<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 March 31, 1997
[_] 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)
Not Applicable
----------------------------------------------------
(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 issuers's classes of
common equity, as of the latest practicable date: 8,235,629 as of April 30,
1997.
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 INFORMATION:
FINANCIAL STATEMENTS OF SEPTIMA ENTERPRISES, INC.:
BALANCE SHEET AS OF MARCH 31, 1997......................... 2
STATEMENTS OF INCOME FOR THE THREE MONTHS AND THE
NINE MONTHS ENDED MARCH 31, 1997
AND FEBRUARY 29, 1996.................................... 3
STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED
MARCH 31, 1997 AND FEBRUARY 29, 1996..................... 4
NOTES TO FINANCIAL STATEMENTS.............................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS......................... 9
PART II: OTHER INFORMATION
- ------- -----------------
ITEM 1. LEGAL PROCEEDINGS............................................ 11
ITEM 2. CHANGES IN SECURITIES................................ 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................... 11
ITEM 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY
HOLDERS.............................................. 11
ITEM 5. OTHER INFORMATION.................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................... 11
SIGNATURE.............................................................. 13
EXHIBITS:
99.1 MANUFACTURING AND DISTRIBUTION AGREEMENT
DATED FEBRUARY 10, 1997.................................. 14
1
<PAGE>
BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1997
-----------------
<S> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 44,238
ACCOUNTS RECEIVABLE-TRADE 115,938
PREPAID EXPENSES AND OTHER CURRENT ASSETS 121,434
-----------
TOTAL CURRENT ASSETS 281,610
-----------
EQUIPMENT (NET OF ACCUMULATED DEPRECIATION
OF $61,477) 42,761
OTHER ASSETS
TECHNOLOGY LICENSE 85,500
-----------
TOTAL ASSETS $ 409,871
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
NOTE PAYABLE - SMC 337,209
ACCOUNTS PAYABLE-TRADE 238,169
STOCKHOLDER LOAN 30,100
ACCRUED EXPENSES 179,673
INSURANCE LOAN PAYABLE 22,992
DEPOSITS FROM CUSTOMERS 18,756
LINE OF CREDIT - BANK 50,000
-----------
TOTAL CURRENT LIABILITIES $ 876,899
-----------
STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK, NO PAR VALUE, 10,000,000 SHARES
AUTHORIZED, NO SHARES ISSUED $ -
COMMON STOCK, NO PAR VALUE, 25,000,000 SHARES
AUTHORIZED, 8,235,629 SHARES ISSUED AND OUTSTANDING 1,123,198
CONTRIBUTED CAPITAL 172,008
ACCUMULATED (DEFICIT) (1,762,234)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (467,028)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 409,871
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, FEBRUARY 29, MARCH 31, FEBRUARY 29,
1997 1996 1997 1996
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
SALES $ 156,238 $ -- $ 307,038 $ --
OTHER INCOME -- -- -- 20,482
---------- ---------- ---------- ----------
TOTAL INCOME 156,238 -- 307,038 20,482
---------- ---------- ---------- ----------
COSTS AND EXPENSES
COST OF PRODUCTS SOLD 103,881 -- 197,530 1,618
GENERAL & ADMINISTRATIVE 93,460 2,400 432,223 152,492
RESEARCH & DEVELOPMENT 114 -- 11,633 --
DEPRECIATION & AMORTIZATION 5,805 4,208 14,092 12,622
---------- ---------- ---------- ----------
TOTAL EXPENSES 203,260 6,608 655,478 166,732
---------- ---------- ---------- ----------
(LOSS) BEFORE INCOME TAXES
AND OTHER EXPENSES (47,022) (6,608) (348,440) (146,250)
INCOME TAXES -- -- -- --
---------- ---------- ---------- ----------
NET (LOSS) $ (47,022) $ (6,608) $ (348,440) $ (146,250)
========== ========== ========== ==========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,235,629 7,785,629 8,084,642 7,785,629
NET (LOSS) PER SHARE $ (0.01) $ * $ (0.04) $ (0.02)
========== ========== ========== ==========
</TABLE>
*LESS THAN $.01 PER SHARE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, FEBRUARY 29,
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
CASH RECEIVED FROM SALES $ 191,100 $ --
CASH PAID TO SUPPLIERS AND OPERATING EXPENSE (367,137) (212,904)
CUSTOMER DEPOSITS 18,756 --
--------- ---------
CASH USED IN OPERATING ACTIVITIES (157,281) (212,904)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASE OF EQUIPMENT (20,094) --
--------- ---------
CASH PROVIDED BY INVESTING ACTIVITIES (20,094) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
LOAN PROCEEDS FROM RELATED PARTIES 143,224 217,638
LOAN PROCEEDS FROM BANK 50,000 --
LOAN PROCEEDS FOR INSURANCE 36,788 --
PAYMENT ON INSURANCE LOAN (13,796) --
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 216,216 217,638
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 38,841 4,734
--------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,397 1,996
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,238 $ 6,730
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, FEBRUARY 29,
1997 1996
------------ -------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO CASH USED
IN OPERATING ACTIVITIES
NET (LOSS) $(348,440) (146,250)
NON-CASH CHARGES TO NET (LOSS) -
DEPRECIATION AND AMORTIZATION 14,092 12,622
(INCREASE)/DECREASE IN ASSETS
ACCOUNTS RECEIVABLE - TRADE (115,938) --
PREPAID EXPENSES AND OTHER CURRENT ASSETS (72,764) 1,185
