<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1997
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to______________
Commission file number 33-25126-D
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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: 8,895,629 as of October 28,
1997.
Transitional Small Business Disclosure Format (Check one):
Yes _____ No X
-----
<PAGE>
SEPTIMA ENTERPRISES, INC.
FORM 10-QSB
INDEX
-----
<TABLE>
<CAPTION>
PAGE
PART I: FINANCIAL INFORMATION NUMBER
- ------- --------------------- ------
<S> <C> <C>
ITEM 1. FINANCIAL INFORMATION:
FINANCIAL STATEMENTS OF SEPTIMA ENTERPRISES, INC.:
BALANCE SHEET AS OF SEPTEMBER 30, 1997................... 2
STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997, AND SEPTEMBER 30, 1996............. 3
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997, AND SEPTEMBER 30, 1996............. 4
NOTES TO FINANCIAL STATEMENTS............................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 10
PART II: OTHER INFORMATION
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS........................................ 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................ 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................... 13
ITEM 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS.... 13
ITEM 5. OTHER INFORMATION........................................ 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................... 14
SIGNATURE............................................................. 17
</TABLE>
XXXXX CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF EXHIBIT
10.13. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIAL TREATMENT REQUEST. THE OMITTED INFORMATION HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
OMISSIONS ARE DESIGNATED AS "XXXXX".
<PAGE>
SEPTIMA ENTERPRISES, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 802
ACCOUNTS RECEIVABLE 179,705
INVENTORIES 135,646
PREPAID EXPENSES 113,478
OTHER CURRENT ASSETS -
TOTAL CURRENT ASSETS 429,631
-----------
EQUIPMENT (NET OF ACCUMULATED DEPRECIATION
OF $65,669) 80,314
OTHER ASSETS
TECHNOLOGY LICENSE (NET OF AMORTIZATION OF $9,000) 81,000
-----------
TOTAL ASSETS $ 590,945
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
NOTE PAYABLE TO RELATED PARTY 337,209
ACCOUNTS PAYABLE 324,914
STOCKHOLDER LOAN 20,000
ACCRUED EXPENSES 284,721
DEPOSITS FROM CUSTOMERS 12,000
NOTE PAYABLE, BANK 100,000
-----------
TOTAL CURRENT LIABILITIES $ 1,078,844
-----------
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, 8,635,629 SHARES ISSUED AND OUTSTANDING 1,466,128
CONTRIBUTED CAPITAL 203,608
DEFERRED COMPENSATION (9,407)
ACCUMULATED (DEFICIT) (2,148,228)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (487,899)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 590,945
===========
</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
September 30, September 30,
1997 1996
----------- -----------
<S> <C> <C>
SALES $ 20,946 $ ---
OTHER INCOME --- ---
----------- -----------
TOTAL INCOME 20,946 ---
----------- -----------
COSTS AND EXPENSES
COST OF PRODUCTS SOLD 44,283 ---
GENERAL & ADMINISTRATIVE 217,080 44,601
RESEARCH & DEVELOPMENT --- ---
DEPRECIATION & AMORTIZATION 4,521 4,165
----------- -----------
TOTAL EXPENSES 265,884 48,766
----------- -----------
(LOSS) BEFORE INCOME TAXES
AND OTHER EXPENSES (244,938) (48,766)
INCOME TAXES --- ---
----------- -----------
NET (LOSS) $ (244,938) $ (48,766)
=========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,635,629 7,785,629
----------- -----------
NET (LOSS) PER SHARE $ (.02836) $ (.00626)
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
CASH RECEIVED FROM CUSTOMERS $ 74,636 $ ---
CASH PAID TO SUPPLIERS AND OPERATING EXPENSE (181,481) (97,891)
CUSTOMER DEPOSITS 12,000 125,000
------------- ------------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (94,845) 27,109
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASE OF EQUIPMENT (8,257) ---
------------- ------------
CASH (USED IN) INVESTING ACTIVITIES (8,257) ---
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
LOAN PROCEEDS FROM RELATED PARTIES 20,000 40,000
LOAN PROCEEDS FROM BANK 19,617 ---
------------- ------------
CASH PROVIDED BY FINANCING ACTIVITIES 39,617 40,000
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (63,485) 67,109
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 64,287 5,397
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 802 72,506
============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- ------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO CASH USED
IN OPERATING ACTIVITIES
NET (LOSS) $ (244,938) (48,766)
NON-CASH CHARGES TO NET (LOSS) -
DEPRECIATION AND AMORTIZATION 4,521 4,165
DEFERRED CONSULTING EXPENSE 4,340 ---
(INCREASE)/DECREASE IN ASSETS
ACCOUNTS RECEIVABLE - TRADE 53,690 ---
INVENTORIES (44,711) ---
PREPAID EXPENSES AND OTHER CURRENT ASSETS 22,040 (57,814)
INCREASE/(DECREASE) IN LIABILITIES
ACCOUNTS PAYABLE - TRADE 83,325 (2,307)
DEPOSITS FROM CUSTOMERS 12,000 125,000
ACCRUED EXPENSES 14,888 6,831
------------- ------------
CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES $ (94,845) $ 27,109
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE A -- ORGANIZATION AND DEVELOPMENT OF THE COMPANY
- -----------------------------------------------------
The Company 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,
marketing, and manufacturing. The Company began making sales on October 16,
1996, and became operational during the year ended June 30, 1997.
