<PAGE>
FORM 10-KSB/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] AMENDED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File Number: 33-25126-D
----------
SEPTIMA ENTERPRISES, INC.
---------------------------------------
(Exact name of registrant 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, Suite 212, Lake Park FL 33403
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (561)624-7299
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
No Par Value Common Stock
-------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
section 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 . ----
----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB/A. [ ]
----
State the Issuer's revenues for the most recent fiscal year $ 0.
----
As of May 31, 1996 the average bid price for the Company's no par value
common stock was $1.6875 and average asked price was $2.75.
The number of shares outstanding of the Company's no par value common
stock, its only class of equity securities, as of May 31, 1996 was: 7,785,629
shares.
Transitional Small Business Disclosure Format: Yes No X
---- ----
This Form 10-KSB/A of Septima Enterprises, Inc. amends and restates the Form 10-
KSB for the fiscal year ended May 31, 1996, filed with the SEC on August 29,
1996.
<PAGE>
Septima Enterprises, Inc.
Index to Amended Annual Report on Form 10-KSB/A
Filed with the Securities and Exchange Commission
Year Ended May 31, 1996
Items in Form 10-KSB/A
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Facing Page 1
PART II
Item 7. Financial Statements........................... 3
Item 8. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure..................................... 4
Item 13. Exhibits and Reports on
Form 8-K....................................... 5
Signatures......................................................... 6
Financial Statements............................................... 7
</TABLE>
<PAGE>
PART II
ITEM 7. FINANCIAL STATEMENTS.
Reference is made to the Financial Statements referred to in the
accompanying exhibit setting forth the financial statements of Septima
Enterprises, Inc., together with the report of Delisi, Henninger and Associates.
-3-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
-4-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Financial Statements.
---------------------
1. Septima Enterprises, Inc.
Balance Sheet as of May 31, 1996
Statements of Operations for the years ended May 31, 1996 and 1995
and cumulative for the period September 12, 1988 (Inception) to
May 31, 1996
Statement of Stockholder's Equity for the years ended May 31, 1996 and 1995
and the period September 12, 1988 (Inception) to May 31, 1994
Statements of Cash Flows for the years ended May 31, 1996 and
1995 and cumulative for the period September 12, 1988 (Inception)
to May 31, 1996
Notes to Financial Statements
(b) Reports on Form 8-K.
--------------------
The Company did not file reports on Form 8-K during the last quarter of the
period covered by this report.
(c) Exhibits.
---------
Material Contracts.
-------------------
1. Management and Operating Agreement dated April 14, 1995.
2. Irrevocable Proxy dated May 1, 1995.
3. Option Agreement dated September 26, 1995.
4. Agreement for Assignment of Technology and Patents dated
September 26, 1995.
5. Voting Trust Agreement dated September 26, 1995.
6. Settlement Memorandum dated November 16, 1995.
7. Mutual Release in Full dated December 4, 1995.
8. Distribution Agreement dated May 27, 1994.
There are no other exhibits specified in Item 601 of Regulation S-B that
are required to be included with this report.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated March 13, 1997 SEPTIMA ENTERPRISES, INC.
/s/ R. Edwin Morgan
-------------------------------
R. Edwin Morgan
President, Chief Executive Officer
and Principal Financial Officer
-6-
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
For the Year Ended May 31, 1996
-7-
<PAGE>
Septima Enterprises, Inc.
600 Sandtree Drive, Suite 212
Lake Park FL 33403
Table of Contents Page
Report of Independent Auditors . . . . . . . . . . . . . . . . . 1
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations . . . . . . . . . . . . . . . . . . . . 3
Statements of Stockholders' Equity . . . . . . . . . . . . . . . 4-7
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . 8-9
Notes to Financial Statements . . . . . . . . . . . . . . . . . 10-20
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Septima Enterprises, Inc.
