lake Park, Florida. The
period of the agreement is 11 1/2 months with a provision to extend the
agreement for an additional year. Monthly rental payments are $2,062.50.
The Company intends to change the Corporate Offices to Lake Park, Florida.
21
<PAGE>
Item 2. Management's Discussion and Analysis.
The Company's plan of operation for the three months ended September 30,
1996 was continuing research, development and testing of the HDI technology,
as well as the manufacturing and assembly of HDI products. Product testing
was done in-house as well as at the Amoco Naperville Lab, Naperville Illinois,
U.S., First Automobile Works in Chang Chun, China, Nanjing Electric in
Nanjing, China and Consa Ford in Mexico. Once the testing phase is completed,
the Company intends to have limited numbers of HDI products manufactured for
sale. The Company believes the product is ready for marketing on a limited
basis.
The Company's operations for the three months ended September 30, 1996
were financed by loans from Spark Management ("Spark") to the Company. The
cash requirements for operations for the three months ended September 30, 1996
were $42,499, which were met by the loans from Spark to the Company. Should
loans from Spark not be available to the Company in the future, there is no
assurance that the Company will be able to raise sufficient capital from other
sources to adequately fund the continuing operations of the Company.
The Company does not anticipate any significant equipment acquisition
during the next twelve months. The person who functions as an office manager
and administrative secretary for the Company is paid directly by Spark as an
employee of Spark. The work necessary to accomplish the research and
development and testing program is currently supervised by a director of the
Company who is compensated directly by Spark. Spark intends to be reimbursed
by the Company for moneys expended on behalf of Spark and moneys loaned
directly to the Company when the Company realizes sufficient revenues from
sales to reimburse Spark. There can be no assurances that the Company will be
able to reimburse Spark from sales revenues.
In March of 1995, the Company signed a Memorandum of Understanding
("MOU") with Spark. Pursuant to the MOU, Spark agreed to manage the affairs
of the Company for a 90-day period ending July 15, 1995, during which a due
diligence effort would be performed by the management of Spark. Upon the
successful completion of the due diligence, Spark agreed to purchase 3.8
million shares of Septima common stock from Cottonbloom, Inc. ("Cottonbloom")
and thereby obtain control of the Company. The stock purchase agreement
negotiations between Spark and Cottonbloom failed in July 1995. The failure
of the stock purchase agreement terminated a previously established line of
credit from Spark to the Company which would have provided up to $1,300,000 in
working capital.
Subsequent to the termination of the MOU, Spark has agreed to fund the
Company up to $500,000 at 12% per annum interest for working capital. As of
September 30, 1996, the balance due to Spark was $267,992 in principal and
$24,354 in accrued interest.
On September 26, 1995, Spark executed an Option Agreement (the "Option
Agreement") with Cottonbloom for the right to purchase 4,307,270 shares of
Septima common stock no par for $935,000. The option may be exercised within
two years from the Option Agreement date. The Option Stock is held in a
voting trust (the "Voting Trust") by David Norvell, an Albuquerque, New Mexico
attorney, as trustee (the "Trustee"). Upon execution of the Option Agreement,
the previous Chairman and other Board Members of the Company resigned. The
Officers of Spark were subsequently elected as the Board of Directors of the
Company in January 1996.
22
<PAGE>
As of September 30, 1996, no Option Stock had been purchased pursuant to
the Option Agreement.
In connection with the Option Agreement, Septima and Hensley Plasma Plug
Partnership, a Colorado partnership ("Hensley Partnership"), executed an
Agreement for Assignment of Technology and Patents and Assignment of
Technology (together, the "Technology Agreement"). The intellectual property
assigned pursuant to the Technology Assignment (the "Intellectual Property")
had been licensed to Cottonbloom which has assigned its rights to Septima.
The Technology Assignment replaced the previous agreement with the Hensley
Partnership and directly granted Septima rights in the Intellectual Property.
While Spark was negotiating on behalf of Septima to obtain the Technology
Assignment, other partners of the Hensley Partnership had assigned certain
rights in the Intellectual Property to Pulse Power Technologies Co., Ltd., a
New Mexico limited liability company. Litigation ensued among the various
entities regarding the rights to the Intellectual Property. The litigation
was resolved pursuant to a Settlement Memorandum dated November 16, 1995. The
Settlement Memorandum validates the Company's rights in the Technology
Assignment and Option Agreement.
Septima, in conjunction with Spark, is actively pursuing marketplace
penetration, engineering design, manufacturing process development, and other
efforts such as product dress, packaging, marketing and laboratory and field
testing at recognized facilities in China, Mexico and the United States.