INCREASE/(DECREASE) IN LIABILITIES
ACCOUNTS PAYABLE - TRADE 184,479 (95,145)
DEPOSITS FROM CUSTOMERS 18,756 --
ACCRUED EXPENSES 162,534 14,684
--------- ---------
CASH USED IN OPERATING ACTIVITIES $(157,281) $(212,904)
========= =========
SUPPLEMENTAL DISCLOSURES
NONCASH INVESTING AND FINANCING ACTIVITIES:
TECHNOLOGY LICENSE EXCHANGED FOR COMMON
STOCK $ 90,000 --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
March 31, 1997
(Unaudited)
NOTE A -- ORGANIZATION AND DEVELOPMENT OF THE COMPANY
The Company was formed on September 12, 1988, and was engaged in the prior years
in the development of its products and, more recently, in the organization of
its corporate facilities. The Company began making sales on October 16, 1996,
and became operational during the second quarter ended December 31, 1996.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
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 accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for financial statements. For further
information, refer to the audited financial statements and notes thereto for the
year ended May 31, 1996, included in the Company's Form 10-KSB/A filed with the
Securities and Exchange Commission on March 17, 1997.
The results of operations for the three month and nine month periods ended March
31, 1997, are not necessarily indicative of the results to be expected for the
entire fiscal year 1997.
Employees
- ---------
All persons working for Septima are paid through Septima. The Company had two
compensated employees during the nine month period ended March 31, 1997.
Change of Fiscal Year
- ---------------------
The Company changed its fiscal year from June 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.
Revenue Recognition
- -------------------
The Company recognizes revenue when the product is manufactured and shipped to
the customer. For the nine months ended March 31, 1997, the Company had sales
of $307,038 which were from two customers.
NOTE C - LINE OF CREDIT - BANK
- ------------------------------
The Company has entered into a line of credit with 1/st/ United Bank providing
for borrowings up to $100,000 at the prime rate plus 1%. The loan is secured by
certain assets of an officer of the Company. Borrowings through March 31, 1997
were $50,000.
6
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
March 31, 1997
(Unaudited)
NOTE D -- COMMON STOCK
- ----------------------
Private Offering
- ----------------
On December 5, 1996, the Company prepared a Private Placement Memorandum
pursuant to Regulation D in which it offered to accredited investors 1,100,000
shares at a price of $2.00 per share. The life of the Memorandum is up to one
year from the date of offering. The investing public believed the $2.00 price to
be significantly above market and, as a result, few shares were purchased.
Management revised the offering on April 1, 1997, to 2,200,000 shares at a price
of $1.00 per share. Costs associated with this private offering amount to
$35,000 at March 31, 1997, and have been recorded as a prepaid expense.
The previous private offering dated July 24, 1994, which expired September 1,
1994, without any shares being sold was withdrawn by management.
NOTE E -- RELATED PARTY TRANSACTIONS
- ------------------------------------
The Company has negotiated a Manufacturing and Distribution Agreement for Mexico
sales with a company operated by a former director and current shareholder.
Spark Management Corporation ("Spark") entered into a Master Licensing Agreement
dated September 10, 1996, with the Company which culminated an understanding
between the parties reached in September 1995. Spark is owned by two directors
of the Company. The Company acquired developments, information, proprietary
rights and trade secrets collectively referred to as Ignition Systems and
Processes. The Agreement will terminate ten years following the last expired
patent acquired by Spark. Also, this Agreement is subject to termination or
cancellation by both parties based upon various circumstances explained in the
Agreement. In consideration of the Agreement, Spark has received 450,000 shares
of common stock. The Company has recorded the License Agreement as an asset
based upon the estimated fair market value of the common stock at the time the
understanding was reached. Also, the Company will pay Spark $1 for each
Product/Insert sold up to 1,000,000 units; $.50 for each Product/Insert on the
next million aggregate units sold, and $.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.
7
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
March 31, 1997
(Unaudited)
NOTE F -- COMMITMENTS
- ---------------------
The Company entered into a Manufacturing and Distribution Agreement dated August
23, 1996, with a company for the territory of Mexico. The company is required
to order a minimum number of Products/Inserts per year from Septima Enterprises.
The Company entered into a Manufacturing Agreement dated September 4, 1996. 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.
The Company entered into a Distribution Agreement dated February 10, 1997, with
a company for the territory of China, Taiwan, Hong Kong, and Macao. The company
is required to order a minimum number of products per year from Septima
Enterprises in the second year and beyond.