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 June 30, 1997, included in the Company's Form 10-KSB filed with the
Securities and Exchange Commission on September 26, 1997.
The results of operations for the three month period ended September 30, 1997,
are not necessarily indicative of the results to be expected for the entire
fiscal year 1998.
Employees
- ---------
All persons working for Septima are paid through Septima. The Company had four
compensated employees during the three month period ended September 30, 1997.
Change of Fiscal Year
- ---------------------
The Company changed its fiscal year from June 1 through May 31 of each calendar
year to July 1 through June 30 of each calendar year commencing with the fiscal
year ended June 30, 1996.
Revenue Recognition
- -------------------
The Company recognizes revenue when the product is manufactured and shipped to
the customer. For the three months ended September 30, 1997, the Company had
sales of $20,946.
NOTE C - LINE OF CREDIT - BANK
- ------------------------------
The Company has a line of credit with a bank providing borrowings up to $100,000
at the bank's prime rate plus 1% (9.5% during the period July 1 through
September 30, 1997). The note is payable on demand on April 4, 1998, and accrued
interest is payable monthly. Interest expense of $2,117 was incurred for the
quarter ended September 30, 1997. The agreement is
6
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SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
collateralized by certain assets of an officer of the Company. The balance
outstanding on this line of credit as of September 30, 1997, was $100,000.
NOTE D -- COMMON STOCK
- ----------------------
Private Offering
- ----------------
The Company issued 400,000 shares of common stock at $1.00 per share in May 1997
in connection with a private placement memorandum dated December 5, 1996. Net
proceeds from the offering were $400,000 less related costs of $53,164. The
termination date of this offering is December 5, 1997.
Stock Options
- -------------
The Company has developed a compensation arrangement whereby a marketing
consultant was granted options to purchase up to 75,000 shares of the Company's
common stock. In consideration for the consultant's services, the Company issued
to the consultant an option (the "Base Option") to purchase 50,000 shares of
common stock at an exercise price of $2.00 per share. The Base Option shall
expire and become nonexercisable on August 7, 1999. The Company also issued the
consultant an option (the "Expense Option") to purchase 25,000 shares of common
stock at an exercise price of $1.00 per share. The Expense Option shall expire
and become nonexercisable on August 7, 1998. The Company also agreed to issue up
to 60,000 shares of common stock to the consultant as bonus compensation in the
event that the trading price of the Company's common stock reaches certain
levels. Any stock issued as bonus compensation shall not be registered by the
Company and shall be "restricted securities".
On October 20, 1997, the Company filed with the Securities and Exchange
Commission a Form S-8 Registration Statement. The Registration Statement is
intended to be used to register 867,000 shares of the Company's common stock, no
par value per share, reserved for issuance and delivery pursuant to options
granted to a marketing consultant and options awarded to certain of the
Company's current and former employees, directors, consultants and advisors
between February 22, 1994, and May 19, 1997.
Prior to the date of the Registration Statement, R. Edwin Morgan, President,
Chief Executive Officer and Director of the Company, exercised options to
purchase 250,000 shares of common stock at an exercise price of $.20 per share.
The shares of common stock underlying these options were exercised by Mr. Morgan
and sold to him pursuant to the exemption from
NOTE D -- COMMON STOCK (CONTINUED)
- ---------------------------------
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
These shares of common stock are restricted securities as defined in Rule
144(a)(3) and may be sold only in compliance with Rule 144, pursuant to another
applicable exemption from registration under the Securities Act, or pursuant to
an effective Securities Act registration statement.