Other Company expenses include general operating expenses, patent costs
associated with patent maintenance and patent applications, and expenses
related to the search for trading partnerships in the field of distribution in
foreign markets. Spark has been financing these efforts and anticipates
repayment from Septima at some future date. There is no assurance that the
Company will be able to reimburse Spark.
In calendar 1995 and 1996, all domestic and foreign patent delinquencies
and fees that were owing were paid by the Company and brought up to date with
the financial assistance of Spark. In addition, all delinquent SEC and IRS
filings were brought up to date.
Accounting Matters. On September 9, 1996, the Board of Directors
authorized the Company to change its fiscal year end from May 31 to June 30.
The Company intends to file a timely transition report covering the resulting
transition period between the closing date of its 1996 fiscal year (May 31)
and the opening date of its new fiscal year (July 1).
Officers and Directors. At the Board of Directors meeting held on
September 9, 1996, the Board of Directors accepted the resignation of R. Keith
Casler as a Director and as Secretary/Treasurer of the Board of Directors.
There was no disagreement between Mr. Casler and the Company.
On September 9, 1996, Darryl J. Dillenback was elected to the Board of
Directors. Mr. Dillenback is currently the President and Chief Executive
Officer of Explosive Technologies International, Inc. ("E.T.I.") which is a
subsidiary of Canadian Investment Capital, Ltd. of Toronto, Canada. E.T.I. is
a commercial explosives manufacturer and distributor located in Wilmington,
Delaware.
23
<PAGE>
R. Edwin Morgan, President and CEO of Septima, will be paid $10,000 per
month salary beginning September 1, 1996. This salary will accrue until
Septima has sufficient funds for payment.
Stock Options. R. Keith Casler was granted an option to purchase 200,000
shares of Septima stock at an exercise price of $1.00 per share exercisable at
any time prior to October 1, 2001. The option was granted for work done on
behalf of Septima over the previous 18 months.
R. Edwin Morgan was awarded options for 250,000 shares of Septima stock
at $0.20 per share for work done for Septima over the previous 18 months.
Louis S. Camilli was granted an option for 62,500 shares of Septima stock
at $0.20 per share for work done for Septima over the previous 24 months.
Recent Events
Lease Commitments. A one-year lease for office space at 600 Sandtree
Drive, Lake Park, Florida 33403, was signed October 15, 1996. The corporate
offices will be relocated from Latrobe, Pennsylvania, and Albuquerque, New
Mexico, to Florida in the month of November.
Employees. Two new employees were added in October: Andrew S. Miller,
Global Market Manager Recreational Products, and Charlotte Darling, Executive
Assistant. Additional financial, customer service, and technical sales
employees will be added in the second and third quarters.
Capital Resources. The Board of Directors has authorized a private
offering of 1,100,000 shares of Septima common stock at a price of $2.00 per
share to be sold to raise capital for a product launch in the United States
market. The Company intends to complete the offering pursuant to Regulation
D.
Additional Information
Application has been made for the trademarks "Direct Hits" and
"Yellowjacket". An application number has been assigned to "Direct Hits", and
management does not anticipate any problems with obtaining these trademarks.
Orders for finished goods inventory have been placed with Carrera for
100,000 pieces of finished and semi-finished parts for sale in the United
States and Mexico.
An exclusive contract was signed with Klaire International Limited to
manufacture and distribute product in Mexico. An initial order of 50,000
parts was received for shipment in the third quarter. Total value of the
contract is $282,000.
A Consulting Agreement was signed between the Company and Spark
Management whereby Septima would compensate Spark for services during the next
five years.
The Company entered into a Master Licensing Agreement dated September 10,
1996, with Spark Management Corporation. The Company acquired developments,
information, proprietary rights, and trade secrets collectively referred to as
Ignition Systems and Processes. Unless
24
<PAGE>
terminated or canceled, the Agreement will terminate ten (10) years following
the last expired patent acquired by Spark Management.
The Company entered into a Manufacturing Agreement with Carrera
Corporation, Latrobe, Pennsylvania, to be the exclusive producer for the
entire requirements for the product produced in the United States for the next
four years.
The Company's accounts payable listing differs materially from an account
confirmed, in a prior period, directly with CAMI. CAMI has indicated legal
action will be pursued to collect the difference between the Company's
accounts payable amount and CAMI's amount. The Company has filed a
declaratory action against CAMI.