The Company has moved its Corporate Offices and has assumed a lease for office
space in Lake Park, Florida. The lease agreement expires September 30, 1997,
but has a provision to extend the agreement for an additional year. Monthly
rental payments are $2,062.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Except for the historical information contained herein, the matters
discussed in the Form 10-QSB include forward-looking statements that involve
risks and uncertainties, including, but not limited to, the ability to raise
sufficient capital to continue the Company's operations, and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings. Actual results may differ materially from management expectations.
RISKS ASSOCIATED WITH ONGOING OPERATIONS OF THE COMPANY
The Company is currently operating at a net loss, and will continue to do
so until such time, if ever, as revenues from product sales are sufficient to
support operations. The Company is currently obtaining its working capital
through loans from Spark Management and from a line of credit with 1st United
Bank. Should loans 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.
RESULTS OF OPERATIONS
Sales for the nine months ended March 31, 1997 were $307,038. These sales
all occurred in the second and third quarters of the fiscal year ended June 30,
1997, and were to two customers for resale of the Company's primary product in
Mexico and Asia. There were no sales in the corresponding period of fiscal
1996.
The Company experienced a net loss of $348,440 for the nine months March
31, 1997 as a result of $432,223 in nonrecurring expenses and no sales during
the first four months of the nine month period ended March 31, 1997.
Sales for the three months ended March 31, 1997 were below management's
expectations due to a manufacturing processing problem resulting in premature
electrical failure of the product. The processing problem did not affect the
Company's inventory, and the manufacturer replaced the product at no cost to the
Company. More rigorous specifications and testing procedures were implemented
and reliable production results were achieved. Management of the Company does
not anticipate having additional manufacturing problems with the product in the
future.
The Company experienced general & administrative expenses of $432,223 for
the nine months ended March 31, 1997. Included in these expenses are
nonrecurring costs of legal fees and settlement of the Worldwide Associates,
Inc. dispute, legal fees and costs to win a declaratory judgment in a disputed
payables matter, costs in the preparation of a private placement memorandum and
revisions, and relocation of the corporate headquarters to Lake Park, Florida.
9
<PAGE>
MARKETING AND DISTRIBUTION
On February 10, 1997, a Manufacturing and Distribution Agreement for the
territory of China, Taiwan, Macao and Hong Kong was signed with S. W. R.
Industries, Ltd., an international company established in manufacturing and
distributing automotive products in these markets. Sales through March 31, 1997
pursuant to this Manufacturing and Distribution Agreement are just over $30,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations for the nine months ended March 31, 1997 were
financed by revenues from sales, a $100,000 line of credit from 1st United Bank,
Lake Park, Florida and loans from Spark Management to the Company. The extra
cash requirements for operations for the three months ended March 31, 1997,
were met by profits from sales and a $100,000 line of credit from 1st United
Bank, Lake Park, Florida. Should loans 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.
As of March 31, 1997, the Company had accrued expenses of $179,673,
including salaries to the President and Chief Executive Officer. These expenses
will be paid when management of the Company deems there to be sufficient cash
flow from operations.
As of March 31, 1997, the balance due to Spark was $337,209 in principal
and $40,518 in accrued interest, and Septima had drawn $50,000 from the line of
credit with 1st United Bank.
The Board of Directors authorized a private offering of 1,100,000 shares of
Septima common stock at a price of $2.00 per share, the proceeds of which are to
be used for product manufacture, advertising and marketing in the United States.
The private placement was revised on April 1, 1997, to 2,200,000 shares of
Septima common stock at a price of $1.00 per share to reflect current market
value, and is being made by the Company in reliance upon Rule 506 of Regulation
D promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933. As of May 10, 1997, the Company had not broken escrow
on the orders for shares received.
OUTLOOK
New business opportunities are being actively pursued on a broad front both
domestically and internationally. Management expects it will take several
months to one year to fully implement a marketing program in the United States,
and management is working diligently to accomplish broad acceptance of Septima
products globally.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 11, 1996, a Complaint for Declaratory Judgement was filed
in Second Judicial District Court, County of Bernalillo, State of New
Mexico, relating to disputed consulting fees from Construction
Analysis & Management, Inc. (CAMI). A court appointed arbitrator found
in favor of the plaintiff, Septima, and against CAMI, the defendant,
in the amount of zero dollars ($0.00).
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
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..
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
(99.1) Manufacturing and Distribution Agreement dated February
10, 1997 signed between the Company and S. W. R. Industries, Ltd.
whereby S. W. R. Industries is appointed as exclusive authorized
manufacturer/distributor for the Company's products in the
territory of China, Hong Kong, Macao and Taiwan.
- -----------
XXXXX Confidential treatment has been requested for portions of this exhibit.
The copy filed herewith omits the information subject to the
confidentiality request. The omitted information has been filed separately
with the Securities and Exchange Commission. Omissions are designated as
"XXXXX".
11
<PAGE>
b. Reports on Form 8-K:
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 filed 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).