We have audited the accompanying balance sheet of Septima Enterprises, Inc. (a
development stage company) as of May 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the two years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Septima Enterprises, Inc., (a
development stage company) for the period September 12, 1988, (inception) to May
31, 1994, were audited by other auditors whose report 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.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Septima Enterprises, Inc., (a
development stage company) as of May 31, 1996, and the results of its operations
and its cash flows for the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note B. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Delisi, Henninger and Associates
Greensburg, Pennsylvania
July 22, 1996, except for Note L, as to which the date is March 7, 1997
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
BALANCE SHEET
May 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents (note A3) $ 6,730
Accounts receivable--trade - 0 -
Inventories (note A4)
Finished products - 0 -
Products in progress - 0 -
Raw materials and supplies - 0 -
Prepaid expenses 6,573
Deposits 20,250
Purchase option (note A5) - 0 -
---------
Total current assets 33,553
Equipment (net of accumulated depreciation
of $50,482) (note A6) 33,662
---------
Other assets
Organization costs (net of accumulated
amortization of $250) (note A6) - 0 -
Technology license (note H) - 0 -
---------
Total assets $ 67,215
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable--trade $ 61,754
Note payable--SMC (note C) 217,638
Accrued expenses 14,909
--------
Total current liabilities 294,301
--------
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 F) 1,029,292
Contributed capital 172,008
Deficit accumulated during the development stage
(note A2) (1,428,386)
---------
Total stockholders' equity ( 227,086)
---------
Total liabilities and stockholders' equity $ 67,215
=========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Years Ended May 31, 1996 and 1995, and
Period September 12, 1988 (Inception) to May 31, 1996
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Year Ended Year Ended (inception) to
May 31, 1996 May 31, 1995 May 31, 1996
------------ ------------ --------------
<S> <C> <C> <C>
Sales $ - 0 - $ - 0 - $ 3,126
Interest income - 0 - 46 64,583
Other income (note D) 20,482 6,766 27,248
--------- --------- -----------
Total Income 20,482 6,812 94,957
--------- --------- -----------
Costs and expenses
General and administrative 174,339 356,489 1,027,045
Research and development
(note A8) - 0 - 56,929 277,929
Loss on debt extinguishment--
related party - 0 - - 0 - 50,452
Depreciation and amortization 16,829 16,618 52,695
Selling expenses - 0 - - 0 - 5,893
Cost of products 1,618 44,376 47,058
--------- --------- -----------
Total Expenses 192,786 474,412 1,461,072
--------- --------- -----------
(Loss) before income taxes
and other expenses ( 172,304) ( 467,600) (1,366,115)
Other expenses
Loss on marketable equity
securities - 0 - - 0 - ( 58,924)
Income tax (note E) - 0 - - 0 - ( 3,347)
--------- --------- -----------
Net (loss) $ ( 172,304) $( 467,600) $(1,428,386)
========= ========= ===========
Weighted average number of
common shares outstanding 7,785,629 7,785,629 7,335,836
--------- --------- -----------
Net (loss) per share $ ( .02213) $( .06006) $( .19471)
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Period from September 12, 1988 (Inception) to May 31, 1996
<TABLE>
<CAPTION>
Common stock
-----------------------
Shares Amount
------------- --------
<S> <C> <C>
Common stock issued on
September 12, 1988 for
$.00009 per share 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 33,005,800 257,753
Donated services - 0 - 2,945
Net loss - 0 - - 0 -
----------- --------
Balance at May 31, 1989 198,005,800 275,698
Donated services - 0 - 14,135
Net loss - 0 - - 0 -
----------- --------
Balance at May 31, 1990 198,005,800 289,833
Donated services - 0 - 13,559
Net loss - 0 - - 0 -
----------- --------
Balance at May 31, 1991 198,005,800 303,392
Donated services - 0 - 18,280
Net loss - 0 - - 0 -