On June 17, 1996, a demand for arbitration was filed with American
Arbitration Association in Phoenix, Arizona, relating to an Agreement dated
May 27, 1994, with Worldwide Associates. The nature of the dispute is: (1)
failure of Worldwide Associates, Inc. to make payment in the amount of $1,050
for product delivered as per Article 5.03 of the Agreement and (2) failure of
consideration to support the Agreement. The claim or relief being sought is:
(1) award of damages on invoice stated above plus costs and attorney's fees
and (2) declaration that the Agreement was void at its inception for failure
of consideration or, in the alternative, that the Agreement is terminated
because of Worldwide's breach. An arbitration hearing has been scheduled for
the week of December 9, 1996.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to the Vote of Security Holders.
None
Item 5. Other Information.
On September 4, 1996, the Company entered into a Manufacturing
Agreement (the "Agreement") with Carrera Corporation, a Pennsylvania
corporation ("Carrera"). The Company engaged Carrera as the
exclusive producer for the Company's entire requirements in North
America for product under the brand name "Direct Hits." The initial
term of the Agreement is for four (4) years automatically renewable
for one
25
<PAGE>
(1) year periods. The full text of the Agreement is hereby
incorporated by reference and is attached as Exhibit 1.
---------
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits:
(10) Manufacturing Agreement dated September 4, 1996.
(27) Financial Data Schedule.
b. Reports on Form 8-K:
On September 27, 1996 the Company filed a current report on
Form 8-K relating to a Manufacturing and Distribution Agreement
entered into on August 23, 1996, the resignation of R. Keith
Casler as a Director and as Secretary/Treasurer of the Board of
Directors, the election to the Board of Directors of Darryl J.
Dillenback, and a change in the Company's fiscal year end from
May 31 to June 30.
26
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: November 14, 1996 SEPTIMA ENTERPRISES, INC.
/s/ R. Edwin Morgan
----------------------------------
R. Edwin Morgan
President, Chief Executive Officer
and Principal Financial Officer
27
<PAGE>
Exhibit 1
MANUFACTURING AGREEMENT
-----------------------
THIS MANUFACTURING AGREEMENT (this "Agreement") is made and entered into
this 4th day of September, 1996, by and between CARRERA CORPORATION, a
Pennsylvania corporation having its principal place of business at 600 Depot
Street, Latrobe, Pennsylvania 15650 (hereinafter referred to as "Carrera"), and
SEPTIMA ENTERPRISES, INC., a Colorado corporation having a registered office c/o
Corporation Service Company, 1560 Broadway, Denver, Colorado 80202 (hereinafter
referred to as "Septima").
BACKGROUND
Carrera is engaged in the business of producing and assembling injection
molded products and components.
Septima desires to engage Carrera as its exclusive producer for Septima's
entire requirements in North America for product under the brand name "Direct
Hits", a high voltage, coaxial capacitor (the Product) which is applied in
various configurations to ignition systems for automobiles and other spark
initiated internal combustion engines and is protected under certain patents
owned by Septima, and Carrera desires to produce the products for Septima.
Carrera has performed significant work and has expended considerable sums
of money in the development of a manufacturing process for said Product.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. Engagement. Septima hereby engages Carrera as its exclusive producer
----------
for Septima's entire requirements for the Product produced in the United States.
Carrera hereby accepts such engagement.
2. Term.
----
A. Unless sooner terminated pursuant to Section 12, the initial term
of this Agreement shall commence on the date hereof and shall continue for four
(4) years. The term of this Agreement shall thereafter be automatically renewed
for successive one (1) year periods unless either party provides written notice
to the other party of its election not to renew the term of this Agreement at
least ninety (90) days prior to the expiration of the then current term.
Provided, however, that in no event shall this Agreement be terminated until all
monies advanced under the Loan Agreement between Spark Management Corporation
and Douglas J. Wood and Daniel S. Wood of even date herewith have been paid in
full. The initial term of all successive renewal terms of this Agreement are
collectively referred to herein as the "Term."
1-1
<PAGE>
B. This Agreement terminates automatically upon the termination of the
assignment of patent and technology rights between Hensley Plasma Plug
Partnership and Septima: provided, however, that any assignment or attempted
assignment by Septima of the patent and technology rights to the device shall
not terminate this Agreement.
C. Carrera may at any time terminate this Manufacturing Agreement by
giving ninety (90) days written notice to Septima and return the tooling for the
manufacture of the Product.