On January 14, 1997, the Company filed a current report on Form
8-K regarding change of auditors. On January 7, 1997, the Company
notified Delisi, Henninger and Associates, the Company's auditors
until that time, of Greensburg, Pennsylvania, that McGladrey &
Pullen, LLP, of West Palm Beach, Florida, had been elected and had
accepted the responsibility as auditor for the Company.
There was no disagreement between Delisi, Henninger and Associates
and the company.
12
<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: May 9, 1997 SEPTIMA ENTERPRISES, INC.
/s/ R. Edwin Morgan
--------------------------------------
R. Edwin Morgan
President, Chief Executive Officer and
Principal Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JAN-01-1997 JUL-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 0 44,238
<SECURITIES> 0 0
<RECEIVABLES> 0 115,938
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 281,610
<PP&E> 0 0
<DEPRECIATION> 5,805 14,092
<TOTAL-ASSETS> 0 409,871
<CURRENT-LIABILITIES> 0 876,899
<BONDS> 0 0
0 0
0 0
<COMMON> 0 1,123,198
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 409,871
<SALES> 156,238 307,038
<TOTAL-REVENUES> 156,238 307,038
<CGS> 103,881 197,530
<TOTAL-COSTS> 203,260 655,478
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (47,022) (348,440)
<EPS-PRIMARY> (0.01) (0.04)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
MANUFACTURING AND DISTRIBUTION AGREEMENT
----------------------------------------
AGREEMENT made this 10th day of February 1997 by and between SEPTIMA
ENTERPRISES, INC.(hereinafter "SEPTIMA"), a Colorado Corporation with offices at
600 Sandtree Drive, Suite 212, Lake Park, Florida 33403, and S. W. R.
INDUSTRIES, LTD. (hereinafter "SWR"), a Canadian corporation with offices at 321
Ambassador Drive, Mississauga, Ontario L5T 2J3, Canada.
ARTICLE I
---------
Definitions
-----------
As used in this Agreement, each of the following terms has the meaning set
forth thereafter, such meaning to be equally applicable both to the singular and
plural forms of the terms herein defined:
"Affiliate" means any individual, partnership, corporation or company
owning ten percent (10%) or more of SWR or SEPTIMA, or any partnership,
corporation or company in which SWR or SEPTIMA has at least a ten percent (10%)
ownership interest.
"Agreement" means this agreement, together with all schedules hereto now or
hereafter signed by, modified, amended or supplemented from time to time.
"Product" means (1) those Products manufactured by SEPTIMA and which are
described in Schedule B, attached hereto, and (2) unless the context indicates
otherwise, all spare and replacement parts for those Products.
"Inserts" means each Product's subassembly as manufactured by SEPTIMA and
described in Schedule B, hereto.
The terms "sale" and "resale" and any grammatical variant thereof shall
include, without limitation, sales, contracts for sale, conditional sales,
installment sales, rentals or leases, and any other arrangement whereby Products
are placed at the disposal of the ultimate user.
"Territory" means the locations referred to in Schedule A, attached hereto.
All amounts are in United States Dollars.
- -----------
XXXXX Confidential treatment has been requested for portions of this exhibit.
The copy filed herewith omits the information subject to the
confidentiality request. The omitted information has been filed separately
with the Securities and Exchange Commission. Omissions are designated as
"XXXXX".
1
<PAGE>
ARTICLE II
----------
Appointment as Manufacturer/Distributor
---------------------------------------
2.01 SEPTIMA appoints SWR as EXCLUSIVE AUTHORIZED MANUFACTURER/
DISTRIBUTOR in the Territory for the manufacture and sale of Products and SWR
hereby accepts this appointment. SWR will not sell the Products and/or Inserts
outside of the Territory, nor will they resell the Inserts, as such, inside the
Territory, except to an Affiliate of or other company controlled by SWR which,
in turn, will not resell the Products and/or Inserts outside the Territory. SWR
will certify that all Products and/or Inserts will not be resold outside the
Territory. All orders or direct inquiries received by SEPTIMA with respect to
the sale of Products in the Territory will be referred by SEPTIMA to SWR. All
orders or direct inquires received by SWR with respect to the sale of Products
outside the Territory will be referred by SWR to SEPTIMA. No other companies
will be allowed to sell the Products in the territory.
2.02 SWR shall conduct its business in the purchase and resale of the
Products and/or Inserts for its own account and its own expense and risk. This
Agreement does not in any way create the relationship of principal and agent, or
any similar relationship, between SEPTIMA and SWR. SWR covenants and warrants
that it will not act nor represent itself directly or by implication as agent
for SEPTIMA, and it will not attempt to create any obligation or make any
representation on behalf of or in the name of SEPTIMA. SWR has the authority to
appoint an associate manufacturer, sub-manufacturer, distributor or sub-
distributor of the Products and/or Inserts provided the appointment: (i) does
not conflict with the ongoing activities of SEPTIMA, (ii) is in compliance with
the specifications as established by SEPTIMA, (iii) is subject to SWR's
obligations set forth in the Agreement, and (iv) is subject to SEPTIMA's
reasonable approval.