----------- --------
Balance at May 31, 1992 198,005,800 321,672
One for two hundred reverse
stock split on October 23, 1992 (197,015,771) - 0 -
Common stock subscribed on
May 25, 1993 for $1.00 per
share - 0 - - 0 -
Donated services - 0 - 73,670
Net loss - 0 - - 0 -
----------- --------
Balance at May 31, 1993 990,029 395,342
Common stock issued between
July 15, 1993 and October 25,
1993 for $1.00 per share, net
of costs 275,000 256,052
Common stock issued on March 8,
1994 for services rendered,
valued at $1.00 per share 25,500 25,500
Donated services - 0 - 102,147
Net loss - 0 - - 0 -
----------- --------
Balance at May 31, 1994 1,290,529 $779,041
----------- --------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Deficit Accumulated
Contributed During the Development
Common Stock Subscribed Capital Stage Total
----------------------- ----------- ---------------------- -----
Shares Amount
------ ------
<S> <C> <C> <C> <C>
- 0 - $ - 0 - $ - 0 - $ - 0 - $ 15,000
- 0 - - 0 - - 0 - - 0 - 257,753
- 0 - - 0 - - 0 - - 0 - 2,945
- 0 - - 0 - - 0 - (517) (517)
------ ------ ----- ---------- ---------
- 0 - - 0 - - 0 - (517) 275,181
- 0 - - 0 - - 0 - - 0 - 14,135
- 0 - - 0 - - 0 - (12,099) (12,099)
------ ------ ----- ---------- ---------
- 0 - - 0 - - 0 - (12,616) 277,217
- 0 - - 0 - - 0 - - 0 - 13,559
- 0 - - 0 - - 0 - (71,687) (71,687)
------ ------ ----- ---------- ---------
- 0 - - 0 - - 0 - (84,303) 219,089
- 0 - - 0 - - 0 - - 0 - 18,280
- 0 - - 0 - - 0 - (28,122) (28,122)
------ ------ ----- ---------- ---------
- 0 - - 0 - - 0 - (112,425) 209,247
- 0 - - 0 - - 0 - - 0 - - 0 -
30,000 30,000 - 0 - - 0 - 30,000
- 0 - - 0 - - 0 - - 0 - 73,670
- 0 - - 0 - - 0 - (253,334) (253,334)
------ ------ ----- ---------- ---------
30,000 30,000 - 0 - (365,759) 59,583
(30,000) (30,000) - 0 - - 0 - 226,052
- 0 - - 0 - - 0 - - 0 - 25,500
- 0 - - 0 - - 0 - - 0 - 102,147
- 0 - - 0 - - 0 - (422,723) (422,723)
------ ------ ----- ---------- ---------
- 0 - $ - 0 - $ - 0 - $ (788,482) $ (9,441)
------ ------ ----- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY--CONTINUED
Period from September 12, 1988 (Inception) to May 31, 1996
<TABLE>
<CAPTION>
Common Stock
--------------------
Shares Amount
--------- ---------
<S> <C> <C>
Common stock issued on
August 8, 1994 for services
rendered, valued at $.77
per share 325,000 $ 250,251
Common stock acquired on
May 26, 1994 due to the
liquidation of
Eco-Logics, Inc. 6,170,100 - 0 -
Net loss - 0 - - 0 -
--------- ---------
Balance at May 31, 1995 7,785,629 1,029,292
--------- ---------
Contributed capital - 0 - - 0 -
Net loss - 0 - - 0 -
--------- ---------
Balance at May 31, 1996 7,785,629 $1,029,292
========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Deficit Accumulated
Contributed During the Development
Common Stock Subscribed Capital Stage Total
----------------------- ----------- ---------------------- -----
Shares Amount
------ ------
<S> <C> <C> <C> <C>
- 0 - $ - 0 - $ - 0 - $ - 0 - $ 250,251
- 0 - - 0 - - 0 - - 0 - - 0 -
- 0 - - 0 - - 0 - (467,600) (467,600)
------ ------ ------- ---------- ---------
- 0 - - 0 - - 0 - (1,256,082) (226,790)
------ ------ ------- ---------- ---------
- 0 - - 0 - 172,008 - 0 - 172,008
- 0 - - 0 - - 0 - (172,304) (172,304)
------ ------ ------- ---------- ---------
- 0 - $ - 0 - $172,008 $(1,428,386) $ (227,086)
====== ====== ======= ========== =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Years Ended May 31, 1996 and 1995, and the Period September 12, 1988
(Date of Inception) to May 31, 1996
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Year Ended Year Ended (inception) to
May 31, 1996 May 31, 1995 May 31, 1996
------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 272 $ 14,504 $ 16,811
Interest received - 0 - 46 59,879
Cash paid to suppliers (171,844) (95,864) (641,827)
Income taxes paid - 0 - - 0 - (3,704)
--------- --------- ---------
Cash used in operating activities (171,572) (81,314) (568,841)
--------- --------- ---------
Cash flows from investing activities:
Purchase of equipment - 0 - - 0 - (77,289)
Purchase of certificates of deposit - 0 - - 0 - (250,473)
Maturity of certificates of deposit - 0 - - 0 - 250,473