3. Production Estimates. Simultaneously with the execution of this
--------------------
Agreement and on or before the fifteenth (15th) day of each month thereafter,
Septima shall deliver to Carrera an estimate of the quantity of Product to be
produced for Septima by Carrera during (a) the next succeeding two calendar
months, (b) the next succeeding six (6) calendar months in the aggregate and (c)
the next succeeding twelve (12) calendar months in the aggregate (the
"Production Estimates").
4. Duties of Carrera. During the Term, Carrera shall do the following:
-----------------
A. Carrera shall adhere to the Product Specifications set forth in
Exhibit "A" attached hereto (as amended from time to time by mutual agreement of
the parties) which set forth the written specifications, quality control
requirements and packaging required for Carrera to provide the services required
under this Agreement (the "Products Specifications"). Septima may revise or
supplement the Product Specifications from time to time and Carrera shall be
required to implement such changes. Septima reserves the right to purchase all
components and to assemble and package the Product after the first (1st) year or
sooner if agreed to by both Carrera and Septima.
B. In performing the obligations and carrying on the activities
contemplated by this Agreement, Carrera shall comply in all material respects
with all applicable federal, state and local laws, rules, regulations,
ordinances and requirements of any governmental body in effect during the Term.
C. Carrera shall purchase all ingredients and packaging materials in
such quantities as it deems necessary to meet the Production Estimates of
Septima which are supported by firm Orders. Carrera shall not charge Septima for
the storage of any materials or merchandise at Carrera's factory.
D. Carrera shall the arrange its production schedule to produce and
make the Products available to the extent necessary to accommodate the
Production Estimates and the timing of delivery thereof. If the Production
Estimates exceed Carrera's production capacity capabilities, Carrera upon
receipt of orders will increase their production capacity within one hundred
twenty (120) days to meet the new Production Estimate.
E. Carrera shall prepare for delivery, packaged cases of the Product
as directed by Septima. If and when the market opportunities dictate the
requirement for Septima to produce the Product outside the United States,
Carrera shall be given the first right of refusal to manufacture in those
markets. Provided, however, that Septima agrees
1- 2
<PAGE>
that any of the Product produced outside of the United States shall not be sold
in North America.
F. Carrera shall deliver to Septima by the fifteenth (15th) day of
each month, a report setting forth the following:
(i) Quantity of Product on hand at the beginning of the preceding
month;
(ii) Quantity of Product produced during the preceding month;
(iii) Quantity of the Product on hand at the end of the preceding
month.
5. Inspection.
----------
A. Upon reasonable notice to Carrera, authorized representatives of
Septima may, during normal business hours, inspect Carrera's production
operations related to the Product.
B. This Product is being made by Carrera under and in accordance with
the terms of the patents and technology rights of Septima and to those
specifications. Therefore, Septima will have the full right to examine or to
refuse to so examine an appropriate sample of the Product being produced at any
time.
6. Price and Payment.
-----------------
A. The prices set forth on Exhibit "B" (the "Price") are in United
States dollars; and shall remain constant for the twelve (12) month period
ending August 31, 1997. Provided, however, that during said twelve (12) month
period, any material price change in excess of ten (10%) percent shall be added
to the price of the Product and paid by Septima. Thereafter, cost savings due to
manufacturing processing materials or design changes will be passed along to
Septima. Conversely increased costs of manufacturing processing, materials or
design changes will be passed along from Carrera to Septima. These changes will
be negotiated on a year-to-year basis, and will be dollar-for-dollar. Provided,
however, that during said year, any material price change in excess of ten (10%)
percent shall be added to the price of the Product and paid by Septima.
B. All invoices shall reference the number of the Order issued for
such Product.
C. Payment shall be due as specified on Exhibit "B".
D. Carrera warrants that the Price is not unlawfully discriminatory
and is comparable to charges to other customers for like products under
comparable conditions.
1 - 3
-----------------
<PAGE>
7. Manufacturing Information and Tooling.
-------------------------------------
A. It is hereby acknowledged by the parties that the tool used to
manufacture the Product is presently in the possession of Carrera and that
Carrera has expended monies to modify and correct the tool. Septima hereby
agrees that so long as this Agreement is in effect or any outstanding balances
are due under the Loan Agreement dated of even date herewith between Spark
Management Corporation and Douglas J. Wood and Daniel S. Wood, Septima does
hereby grant unto Carrera a security interest in the tool, and further agrees
that it will not cause or allow any other tools for the manufacturing of the
Product to be with any other manufacturer. If requested by Carrera, Septima
will give to Carrera a financing statement to be filed pursuant to the Uniform
Commercial Code.