2.03 No minimum will be required in the first year (12 month period). In
future years, SWR shall be required to order for shipment a minimum of 120,000
aggregate Products and/or Inserts per year. Should SWR not order the required
minimum number of Products and/or Inserts for any twelve (12) month period,
SEPTIMA shall have the right to terminate this Agreement by giving SWR 30 days
to cure the default. If SWR does not cure within the 30 day period, this
Agreement terminates automatically and without notice.
2.04 SEPTIMA shall sell to SWR based on SWR's requirements on a quarterly
basis, as submitted to SEPTIMA on or before the thirtieth (30/th/) day of each
calendar quarter. SWR shall deliver to SEPTIMA an estimate of the quantities of
Products and/or Inserts required by SWR for the (a) succeeding two (2) calendar
quarters and (b) the succeeding four (4) calendar quarters. Forecasted Product
will be shipped by Septima within 30 days of receipt of order. Products not
forecasted will be shipped on a best effort basis by Septima.
2
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ARTICLE III
-----------
Manufacturing
-------------
3.01 SWR shall purchase from SEPTIMA Products and/or Inserts as described in
Schedule B, hereto, and cause the manufacturing process to be completed by
either acquiring or manufacturing those items described in Schedule C, attached
hereto, and assembling to completion the final Products or through Joint Venture
or other similar arrangements having those items described in Schedule C,
attached hereto, acquired or manufactured and assembled to completion the final
Products for sale.
3.02 SEPTIMA shall provide to SWR the necessary technical drawings and
specifications for those items listed in Schedule C, attached hereto. SWR shall
manufacture or cause the manufacture of the Products in accordance with said
technical drawings and specifications.
3.03 SEPTIMA shall provide, at SWR's expense, personnel to assist SWR in the
establishment of the manufacturing and quality control process. The number of
personnel and time dedicated to the process shall be agreed upon by SWR and
SEPTIMA prior to the scheduling of said personnel. Septima personnel's salaries
will be paid by Septima, and SWR will pay all other related expenses. Expenses
for Septima employees' visits to the Territory, initiated by Septima, will be
paid by Septima.
ARTICLE IV
----------
Sales and Service
-----------------
4.01 SWR shall use its best efforts to sell and promote the sale of the
completed Products within the Territory.
4.02 SEPTIMA shall provide, if requested by SWR and at SWR's expense,
personnel to assist in the technical training of SWR's marketing organization.
The number of SEPTIMA personnel and length of stay in the Territory is to be
agreed upon by SWR and SEPTIMA. Septima personnel's salaries will be paid by
Septima, and SWR will pay all other related expenses. Expenses for Septima
employees' visits to the Territory, initiated by Septima, will be paid by
Septima.
4.03 SWR will be responsible for the sale and servicing of the Products
and/or Inserts in the Territory. SWR will perform all service work at its own
expense within a reasonable amount of time not to exceed sixty (60) days from
the discovery of a defective Product and/or Insert. SEPTIMA will provide
replacement Products and/or Inserts in exchange for defective Products and/or
Inserts after examination by SEPTIMA of the Products and/or
3
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Inserts and good faith determination that the defects have not been caused by
misuse, abuse, improper installation or application, repair, alteration,
accident or negligence in the use, storage, transportation or handling.
ARTICLE V
---------
Inventory, Marketing and Related Obligations
--------------------------------------------
5.01 The Products and/or Inserts shall not be returned for credit except for
defective Products and/or Inserts which shall be replaced by SEPTIMA, said
defects as reasonably determined by SEPTIMA not to have been caused by misuse,
abuse, improper installation or application, repair, alteration, accident, or
negligence in the use, storage, transportation or handling.
5.02 All marketing and sales materials for the Products and/or Inserts to be
used by SWR in the marketing effort will be provided to SEPTIMA for approval.
Approval will be deemed granted if there is no response within thirty (30) days
of receipt. SWR may use the trade names and trademarks as used by SEPTIMA in
the United States provided SWR shall submit the material containing the trade
names and/or trademarks for approval by SEPTIMA in writing prior to use, said
approval deemed to be granted if response has not been received within sixty
(60) days of submission.
5.03 XXXXX
ARTICLE VI
----------
Conditions of Sale
------------------
6.01 Products and/or Inserts shall be packaged and shipped as agreed to by
both parties.
6.02 Delivery to SWR shall be F.O.B. Latrobe PA with all costs, insurance
and freight paid by SWR. SEPTIMA shall not be liable for transportation or for
loss or damage in transit. Claims for shortage or damages to shipments shall be
made against the carrier by SWR. Claims for shortage not attributable to the
carrier must be initiated by SWR against SEPTIMA within ten (10) days after
arrival of shipment at the specified destination.