Purchase of marketable equity
securities - 0 - - 0 - (293,385)
Proceeds from sale of
marketable equity securities - 0 - - 0 - 231,961
Loan disbursements - 0 - - 0 - (15,000)
Loan proceeds from related parties 176,304 88,603 264,907
Repayments to related parties - 0 - (9,889) (9,889)
Advances to related parties - 0 - - 0 - (44,539)
Acquisition of purchase option - 0 - - 0 - (20,000)
Repayment of note receivable - 0 - - 0 - 10,000
--------- --------- ---------
Cash provided by investing
activities 176,304 78,714 46,766
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuing common stock - 0 - - 0 - 620,050
Proceeds from stock subscription - 0 - - 0 - 30,000
Exercise of stock subscription - 0 - - 0 - (30,000)
Costs associated with public
offering of common stock - 0 - - 0 - (72,297)
Costs associated with private
offering of common stock - 0 - - 0 - (18,948)
--------- --------- ---------
Cash provided by financing
activities - 0 - - 0 - 528,805
--------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 4,732 (2,600) 6,730
Cash and cash equivalents at
beginning of period 1,998 4,598 - 0 -
--------- --------- ---------
Cash and cash equivalents at end
of period $ 6,730 $ 1,998 $ 6,730
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
8
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS--CONTINUED
Years Ended May 31, 1996 and 1995, and the Period September 12, 1988
(Date of Inception) to May 31, 1996
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Year Ended Year Ended (inception) to
May 31, 1996 May 31, 1995 May 31, 1996
------------- ------------ -------------
<S> <C> <C> <C>
Reconciliation of net loss to cash
used in operating activities
Net (loss) $(172,304) $(467,599) $(1,428,385)
Noncash charges to net (loss)
Depreciation 16,829 16,618 50,482
Write-off of prepaid parts
and freight - 0 - 4,951 4,951
Amortization of organization
costs - 0 - - 0 - 250
Donated services - 0 - 250,250 474,987
Write-off payables/inventory (31,602) 76,715 164,248
Write-off note receivable - 0 - - 0 - 5,000
Forfeited purchase option 20,000 - 0 - 20,000
Write down on marketable
securities - 0 - - 0 - 2,500
Loss on sale of marketable
equity securities - 0 - - 0 - 58,924
Decrease in accounts
receivable - 0 - 1,091 - 0 -
Increase in prepaid expenses 21,375 3,586 (6,573)
Increase in deposits (18,343) - 0 - (20,249)
Increase in organization
costs - 0 - - 0 - (250)
Increase in accounts payable (22,212) 32,934 61,754
Increase in accrued expenses 14,685 140 18,020
Common stock issued for
services - 0 - - 0 - 25,500
--------- --------- -----------
Cash used in operating
activities $(171,572) $ (81,314) $ (568,841)
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
9
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
1. Basis of Presentation
- -------------------------
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 6,170,100 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".
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.
10
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
4. Inventory Pricing
- ---------------------
As of May 31, 1996, no inventory exists.
5. Purchase Option
- -------------------
Management has decided to write-off the $20,000 purchase option deposit
(appearing on the May 31, 1995 balance sheet) on land on 4th Street,
Albuquerque, New Mexico, paid by the Corporation. In a memorandum of
understanding signed between the prior President of the Corporation and the
former land owner (formerly a Director of the Corporation), the land option has
been forfeited. The current management of the Corporation has indicated that the
deposit will not be returned (see NOTE I).
6. 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 years ended May 31, 1996 and 1995 is $16,829 and
$16,618, respectively.
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.
10. Qualified Retirement/Profit Sharing Plan
- --------------------------------------------
The Company does not maintain a qualified pension or profit sharing plan.
11
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
11. Finance Charges
- -------------------
It is the Company's policy to reflect accounts payable net of finance charges.