B. Any specifications, designs, design information, drawings, artwork,
manufacturing information and data, tooling and test routines, programs and
data, and any other information and materials, whether in paper, electronic or
other media, required for the design, manufacture and/or testing of the Product
(collectively "Product Information"), including all Intellectual Property Rights
in any of the foregoing, shall be and remain the exclusive property of Septima,
and Carrera shall have and claim no right, title or interest therein, and agrees
to assign, to the extent necessary to perfect ownership to Septima any right,
title or interest Carrera may have or claim therein by operation or implication
of law or fact.
C. Carrera shall treat the Product Information as confidential information
and use the Product Information solely for the manufacture, fabrication and
packaging of the Product, and shall return the Product Information to Septima
promptly upon the expiration or termination of this Agreement, whichever comes
first. Carrera shall not manufacture, sell, deliver or otherwise transfer to
any party any Product for similar use or application which was designed,
manufactured and/or rested through use of any Product Information.
8. Product Ordering and Delivery.
-----------------------------
A. During the Term, Septima may issue Orders for Product (hereinafter
("Orders") pursuant to the provisions of this Agreement. These Orders, without
prior consent from Carrera, shall not exceed the Production Estimates in Section
3. Septima may use the electronic data interchange ("EDI"), facsimile
transmission against receipt or registered mail to transmit Orders. The parties
agree to utilize such transmission methods to the greatest extent possible to
transmit forecasts, Orders, acknowledgements and shipping information regarding
the Product.
B. Carrera shall accept any Order issued by Septima provided such Order is
consistent with this Agreement. Within five (5) days of Carrera's receipt of an
Order, it shall either confirm the Shipping Date for Product delivery or propose
an alternate Shipping Date. If Carrera fails to do so, it shall be deemed to
have agreed to the Shipping Date set forth in the Order. If Carrera proposes an
alternate Shipping Date, then Septima shall, within five (5) days of its receipt
of notice of such alternate Shipping Date, notify Carrera that either such
alternate Shipping Date is acceptable or that such Order is cancelled.
1-4
<PAGE>
C. All goods shall be shipped F.O.B. Latrobe, Pennsylvania. Septima
will be responsible for all shipping costs. However, Carrera at its option, may
prepay any shipping costs and bill the same to Septima.
9. Product Warranty.
----------------
A. Carrera warrants that a Product shall at the time of delivery be
new and free and clear of all liens and encumbrances. Carrera further warrants
that during the Warranty Period, a Product shall be free from defects in
material and workmanship, and shall conform to the Specifications. This warranty
shall not apply to any defect which has been caused by Septima and arises from
mishandling, misuse or neglect after the delivery of the Product to the Delivery
Location.
B. Any Product which does not conform to the warranty described in
Section 9.A may be returned to Carrera. Carrera shall repair, replace or credit
Septima for such Product. All transportation and other expenses arising from
shipping the nonconforming Product to Carrera and shipping the repaired or
replacement Product to the Delivery Location shall be paid by Carrera.
C. Septima represents and warrants to Carrera that it has the lawful
right to manufacture the Product covered by this Agreement, which said Product
is covered by various patents issued by the United States Patent Office and
elsewhere. In the event Carrera is sued for patent infringement for intentional
or negligent patent infringement as a result of its manufacture of the device,
Septima hereby defends, indemnifies and holds Carrera fully and completely
harmless from and against any and all cost, expenses, damage, awards, attorneys'
fees for the like which may be incurred, assessed or otherwise awarded as a
result, direct or indirect, of any such suit. Carrera agrees to cooperate and
assist in such suits if requested by Septima.
D. Carrera disclaims any implied warranty as to the Product with
regard to any design defect which an examination by Septima would have revealed.
Further, Carrera makes no warranty of fitness for any particular purpose
whatsoever with respect to the Product being sold.
10. Confidentiality.
---------------
A. Carrera will hold in confidence all information concerning the
Product Specifications, Septima's Proprietary Property and the business,
operations, prospects, financial and/or sales information and other matters of
or relating to Septima and will use or disclose such information (collectively,
"Septima's Confidential Information") only in connection with transactions
contemplated by this Agreement. Carrera further agrees that it will not
otherwise disclose any of Septima's Confidential Information to any third party
except upon the prior written consent of Septima. Such obligation of
confidentiality shall not extend to any information that is or becomes public
knowledge through no act or omission of Carrera or its affiliates, directors,
officers, employees, representatives, agents, third parties bound by
obligations of confidentiality to Septima, or as required by law or a final
order of a court or other governmental agency or authority of competent
jurisdiction.