7
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
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 and managed by two
directors of the Company, R. Edwin Morgan and Louis S. Camilli. 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 whereby Spark will
provide services to the Company as a consultant for a five year period
commencing September 10, 1996. Spark 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.
Cottonbloom, Inc., a New Mexico corporation and controlling stockholder 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. On
or about September 22, 1997, Spark exercised its option, and the first payment,
under the Option Agreement, is scheduled to be made on December 26, 1997. The
option stock is held in a voting trust pursuant to the terms of a Voting Trust
Agreement dated September 26, 1995. 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 approximately 50% of the
outstanding shares of Septima common stock.
NOTE E -- RELATED PARTY TRANSACTIONS (CONTINUED)
- ------------------------------------------------
Spark has entered into a loan agreement with the Company which allows the
Company to borrow up to $500,000 from Spark. This note bears an interest rate
of 10%, and interest only payments are due annually on September 1. Also,
principal and interest payments are due quarterly based upon a certain amount
per product unit sold. The note payable is in default and, therefore, is due
8
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
on demand and has been reflected as a current liability at September 30, 1997.
All unpaid principal and interest is due September 1, 2000. The note is secured
by substantially all of the Company's assets. As of September 30, 1997, the
principal balance due to Spark by Septima was $337,209. Also, $57,379 of accrued
interest was due as of such date.
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 Manufacturing and Distribution Agreement dated
February 10, 1997, with a third party distributor for the territory of China and
Taiwan. The distributor is required to order a minimum number of products per
year from Septima Enterprises in the second year and beyond.
The Company entered into a Distribution Agreement dated September 23, 1997, with
a third party distributor for the territory of Australia and New Zealand. The
distributor will be required to order a minimum number of products in the second
year and beyond.
The Company renewed its lease for office space in Lake Park, Florida. The lease
agreement expires September 30, 1998. Monthly rental payments are $2,385.
On September 9, 1997, the Company entered an agreement with The Norvell Law Firm
in Albuquerque, New Mexico, whereby the Company granted to The Norvell Law Firm
10,000 restricted shares of Septima common stock as full and complete payment of
The Norvell Law Firm's bill of $5,000.00 for services rendered to Septima. A
certificate for the 10,000 shares was issued on October 28, 1997.
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
9
<PAGE>
other risks detailed from time to time in the Company's Securities and
Exchange Commission filings. Actual results may differ materially from
management expectations. See "Forward-Looking Statements".
RISKS ASSOCIATED WITH ONGOING OPERATIONS OF THE COMPANY
The Company is currently operating at a net loss. The Company has, in the
past, obtained its working capital through loans from Spark Management
Corporation ("Spark") and from a line of credit with 1st United Bank; however,
the Company has no ability to draw further funds from either of those
facilities. Should new loans or other sources of additional financing not be
available to the Company in the short-term, 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, and, in such event,
the Company would be required to cease its operations.
RESULTS OF OPERATIONS
Sales for the three months ended September 30, 1997 were $20,946. There
were no sales in the corresponding period of fiscal 1997.
The Company experienced a net loss of $244,938 for the three months ended
September 30, 1997, compared to a net loss of $48,766 in the year prior period.
This increase in net loss occurred due to a substantial increase in general and
administrative expenses and the fact that the Company received no significant
sales during the three month period ended September 30, 1997. General and
administrative expenses increased from $44,601 for the quarter ended September
30, 1996, to $217,080 for the quarter ended September 30, 1997, an increase of
387%. This increase was due to increases in operating costs of the Company's
office facility, salary costs for four additional employees, insurance costs,
consultants' fees, advertising expenses, and legal fees and other public company
expenses incurred during the three month period ended September 30, 1997. The
Company became operational in October 1996 and, therefore, did not incur
expenses for office facilities, employees, insurance costs, consultants' fees,
and advertising expenses for the prior year period.
Sales for the three months ended September 30, 1997, were below
management's expectations due to lack of significant orders from the Company's
distributors in Mexico and Asia. Sales in Mexico are very slow as a result of
the Mexican distributor not having sufficient capital to advertise or promote
the product, and efforts to raise sufficient funds have produced no results to
date. Mexico sales have represented approximately 90% of the Company's sales in
the last 12 months.