12. Employees
- -------------
Septima has no payroll. The Company did not have compensated employees during
the audit 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.
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 May 31, 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. 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 May 31, 1996, the
balance due to Spark Management by Septima was $217,638. Also, $14,685 of
accrued interest was due.
NOTE D--OTHER INCOME
- --------------------
As indicated on the Statement of Operations, other income is comprised of
management negotiated relief of accounts payable with vendors in the amount of
$20,211 and other income of $271 for the year ended May 31, 1996 and $6766 for
the year ended May 31, 1995.
12
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
NOTE E--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 May 31, 1996:
Organization costs $ 250
Reorganization costs 9,075
Stock offering costs 4,910
Sales brochures 2,726
Capitalized R & D 248,496
--------
$ 265,457
========
The deferred expenses will be amortized over 60 months, beginning in the month
the Company realized benefit from such expenses. As of May 31, 1996,
accumulated amortization of these assets was $101,295. The amortization expense
for the years ended May 31, 1996 and 1995 is $48,898 and $47,645, respectively.
For tax purposes, assets are being depreciated using the modified accelerated
cost recovery system. The tax depreciation expense for the years ended May 31,
1996 and 1995 is $12,705 and $18,771, respectively. See note A6 for description
of book depreciation.
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
Period from
9/12/88
Year Ended Year Ended (inception)
May 31, 1996 May 31, 1995 to 9/30/96
------------ ------------ -----------
<S> <C> <C> <C>
Federal $ - 0 - $ - 0 - $ 3,091
State - 0 - - 0 - 256
--------- --------- ---------
$ - 0 - $ - 0 - $ 3,347
========= ========= =========
</TABLE>
The reconciliation of income tax computed at statutory tax rates to income tax
expense is:
<TABLE>
<CAPTION>
Period from
9/12/88
Year Ended Year Ended (inception)
May 31, 1996 May 31, 1995 to 9/30/96
------------ ------------ -----------
<S> <C> <C> <C>
Expected tax benefit $(40,758) $(163,660) $(360,538)
Nondeductible expenses - 0 - - 0 - $ 350,049
Provision of deferred tax
valuation allowance 40,758 163,660 13,836
-------- --------- ---------
Deferred expense $ - 0 - $ - 0 - $ 3,347
======== ========= =========
</TABLE>
At May 31, 1996 and 1995, the Company had net operating losses, available to
offset future income, totaling $549,730 and $536,603, respectively.
13
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
NOTE E--INCOME TAXES--(CONTINUED)
- ---------------------------------
If not used, they will expire as follows:
Operating
Year Losses
---- --------
2008 $101,787
2009 185,068
2010 249,748
2011 13,127
-------
$549,730
=======
The amount and availability of the net operating loss carryforwards may be
subject to limitations set forth by the Internal Revenue Code. Factors such as
the number of shares ultimately issued within a three-year look-back period;
whether there is a deemed more than 50 percent change in control; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation of
allowable annual utilization of the carryforwards.
At May 31, 1995, the Company had a capital loss carryforward from fiscal year
ended May 31, 1990, in the amount of $57,935. The five year carryforward
provision for this loss expired during fiscal year ended May 31, 1996.
The net deferred tax asset in the accompanying Balance Sheet consists of the
following:
Deferred tax asset $ 360,538
Deferred tax valuation
allowance $(360,538)
--------
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.
NOTE F--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, $250,250 and
$474,987 for the year ended May 31, 1996, the year ended May 31, 1995, and the
period from September 12, 1988 (inception) to May 31, 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
14
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
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.
NOTE F--COMMON STOCK--(CONTINUED)
- ---------------------------------
Private Offering--(CONTINUED)
- -----------------------------
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.
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 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 G)
In connection with the Option Agreement, Septima and Hensley Plasma Plug
Partnership, a Colorado partnership, executed an agreement for Assignment of
15
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
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.
NOTE F--COMMON STOCK--(CONTINUED)
- ---------------------------------
13-D Registration--(CONTINUED)
- ------------------------------
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.
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 G--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
16
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
Mexico corporation to release Septima of all claims, suits, demands, debts,
dues, accounts, bonds, covenants, contracts, promises, agreements, judgements,
liabilities, obligations, rights, costs, expenses, attorney's fees, and actions
from the beginning of the world to the date of the release.