1 - 5
<PAGE>
Septima acknowledges and agrees that all confidential techniques, processes,
standards or procedures known, developed or used by Carrera prior to the date
hereof shall, for purposes of this Agreement, not be deemed to be confidential
information of Septima.
B. Septima will hold in confidence all information concerning the
business, operations, prospects, financial and/or sales information and other
matters of or relating to Carrera and will use or disclose such information only
in connection with transactions contemplated by this Agreement. Septima further
agrees that it will not otherwise disclose any such information to any third
party except upon the prior written consent of Carrera. Such obligation of
confidentiality shall not extend to any information that is Septima's
Proprietary Property, or is or becomes public knowledge through no act or
omission of Septima or its affiliates, directors, officers, employees,
representatives, agents, third parties bound by obligations of confidentiality
to Septima, or as required by law or a final order of a court or other
governmental agency or authority of competent jurisdiction.
11. Non-Competition.
---------------
A. Non-Competition. During the Term and for a period of two (2)
---------------
years after expiration or termination of this Agreement, Carrera shall not
directly or indirectly, conduct or engage in, directly or indirectly, a
"Competitive Business" or own, manage invest or acquire any economic stake or
interest in, or otherwise engage or participate in any manner whatsoever
(whether as a proprietor, partner, shareholder, investor, manager, director,
officer, employee, venturer, representative, agent, broker, independent
contractor, consultant, lender, borrower, guarantor, lessor, lessee, or other
participant) in any partnership, corporation, association or other business
enterprise in any form which conducts or engages in, directly or indirectly, a
"Competitive Business". As it applies to Carrera, the term "Competitive
Business" shall mean the supplying to third parties of Products similar to those
supplied to Septima. Provided, however, that should this Agreement be terminated
by the act or actions of Septima for any reason, other than a default by
Carrera, Carrera shall not be bound by the terms of this non-competition
agreement.
12. Termination.
-----------
A. Termination After Right to Cure. Either party may terminate this
-------------------------------
Agreement if the other party shall default in a material respect in the
performance of its obligations under this Agreement or breach in a material
respect any of its representations or warranties under this Agreement and such
breach shall continue for a period of sixty (60) days following written notice
thereof to the defaulting party, unless such breach cannot be cured within such
sixty (60) day period but the defaulting party commences to cure such breach
within such period and continues with diligence to cure such breach.
B. Termination Without Right to Cure. Notwithstanding anything
---------------------------------
contained in this Agreement to the contrary, Septima may terminate this
Agreement, without giving Carrera an opportunity to cure, if Carrera commits any
of the following breaches or defaults:
1 - 6
<PAGE>
(i) Applies for or consents to the appointment of a receiver,
trustee, custodian, intervenor, or liquidator of itself or all or a substantial
portion to its assets;
(ii) Files a voluntary petition in bankruptcy, admitting in
writing that it is unable to pay its debts as they become due or generally not
pay its debts as they become due;
(iii) Makes a general assignment for the benefit of creditors;
(iv) Files a petition seeking reorganization or an arrangement
with creditors or takes advantage of any bankruptcy or insolvency laws;
(v) Files an answer admitting material allegations of, or
consents to, or defaults in answering, a petition filed against it in any
bankruptcy, reorganization or insolvency proceeding;
(vi) Has any involuntary petition or complaint filed against
it seeking bankruptcy or reorganization or the appointment of a receiver,
custodian, trustee, intervenor or liquidation of all or substantially all of its
assets and such petition or complaint shall not have been dismissed within sixty
(60) days of the filing thereof.
13. Amendments. Except for Schedule I and Exhibit "A" hereto which may
----------
be amended as set forth herein from time to time as necessary, the provisions of
this Agreement may not be amended, supplemented, waived or changed orally, but
only in writing signed by the party as to whom enforcement of any such
amendment, supplement, waiver or modification is sought and making specific
reference in this Agreement.
14. Assignments. No party shall assign its rights and/or obligations
-----------
hereunder without the prior written consent of the other party to this
Agreement.
15. Further Assurances. The parties hereby agree from time to time to
------------------
execute and deliver such further and other transfers, assignments and documents
and do all matters and things which may be convenient or necessary to more
effectively and completely carry out the intentions of this Agreement.
16. Binding Effect. All of the terms and provisions of this Agreement,
--------------
whether so expressed or not, shall be binding upon, inure to the benefit of,
and be enforceable by the parties and their respective legal representatives,
successors and permitted assigns.