MARKETING AND DISTRIBUTION
On September 23, 1997, a Distribution Agreement for the territory of
Australia and New
10
<PAGE>
Zealand was signed with RH Performance Products, an Australian sole
proprietorship which distributes high performance automotive products in
Australia and New Zealand.
The Company has placed advertisements in Hot Rod and Car Craft magazines,
both publications of Petersen Publishing Company, L. L. C., for the months of
October, November, and December. Advertisements have also appeared in National
Dragster, a publication of the NHRA (National Hot Rod Association). In addition,
the Company has implemented a site on the World Wide Web (www.directhits.com).
The Company expects these marketing efforts to result in increased sales of the
Company's products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations for the three months ended September 30, 1997,
were financed by revenues from sales, a $100,000 line of credit from 1st United
Bank, Lake Park, Florida, and loans from Spark to the Company. Should new loans
or sources of additional financing not be available to the Company in the short-
term or from the extensive efforts of management to raise financing or capital,
the Company will be forced to cease operations.
As of September 30, 1997, current liabilities exclusive of short-term
borrowing and accrued interest totaled $621,635. Included in this amount is
$130,000 accrued salary for the President and Chief Executive Officer. Also
included in the $621,635 are $120,759 in consulting fees due to Spark, $95,558
in accrued royalties, $115,577 due for finished goods, and approximately $52,000
in advertising, legal and accounting fees.
As of September 30, 1997, the balance due to Spark was $337,209 in
principal and $57,379 in accrued interest. Septima has drawn $100,000 of the
$100,000 line of credit with 1st United Bank.
As of September 30, 1997, accounts receivable due to Septima totaled
$179,705 compared to $233,395 at fiscal year end June 30, 1997. The majority of
the current accounts receivable is due from one of the Company's distributors
and is now over 90 days past due. The matter has been discussed with the
distributor, and he is seeking outside financing or considering selling an
interest in his company to raise working capital.
On December 5, 1996, the Board of Directors authorized a private placement
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 sell 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 under the Securities Act of
1933, as amended (the "Securities Act"). The Company broke escrow on May 30,
1997, and issued to purchasers 400,000 shares of common stock at a price of
$1.00 per share on June 30, 1997. This private placement offering will terminate
on December 5, 1997.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis or Plan of Operation
contains various "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including without limitation the following: methods of and plans for
conducting future operations; the ability of the Company to continue to conduct
future operations; changes in the Company's sales, costs, expenses and other
financial information; changes or adjustments in the Company's marketing and
business strategies; the Company's ability to raise additional capital or secure
additional credit facilities or other future sources of financing, if necessary
for the Company to do so; and the sufficiency of the Company's cash provided by
operating, investing and financing activities of the Company's future liquidity
and capital resource needs.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, including without limitation
the following: general economic conditions; availability of additional sources
of operating or investment capital; specific economic conditions relating to the
production of automotive parts that implement HDI technology; the demand for the
Company's products; the size and timing of future orders and new contracts:
effects of fluctuations in the value of foreign currencies in relation to the U.
S. dollar; production delays or manufacturing inefficiencies; management
decisions to commence or discontinue product lines; the Company's ability to
design and introduce new products or product enhancements on a cost-effective
and timely basis; the amount and timing of research and development
expenditures; the maintenance of present and the availability of future
manufacturing and distribution relationships, strategic alliances and joint
marketing or servicing agreements; the introduction of new products and product
enhancements by competitors; the budgeting cycle of customers; changes in the
level of operating expenses; and the present and future level of competition in
the industry. As a result of these and other important factors, the results
actually achieved may differ materially from expected results included in these
statements.
OUTLOOK
New business opportunities are being actively pursued both domestically
and internationally. Raising substantial capital is essential to implementing a
complete marketing program in the United States. There are no guarantees
management will be able to fund the ongoing operating expenses or properly
market the Company's products unless it succeeds in getting the required funds
immediately.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
12
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 20, 1997, the Company filed with the Securities and Exchange
Commission a Form S-8 Registration Statement. The Registration Statement is
intended to be used to register 867,000 shares of the Company's common stock, no
par value per share, reserved for issuance and delivery pursuant to options
granted to a marketing consultant and options awarded to certain of the
Company's current and former employees, directors, consultants and advisors
between February 22, 1994, and May 19, 1997.