4
<PAGE>
Shipping dates are estimated, and SEPTIMA shall not be liable for loss or
control including, but not limited to, compliance with regulations, orders or
instructions of any governmental authority, or any department or agent thereof,
acts of God, acts or omissions of SWR, acts of civil or military authority,
fires, strikes, facilities shutdowns or alterations, embargoes, war, riot,
delays in transportation, or inability to obtain necessary labor, manufacturing
facilities or materials from usual source, and delays resulting from any such
cause shall extend the time for delivery correspondingly. As it relates to
shipping, in no event shall SEPTIMA be liable for consequential, incidental,
punitive, or special damages due for any reason whatsoever. All expense and
charges caused by SWR and which arise out of the reshipment or rerouting of the
Products and/or Inserts purchased by SWR, including, but not limited to, its
failure to accept delivery, except a non-conforming delivery, of or pay for such
Products and/or Inserts, shall be paid by SWR to SEPTIMA on demand. After
thirty (30) days of nonpayment, a ten percent (10%) interest factor will be
added to the unpaid balance.
6.03 SWR shall purchase from SEPTIMA with payment conditions as follows:
Prepayment, Cash in United States Dollars, or a Letter of Credit satisfactory to
SEPTIMA and SWR. If the Letter of Credit is the chosen method, SEPTIMA shall be
permitted to negotiate that portion of the Letter of Credit corresponding to
each shipment of the Products and/or Inserts to SWR. Any cost associated with
the Letter of Credit will be borne solely by SWR.
6.04 SWR shall pay all license fees, sales, use, service use, occupation,
retailer's occupation, service occupation, personal property, import/export and
excise taxes in the territory which may be assessed or levied by any
governmental authority and any departments and subdivisions thereof against any
of the Products and/or Inserts ordered by SWR.
6.05 SWR shall not make any changes to the Products and/or Inserts without
the prior written approval of SEPTIMA. The proposed changes must be submitted to
SEPTIMA in writing with supporting drawings and technical information. No
response by SEPTIMA within ninety (90) days shall be deemed as non-approval of
the proposed changes. Any changes to the Products and/or Inserts remain the sole
property of SEPTIMA or the patent holders, as the case may be.
6.06 SEPTIMA shall provide to SWR, during the term of this Agreement, any
and all modifications or upgrades made by SEPTIMA to the Products and/or Inserts
distributed in the United States. XXXXX
6.07 SEPTIMA shall offer to SWR for distribution in the Territory any new
Products not listed on Schedule A, attached hereto, manufactured and distributed
by SEPTIMA in the United States. The new Products shall be offered under an
entirely new agreement
5
<PAGE>
negotiated between SEPTIMA and SWR. Should SWR and SEPTIMA not reach agreement
as to the new products, SEPTIMA shall retain the right to distribute the new
Products in the Territory and the right to secure a distributor to market the
new Products in the Territory. The new products will not be similar to the
Septima products manufactured or sold by SWR in the territory.
6.08 SWR shall keep all information, including technical information, design
drawings, engineering specifications and know-how delivered by SEPTIMA regarding
the Products and/or Inserts confidential, except as necessary and with the
approval of SEPTIMA, for the marketing and distribution of Products and/or
Inserts.
ARTICLE VII
-----------
Warranties
----------
7.01 All Products and/or Inserts purchased by SWR from SEPTIMA in accordance
with the terms of this Agreement shall be warranted by SEPTIMA against any
defects in materials and workmanship. Any warranties extended by SEPTIMA for
the Products and/or Inserts in the United States or in any other country shall
also be extended to SWR under the same terms and conditions. SWR agrees to
furnish all warranty services required for all the Products and/or Inserts.
SEPTIMA agrees to supply to SWR free of charge, including shipping charges,
those replacement parts or Inserts for the Products which are required to be
supplied under this paragraph. SEPTIMA, at its discretion, shall decide and pay
those costs associated with the return and testing of defective Products and/or
Inserts. Those Products returned under this paragraph, after testing, found to
be within factory specifications shall be returned to SWR at SWR's expense.
7.02 NO WARRANTIES, EXPRESS OR IMPLIED, OTHER THAN THOSE MADE IN SECTION
7.01, HEREIN, ARE GIVEN IN RESPECT OF THE PRODUCTS AND/OR INSERTS, AND ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE IS HEREBY
EXPRESSLY DISCLAIMED. ANY CLAIM OR CAUSE OF ACTION PURSUANT TO THE WARRANTY
PROVIDED IN SECTION 7.01 OF THIS AGREEMENT MUST BE COMMENCED WITHIN ONE (1) YEAR
OF SUCH CLAIM OR CAUSE OF ACTION ARISING OR SUCH CLAIM OR CAUSE OF ACTION SHALL
BE DEEMED WAIVED.
7.03 SWR agrees to indemnify and hold SEPTIMA and its officers, directors,
employees, shareholders, affiliates, agents, and attorneys harmless against any
and all losses, damages, liabilities, claims, demands, suits, or causes of
action, including attorney's fees and expenses of defending against such claims,
demands, suits, or causes of action, resulting from (a) third party claims
arising, directly or indirectly, out of or in connection with SWR's sale,
installation or operation of the Products and/or Inserts or (b) conduct of SWR's
business.