17. Notices. All notices, requests, consents and other communications
-------
required or permitted under this Agreement shall be in writing (including
telefax and telegraphic communication) and shall be (as elected by the person
giving such notice) hand delivered by messenger or courier service,
telecommunicated, or mailed (airmail of international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:
1 - 7
<PAGE>
With a copy to:
Septima Enterprises, Inc. Gunster, Yoakley, Valdes-Fauli & Stewart, P.A.
c/o R. Edwin Morgan 777 South Flagler Drive
105 Emerald Key Lane Suite 500
Palm Beach Gardens, FL 33418 West Palm Beach, FL 33401
Attention: Michael V. Mitrione, Esq.
With a copy to:
Carrera Corporation McDonald, Moore, Mason & Snyder
600 Depot Street 1005 Courtyard Plaza
Latrobe, PA 15650 P.O. Box 758
Attention: Douglas J. Wood Latrobe, PA 15650
Attention: Charles C. Mason Jr., Esq.
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
18. Severability. If any provision of this Agreement or any other
------------
agreement entered into pursuant hereto is contrary to, prohibited by or deemed
invalid under applicable law or regulation, such provision shall be inapplicable
and deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible. If any provision of this Agreement may be
construed in two or more ways, one of which would render the provision invalid
or otherwise voidable or unenforceable and another of which would render the
provision valid and enforceable, such provison shall have the meaning which
renders it valid and enforceable.
19. Waivers. The failure or delay of any party at any time to require
-------
performance by another party of any provision of this Agreement, even if known,
shall not affect the right of such party to require performance of that
provision or to exercise any right, power or remedy hereunder. Any waiver by any
party of any breach of any provision of this Agreement should not be construed
as a waiver of any continuing or succeeding breach of such provision, a waiver
of the provision itself, or a waiver of any right, power or remedy under this
Agreement. No notice to or demand on any party in any case shall, of itself,
entitle such party to any other or further notice or demand in similar or other
circumstances.
20. Third Parties. Unless expressly stated herein to the contrary,
-------------
nothing in this Agreement, whether express or implied, is intended to confer any
rights or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective legal representatives, successors
and permitted assigns. Nothing in this
1-8
<PAGE>
Agreement is intended to relieve or discharge the obligation or liability of any
third persons to any party to this Agreement, nor shall any provision give any
third persons any right of subrogation or action over or against any party to
this Agreement.
21. Governing Law. This Agreement and all transactions contemplated by
-------------
this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of Florida.
22. Jurisdiction and Venue. The parties acknowledge that a substantial
----------------------
portion of negotiations and anticipated performance and execution of this
Agreement occurred or shall occur in Palm Beach County, Florida, and that,
therefore, each of the parties irrevocably and unconditionally (a) agree that
any suit, action or legal proceeding arising out of or relating to this
Agreement shall be brought in the courts of record of the State of Florida in
Palm Beach County or the court of the United States, Southern District of
Florida; (b) consents to the jurisdiction of each such court in any suit, action
or proceeding; (c) waives any objection which it may have to the laying of venue
of any such suit, action or proceeding in any of such courts; and (d) agrees
that service of any court paper may be effected on such party by mail, as
provided in this Agreement, or in such other manner as may be provided under
applicable laws or court rules in said state.
23. Equitable Remedies. Each of the parties acknowledges that the parties
------------------
will be irreparably damaged (and damages at law would be an inadequate remedy)
if this Agreement is not specifically enforced. Therefore, in the event of a
breach or threatened breach by any party of any provisions of this Agreement,
then the other parties shall be entitled, in addition to all other rights or
remedies, to an injunction restraining such breach, without being required to
show any actual damage or to post an injunction bond, and/or to a decree for
specific performance of the provisions of this Agreement.
24. Counterparts. This Agreements may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Confirmation of execution
by telex or by telecopy or telefax of a facisimile signature page shall be
binding upon any party so confirming.
25. No Construction Against Draftsmen. The parties acknowledge that this
---------------------------------
is negotiated Agreement, and that in no event shall the terms hereof be
construed against either party on the basis that such party, or its counsel,
drafted this Agreement.
26. Arbitration. Any controversy between the parties involving the
-----------
construction or application of any of the terms, covenants or conditions of this
Agreement shall be submitted to arbitration in compliance and pursuant to the
Rules of Commercial Arbitration of the American Arbitration Association.
27. Entire Agreement. This Agreement (including the Exhibits attached
----------------
hereto) represents the entire understanding and agreement between the parties
with respect to he subject matter hereof, and supersedes all other
negotiations, understandings and representations (if any) made by and between
such parties.
1 - 9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
ATTEST: SEPTIMA ENTERPRISES, INC.