NOTE G--RELATED PARTY TRANSACTIONS--(CONTINUED)
- -----------------------------------------------
As a result of this agreement, the following related party amounts were written
off:
Related Party Amount
------------- ------
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
===========
These amounts are considered contributions of capital.
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.
Using stock bonuses and awards, 75,000 shares of the Company's common stock,
valued at $1.00 per share, were issued to a marketing company and related
parties during the fiscal year ended May 31, 1996. Under stock options, related
parties were granted or resolved to be granted five year options to acquire
735,000 shares of the Company's common stock at $1.00 per share.
The stock options are due to expire five years from grant date:
Number of Options Date of Grant
----------------- -------------
160,000 February 22, 1994
500,000 May 1, 1994
50,000 November 16, 1995
25,000 April 1, 1996
The Company has developed a compensation arrangement whereby a marketing
consultant will be granted (upon quarterly review by Septima) the option to
purchase 135,000 total shares at $1.00/share for fiscal quarters ending July 1,
1996 until January 1, 1999. The grant is for 25,000 shares for the first three
quarters and 7,500 shares for the subsequent eight quarters.
17
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
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 claimed all interest in the options. (See Note F)
NOTE G--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 from Worldwide Associates regarding their view of
the status of the agreement (see NOTE K--SUBSEQUENT EVENTS).
NOTE H--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
May 31, 1996, Spark intends that Carrera Corporation, a Pennsylvania Corporation
owned by two directors of Spark, will manufacture various components of the
products and sell them to Septima.
It is also anticipated that Spark may assist Septima in marketing and testing
the products, and may receive a small commission on sales of the products. No
agreements have been executed among Septima, Spark, or Carrera, and no current
understandings exist regarding how the testing, manufacture, marketing and sales
of the products will actually be completed.
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 I--COMMITMENTS
- -------------------
During 1996, the Company occupied office facilities under a long-term,
noncancelable operating lease which expired March 31, 1996. As a result of the
expiration of this lease, there are no future minimum rental payments required.
Minimum rentals for the year ended May 31, 1996, were $5,178.
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.
18
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
On July 15, 1993, the Company paid $20,000 to acquire an option for the purchase
of commercial real estate, subject to a mortgage on which a prior officer of the
Company was obligated. Although title passed to the Company during the year
ended May 31, 1994, purchase was never consummated.
NOTE I--COMMITMENTS--(CONTINUED)
- --------------------------------
The $20,000 deposit was shown on the financial statement as of May 31, 1995 as a
purchase option. According to an agreement dated March 6, 1995, between an
officer and a former director of the Company, the $20,000 land option is
unexecuted. Management decided to write-off the amount during the year ended May
31, 1996 because it will not be returned to the Company.
An agreement dated March 22, 1994, exists between Septima Enterprises, Inc., and
The IBEN Company, Inc., whereby IBEN will pursue capital and licensing
endeavors. Septima is to pay IBEN six percent of any funds, money, or
renumeration, plus any applicable taxes received by Septima as a result of
IBEN'S efforts.
NOTE J--UNCERTAINTIES
- ---------------------
The Company accounts payable listing differs materially from an amount confirmed
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.
NOTE K--SUBSEQUENT EVENTS
- -------------------------
Change of Fiscal Year
- ---------------------
The Company intends to change 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.
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.
19
<PAGE>
SEPTIMA ENTERPRISES, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 1996
Withdrawal Of Directors
- -----------------------
Effective June 26, 1996, two individuals have resigned as Directors of Septima
Enterprises, Inc.
NOTE L--CORRECTION OF ERROR
- ---------------------------
Subsequent to the issuance of the auditors' report dated
July 22, 1996, it was determined that write-offs of related party accounts
payable in the amount of $172,008 should have been treated as contributions of
capital instead of an income item. The financial statements for the year ended
May 31, 1996 have been restated to reflect this. Additionally, $21,847 of
advertising costs included in prepaid expenses have been expensed under general
and administrative. Also, $81,558 of costs previously classified as research and
development have been reclassified as general and administrative.
20