On October 16, 1997, R. Edwin Morgan, President, Chief Executive Officer
and Director of the Company, exercised options to purchase 250,000 shares of
common stock at an exercise price of $.20 per share. The shares of common stock
underlying these options were exercised by Mr. Morgan and sold to him pursuant
to the exemption from registration provided by Section 4(2) of the Securities
Act. These shares of common stock are restricted securities as defined in Rule
144(a)(3) and may be sold only in compliance with Rule 144, pursuant to another
applicable exemption from registration under the Securities Act, or pursuant to
an effective Securities Act registration statement.
On September 9, 1997, the Company entered an agreement with The Norvell
Law Firm in Albuquerque, New Mexico, whereby the Company granted to The Norvell
Law Firm 10,000 restricted shares of Septima common stock as full and complete
payment of The Norvell Law Firm's bill of $5,000.00 for services rendered to
Septima. A certificate for the 10,000 shares was issued on October 28, 1997. The
shares of common stock issued to The Norvell Law Firm are pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act.
These shares of common stock are restricted securities as defined in Rule
144(a)(3) and may be sold only in compliance with Rule 144, pursuant to another
applicable exemption from registration under the Securities Act, or pursuant to
an effective Securities Act registration statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS
On September 26, 1997, a Notice of Annual Meeting of Shareholders to be
held on October 24, 1997, a Proxy Statement, and a Proxy were mailed to
shareholders of record at the close of business on September 15, 1997. The Proxy
requested votes on the following two proposals: (1) the election of directors
and (2) the ratification of the selection of the accounting firm of McGladrey &
Pullen, LLP as the Company's independent auditors for the fiscal year ending
June 30, 1998.
13
<PAGE>
At the Annual Meeting of Shareholders on October 24, 1997, there were
present, either by proxy or in person, 5,948,979 shares of Septima's common
stock. The number of shares of Septima common stock issued and outstanding on
the record date (September 15, 1997) was
ITEM 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS (CONTINUED)
8,635,629. The number of shares present at the Annual Meeting constituted 68.89%
of the issued and outstanding stock of the Company, which established a proper
quorum for such meeting. Of the 5,948,979 shares present at the Annual Meeting,
all 5,948,979 shares were voted for the election of the following persons to
continue to serve as directors of the Company: Louis S. Camilli, Ronald J.
Costello, Roy H. Davidson, Darryl J. Dillenback, and R. Edwin Morgan. With
regard to the ratification of the selection of the accounting firm of McGladrey
& Pullen, LLP as the Company's independent auditors for the fiscal year ending
June 30, 1998, of the 5,948,979 shares present, 5,947,954 shares were voted in
favor of the ratification, and there were 1,025 shares that abstained from
voting.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS, LIST AND REPORTS ON FORM 8-K
EXHIBIT INDEX
3.1 Articles of Incorporation of the Company, as amended(7)
3.2 Bylaws of the Company, as amended(7)
4.1 Form of Common Stock Certificate(7)
4.2 Agreement dated August 8, 1997, by and between the Company and First
American Financial Group(8)
4.3 Form of Septima Enterprises, Inc. Stock Option Agreement, between the
Company and certain of the Optionees, with respect to non-transferable
options(8)
4.4 Form of Septima Enterprises, Inc. Stock Option Agreement, as amended,
between the Company and certain of the Optionees, with respect to options
with limited transferability(8)
9.1 Voting Trust Agreement dated September 26, 1995, by and between
Cottonbloom, Inc. And Spark(2)
9.2 Irrevocable Proxy dated May 1, 1995(2)
10.1 Management and Operating Agreement dated April 14, 1995, by and among
Spark, the Company and George Hensley(2)
10.2 Option Agreement dated September 26, 1995, by and among Cottonbloom, and
Spark(2)
10.3 Agreement for Assignment of Technology and Patents dated September 26,
1995, by and among Hensley Plasma Plug Partnership and the Company(2)
10.4 Settlement Memorandum dated November 16, 1995, by and among Cottonbloom,
Inc.,
14
<PAGE>
Spark, Hensley Plasma Plug Partnership, Pulsed Power Technologies Co.,
Ltd., Allan J. Hisey, George Hensley, James Robert Hensley, Raymond
Hensley, Francisco Urrea, Jr., David Norvell, Samuel Francis and the
Company(2)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
10.5 Mutual Release in Full dated December 4, 1995, by and among Cottonbloom,
Inc., Spark, Hensley Plasma Plug Partnership, Pulsed Power Technologies
Co., Ltd., Allan J. Hisey, George Hensley, James Robert Hensley, Raymond
Hensley, Ronald Hensley, Francisco Urrea, Jr., David Norvell, Samuel