6
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ARTICLE VIII
------------
Term
----
8.01 This Agreement shall become effective on the date of execution by SWR
and SEPTIMA, and shall run until February 10, 1998 unless sooner terminated
as provided for herein. This Agreement shall be automatically renewed for
additional one (1) year periods so long as the minimum sales levels as provided
in Section 2.04 are met. XXXXXX
ARTICLE IX
----------
Termination
-----------
9.01 SWR may terminate this Agreement by written notice of termination
delivered to SEPTIMA, such termination to be effective not less than ninety (90)
days after receipt by SEPTIMA of such notice, unless SEPTIMA agrees to such
termination becoming effective on a sooner date.
9.02 SEPTIMA may terminate this Agreement immediately by delivering to SWR
or its representative notice of such termination in the event of the happening
of any of the following:
i. Any attempted transfer or assignment of this Agreement, or any right or
obligation hereunder, or any sale, transfer, relinquishment voluntary or
involuntary by operation of law, or otherwise of any majority interest in the
direct or indirect ownership, control or active management of SWR without the
prior written approval of SEPTIMA; said approval shall not be unreasonably
withheld; or
ii. The execution of SWR of an assignment for the benefit of creditors;
the conviction of SWR or any principal officer of SWR of any crimes which in the
opinion of SEPTIMA may adversely affect the ownership, operation, management,
business or interest of SWR or SEPTIMA; or
iii. Failure of SWR to pay when due any indebtedness owing by SWR to
SEPTIMA, unless expressly waived in writing by SEPTIMA; or
iv. The sale of all or substantially all of SWR's assets.
9.03 This Agreement shall terminate automatically and without the giving of
notice in the event SWR shall become insolvent or shall have outstanding
balances due and owing
7
<PAGE>
SEPTIMA for a period longer than ninety (90) days or shall suffer appointment
of a temporary or permanent receiver, trustee, or custodian for all or a
substantial part of its assets who shall not be discharged within ninety (90)
days.
9.04 This Agreement shall terminate automatically and without giving of
notice in the event SEPTIMA is in default of the Assignment Agreement between
SEPTIMA and HENSLEY PLASMA PLUG PARTNERSHIP ("HENSLEY") dated September 26,
1995, and pursuant to the default provisions of the Assignment Agreement,
SEPTIMA returns to HENSLEY all rights to the technology transferred to SEPTIMA
under the Assignment Agreement.
9.05 Notwithstanding any other provision of this Article IX, either Party
may terminate this Agreement for failure by the other Party to perform or adhere
to any of its obligations under this Agreement by notifying the other Party of
such default and allowing the other Party thirty (30) days to cure said default.
The Party giving notice of default may terminate this Agreement at any time
thereafter upon notice to the other Party.
9.06 Any termination of this Agreement shall not release SWR from paying any
amount which may then be due and owing to SEPTIMA or from any obligation to pay
for any Products and/or Inserts which may be ordered by SWR and shipped prior to
the effective date of such termination. In the event of any termination of this
Agreement, all obligations owed by SWR to SEPTIMA shall become immediately due
and payable on the effective date of termination whether otherwise then due or
not (without presentment, demand, protest or notice of any kind, all of which
are hereby waived by SWR) and SEPTIMA may offset and deduct from any or all
amounts owed to SWR any or all amounts owed by SWR to SEPTIMA rendering to SWR
the excess, if any.
9.07 Upon the termination of this Agreement the following shall occur:
i. SWR and its Affiliates shall immediately cease to, directly or
indirectly, represent to the public or hold itself out as a present or former
distributor or manufacturer of the Products and/or Inserts or in any other way
affiliate itself with SEPTIMA; and
ii. SWR and its Affiliates will not use any reproductions, counterfeit,
copy or colorable imitation of SEPTIMA's trademarks, copyrights, logos or other
proprietary marks or undertake any other conduct which is likely to cause
confusion, mistake or deception, or which is likely to dilute SEPTIMA's rights
in and to its proprietary marks; and
iii. SWR and its Affiliates shall immediately deliver to SEPTIMA all
marketing and sales materials for the Products and/or Inserts, all technical
drawings and specifications for the Products and/or Inserts and all other
confidential information provided by SEPTIMA to SWR.
8
<PAGE>
9.08 During the term of this Agreement and for a period of three (3) years
after the termination of this Agreement, for any reason whatsoever, SWR and its
Affiliates shall not in any manner engage directly or indirectly in the
marketing or distribution of any products competitive with the Products and/or
Inserts covered by this Agreement. Competitive products are defined as those
products falling within the scope of the patents attached hereto.
ARTICLE X
---------
Miscellaneous
-------------
10.01 This Agreement supersedes all prior or contemporaneous agreements,
representations, warranties and understandings and contains the entire agreement
between the Parties hereto. No amendment, modification, termination, or waiver
of any provision of this Agreement, nor consent to any departure therefrom,
shall in any event be effective unless the same shall be in writing and signed
by duly authorized representatives of each Party hereto. No notice to, or
demand on, SWR in any case shall entitle it to any other or further notice or
demand in similar or other circumstances. No failure or delay on the part of
SEPTIMA in exercising any right, power or remedy, hereunder, shall retire the
right, power or remedy.