/s/ Louis S. Camilli By: /s/ R. Edwin Morgan
- -------------------------------- -----------------------------------
Louis S. Camilli; Director R. Edwin Morgan, President
ATTEST: CARRERA CORPORATION
/s/ Daniel S. Wood By: /s/ Douglas J. Wood
- -------------------------------- -----------------------------------
Daniel S. Wood, Secretary Douglas J. Wood, President
1 - 10
<PAGE>
EXHIBIT "A"
SPECIFICATIONS
SEPTIMA
PRODUCTS S80 AND S100
INSERTS MC80 AND MC100
PRODUCTS S80 AND S100:
Molded using internal components as per the design drawings attached hereto
for each S80 and S100, assembled using collateral components as per design
drawings, tested electrically for voltage holdoff, dressed as per the marketing
specifications, packaged as per the marketing specifications with installation
instructions.
MARKETING SPECIFICATIONS FOR S80 AND S100:
The outer case or cover of the fully assembled S80 and S100 will be coated
with a gloss black finish and on the cover will be by printing or other method,
the name, "DIRECT HITS" as per the sample. The fully assembled and dressed S80
and S100 will be packed in packages of one (1) per package or four (4) per
package as per order. The package shall be a bubble pack with the backing
printed as per instructions and the plastic of specified thickness. Included
with the package will be the installation instructions printed as per sample.
The fully assembled, fully dressed, packaged S80 and S100 will be cased in
cartons of 24 packages of four (4) or 24 packages of one (1) as per order.
INSERTS MC80 AND MC100:
As per the Products S80 and S100, the inserts shall be molded using the
internal parts as per the design drawings and tested for voltage holdoff, The
molded and tested inserts shall then be bulk packed in cartons of 100 individual
units.
DESIGN DRAWINGS:
The design drawings are attached hereto and marked as drawing number 80-96
for the S80 and 100-96 for the S100, both are revision A dated 5/6/96, both in
possession of Producer.
1 - 11
<PAGE>
EXHIBIT "B"
SEPTIMA PRODUCTS S100 & S80
COSTS AND TERMS
---------------
<TABLE>
<CAPTION>
Number
of Devices Cost Payment Terms
---------- ---- -------------
<S> <C> <C>
25,000 and less $ 3.50 each Net thirty (30) days of
delivery
25,000 - 100,000 $ 2.50 each Twenty-five (25%) percent
prior to shipment; seventy-
five (75%) percent within
thirty (30) days of shipment
100,000 and greater $ 1.75 each Twenty-five (25%) percent
under order; twenty-five (25%)
percent prior to shipment;fifty
(50%) percent within thirty
(30) days
<CAPTION>
MOLDED INSERT MC100 & MC80
Number
of Devices Cost Payment Terms
---------- ---- -------------
<S> <C> <C>
25,000 and less $ 1.75 each Net thirty (30) days of
delivery
25,000 - 100,000 $ 1.35 each Twenty-five (25%) percent
prior to shipment; seventy-
five (75%) percent within
thirty (30) days of shipment
100,000 and greater $ 1.10 each Twenty-five (25%) percent
upon order; twenty-five (25%)
percent prior to shipment;
fifty (50%) percent within
thirty (30) days
</TABLE>
1-12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTIMA
ENTEPRISES, INC. FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 72,506<F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0<F2>
<CURRENT-ASSETS> 185,702
<PP&E> 84,144
<DEPRECIATION> 56,049<F3>
<TOTAL-ASSETS> 213,797
<CURRENT-LIABILITIES> 468,790
<BONDS> 0
0
0
<COMMON> 1,029,292
<OTHER-SE> (1,284,285)<F4>
<TOTAL-LIABILITY-AND-EQUITY> 213,797
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 42,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (42,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,499)
<EPS-PRIMARY> (.006)
<EPS-DILUTED> (.006)
<FN>
<F1>THE COMPANY CONSIDERS ALL INVESTMENT INSTRUMENTS WITH ORIGINAL MATURITIES OF
THREE MONTHS OR LESS WHEN PURCHASED TO BE CASH EQUIVALENTS.
<F2>AS OF SEPTEMBER 30, 1996, NO INVENTORY EXISTS.
<F3>THE COMPANY'S EQUIPMENT IS RECORDED AT COST AND DEPRECIATED USING THE
STRAIGHT-LINE METHOD OVER SIXTY (60) MONTHS.
<F4>REPORTED IN THE FINANCIAL STATEMENTS AS "DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE."
</FN>
</TABLE>