Francis and the Company(2)
10.6 Manufacturing and Distribution Agreement dated August 23, 1996, by and
between the Company and Klaire International, Ltd.(3)
10.7 Manufacturing Agreement dated September 4, 1996, by and between the
Company and Carrera Corporation(4)
10.8 Manufacturing and Distribution Agreement dated February 10, 1997, by and
between the Company and S.W.R. Industries, Ltd.(6)
10.9 Consulting Agreement dated September 10, 1996, by and between the Company
and Spark(5)
10.10 Promissory Note and Security Agreement dated September 9, 1996, by and
between the Company and Spark(7)
10.11 Master Licensing Agreement dated September 10, 1996, by and between the
Company and Spark(7)
10.12 Employment Agreement dated September 1, 1996, by and between the Company
and R. Edwin Morgan(7)
10.13 Distribution Agreement dated September 23, 1997, by and between the
Company and RH Performance Products(1)
11.1 Statement Regarding Computation of Per Share Earnings(1)
27.1 Financial Data Schedule for quarter ended September 30, 1997(1)
__________________
(1) Filed as an exhibit hereto.
(2) Previously filed as an exhibit to the Company's Annual Report to
Shareholders on Form 10-KSB for the year ended May 31, 1996, as filed with
the Commission on August 29, 1996 (File No. 33-25126-D).
(3) Previously filed as an exhibit to the Company's Form 8-K, as filed with
the commission on September 23, 1996, and as amended by Form 8-K/A, as
filed with the commission on September 27, 1996.
(4) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended September 30, 1996, as
filed with the Commission on November 14, 1996, as amended by Amendment
No. 1 on Form 10-QSB/A, as filed with the Commission on December 3, 1996,
and as amended by Amendment No. 2 on Form 10-QSB/A, as filed with the
Commission on May 23, 1997 (File No. 33-25126-D).
(5) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended December 31, 1996, as
filed with the Commission on
15
<PAGE>
February 14, 1997, and as amended by Amendment No. 1 on Form 10-QSB/A, as
filed with the Commission on May 22, 1997 (File No. 33-25126-D).
(6) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended March 31, 1997, as filed
with the Commission on May 14, 1997 (File No. 33-25126-D).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(7) Previously filed as an exhibit to the Company's Annual Report to
Shareholders on Form 10-KSB for the year ended June 30, 1997, as filed
with the Commission on September 26, 1997 (File No. 33-25126-D).
(8) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, as filed with the Commission on October 20, 1997 (File No. 333-
38273).
___
XXXXX Confidential treatment has been requested for portions of Exhibit
10.13. 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".
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
16
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 10, 1997 SEPTIMA ENTERPRISES, INC.
_______________________________________
R. Edwin Morgan
President, Chief Executive Officer and
Principal Financial Officer
17
<PAGE>
EXHIBIT 10.13
-------------
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this 23/rd/ day of September 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 RH
PERFORMANCE PRODUCTS (hereinafter "RHPP"), an Australian sole proprietor whose
address is P. O. Box 669, Rosebery, Sydney, Australia 2018.
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 RHPP or SEPTIMA, or any partnership,
corporation or company in which RHPP 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.
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 DISTRIBUTOR
--------------------------
2.01 SEPTIMA appoints RHPP as EXCLUSIVE AUTHORIZED DISTRIBUTOR in the
Territory for the sale of Products and RHPP hereby accepts this appointment.
RHPP will not sell the Products outside of the Territory. RHPP will certify
that all Products 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 RHPP. All orders or direct inquires
received by RHPP with respect to the sale of Products outside the Territory will
be referred by RHPP to SEPTIMA.
2.02 RHPP shall conduct its business in the purchase and resale of the
Products 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 RHPP. RHPP 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.
2.03 No minimum will be required in the first year (12 month period). In
future years, RHPP shall be required to order for shipment a minimum aggregate
Products per year. These minimums will be negotiated at the end of the first
year.
2.04 SEPTIMA shall sell to RHPP based on RHPP's requirements on a quarterly
basis, as submitted to SEPTIMA on or before the thirtieth (30/th/) day of each
calendar quarter. RHPP shall deliver to SEPTIMA an estimate of the quantities
of Products required by RHPP for the (a) succeeding two (2) calendar quarters
and (b) the succeeding four (4) calendar quarters. Forecasted Products 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.