10.02 This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their respective successors and assigns, except that SWR
shall not have the right to assign or otherwise transfer its rights hereunder or
any interest therein without the prior written consent of SEPTIMA; such consent
shall not be unreasonably withheld.
10.03 SEPTIMA shall not by reason of termination of the Agreement be liable
to SWR for any claims, losses, costs, expenses, or damages, including but not
limited to, compensation, reimbursement, or damages arising from, resulting
from, or related to loss of revenue, loss of profit, investments or expenditures
of goodwill of SWR.
10.04 All notices, requests, demands, directions and other communications
provided for hereunder shall be in writing (including telegraphic, fax, or
telex) and mailed or delivered to the applicable Party at the address of such
Party set forth on the first page hereof or at such address as a party shall
notify the other party of in writing. Each such notice, request, demand,
direction or other communication shall be deemed delivered (a) on the date
delivered if by personal delivery, (b) on the date of transmission with
confirmed answer back if by electronic transmission, and (c) on the date upon
which the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as non deliverable, as the case may be, if
mailed.
10.05 SWR shall at its own expense purchase comprehensive general liability
insurance in the face amount of at least $5,000,000 per occurrence, including
contractual liability
9
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insurance and product liability insurance, on an occurrence basis against
claims for bodily injury or death, including personal injury and property
damage. All policies of insurance shall provide that SEPTIMA is an additional
insured. In addition, all such policies shall contain an agreement on the part
of the insurers that in the event of cancellation of the policy in whole or in
part, or by a reduction as to coverage or amount thereof, whether initiated by
the insurer or any insured, the insurer shall provide at lease thirty (30) days'
advance written notice to SEPTIMA prior to such cancellation or reduction in
coverage.
10.06 Any controversy or claim arising out of or relating to this Agreement
or the breach thereof shall be settled by arbitration held at West Palm Beach,
Florida, administered by the American Arbitration Association under its
Commercial Arbitration Rules, and judgement on the award rendered by arbitrators
may be entered in any court having jurisdiction thereof.
10.07 This Agreement shall be governed by and construed under the laws of
the State of Florida.
10.08 This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be original and all of
which taken together shall constitute one complete instrument.
10.09 Headings in this Agreement are included herein for convenience of
references only and shall not constitute a part of this Agreement for any other
purpose.
10.10 In the event any section, paragraph or portion of this Agreement shall
be, or be deemed to be by the American Arbitration Association in accordance
with paragraph 10.05 above, void, voidable or invalid for any reason, this
Agreement shall be otherwise valid and enforceable as if the void, voidable or
invalid section, paragraph or portion of this Agreement had not been a part of
it in the first instance except for the provisions under Article IX herein.
IN WITNESS WHEREOF, The parties herein have caused this Agreement to be executed
as of the date first above written.
S. W. R. INDUSTRIES, LTD.
By: /s/ Jack Guo Date: February 10, 1997
-------------------------- ---------------------------
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SEPTIMA ENTERPRISES, INC.
By: /s/ R. Edwin Morgan Date: February 21, 1997
-------------------------- ---------------------------
Charlotte Darling February 21, 1997
Notary Public
My Comission CC316611
Expires Oct. 11, 1997
11
<PAGE>
SCHEDULE A
COUNTRY OF MANUFACTURE AND DISTRIBUTION
1. Peoples Republic of China
2. Hong Kong
3. Macao
4. Taiwan
12
<PAGE>
SCHEDULE B
Inserts are to be defined as molded Inserts Code MC-80 and MC-100. These
- -------
Inserts are the integral components of the SEPTIMA products.
Products coded S-80 and S-100 which can be described as high voltage, coaxial,
- --------
bipolar capacitors designed for attachment to a non-resistor spark plug as used
in internal combustion non-diesel engines; S-80 designed for small displacement
engines as found on motorcycles; S-100 designed for large displacement engines
as found on automobiles and stationary engines.
These Products are protected under U. S. Patents No. 32,505 (reissue of
4,333,135), No. 4,333,126, No. 4,402,036, No. 4,589, 398, No. 5,272,415, No.
5,371,436; European Patents No. 0 044 862 B1, No. 0 174 346 B1; Japanese Patents
No. 1-576-071, No. 1-875-134; and Chinese Patent Application No. 95119282.5, and
the patent application as being filed with the Mexican Patent and Trademark
office Exp. No. 964101.
13
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SCHEDULE C
Components for the completion of the sub-assemblies described in SCHEDULE B:
For MC-80:
----------
1. Outer ground plate housing
2. Grounding alignment bushing
3. Terminal nut
4. Locking washer
5. Weather-Plasma seal
6. Label
7. Instructions and packaging
For MC-100:
-----------
1. Outer ground plate housing
2. Grounding alignment bushing
3. Terminal nut
4. Locking washer
5. Weather-Plasma seal
6. Label
7. Instructions and packaging
14