ARTICLE III
-----------
Sales and Service
-----------------
3.01 RHPP shall use its best efforts to sell and promote the sale of the
completed Products within the Territory.
3.02 SEPTIMA shall provide, if requested by RHPP and at RHPP's expense,
personnel to assist in the technical training of RHPP's marketing organization.
The number of SEPTIMA personnel and length of stay in the Territory is to be
agreed upon by RHPP and SEPTIMA.
2
<PAGE>
3.03 RHPP will be responsible for the sale and servicing of the Products in
the Territory. RHPP 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. SEPTIMA will provide replacement Products in exchange for
defective Products after examination by SEPTIMA of the Products 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 IV
Inventory, Marketing and Related Obligations
4.01 The Products shall not be returned for credit except for defective
Products 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.
4.02 All marketing and sales materials for the Products to be used by RHPP
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.
RHPP may use the trade names and trademarks as used by SEPTIMA in the United
States provided RHPP 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 thirty (30) days of
submission.
4.03 XXXXX
ARTICLE V
Conditions of Sale
5.01 Products shall be packaged and shipped as agreed to by both parties.
5.02 Delivery to RHPP shall be F.O.B. Latrobe PA with all costs, insurance
and freight paid by RHPP. 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 RHPP. Claims for shortage not attributable to the
carrier must be initiated by RHPP against SEPTIMA within ten (10) days after
arrival of shipment at the specified destination. 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
3
<PAGE>
omissions of RHPP, 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
RHPP and which arise out of the reshipment or rerouting of the Products
purchased by RHPP , including, but not limited to, its failure to accept
delivery, except a non-conforming delivery, of or pay for such Products, shall
be paid by RHPP to SEPTIMA on demand. After thirty (30) days of nonpayment, a
ten percent (10%) interest factor will be added to the unpaid balance.
5.03 RHPP shall purchase from SEPTIMA with payment conditions as follows:
Prepayment, Cash in United States Dollars, or a Letter of Credit satisfactory to
SEPTIMA and RHPP. 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 to RHPP. Any cost associated with the Letter of
Credit will be borne solely by RHPP. Prepayment to be made by RHPP following
receipt of written confirmation from Septima that any particular shipment of
stock is ready for packaging prior to shipment. Septima shall dispatch for
shipment on the terms set out in Paragraph 5.02 within 7 days of receipt of
prepayment from RHPP.
5.04 RHPP 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 ordered by RHPP.
5.05 RHPP shall not make any changes to the Products 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 remain the sole property of SEPTIMA or the
patent holders, as the case may be.
5.06 SEPTIMA shall provide to RHPP, during the term of this Agreement, any
and all modifications or upgrades made by SEPTIMA to the Products distributed in
the United States. XXXXX
5.07 SEPTIMA shall offer to RHPP for distribution in the Territory any new
Products not listed on Schedule B, attached hereto, manufactured and distributed
by SEPTIMA in the United States. The new Products shall be offered under an
entirely new agreement negotiated between SEPTIMA and RHPP. Should RHPP and
SEPTIMA not reach agreement as to the new products, SEPTIMA shall retain the
right to distribute the new
4
<PAGE>
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, nor will
they fall within the scope of the patents attached hereto, the Septima products
sold by RHPP in the Territory.
5.08 RHPP shall keep all information, including technical information,
design drawings, engineering specifications and know-how delivered by SEPTIMA
regarding the Products confidential, except as necessary and with the approval
of SEPTIMA, for the marketing and distribution of Products.
ARTICLE VI
Warranties
6.01 All Products purchased by RHPP 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
in the United States or in any other country shall also be extended to RHPP
under the same terms and conditions. RHPP agrees to furnish all warranty
services required for all the Products. SEPTIMA agrees to supply to RHPP free
of charge, including shipping charges, those replacement parts 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. Those Products returned under this paragraph,
after testing, found to be within factory specifications shall be returned to
RHPP at RHPP's expense.
6.02 NO WARRANTIES, EXPRESS OR IMPLIED, OTHER THAN THOSE MADE IN SECTION
6.01, HEREIN, ARE GIVEN IN RESPECT OF THE PRODUCTS, 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 6.01 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.
6.03 RHPP 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 RHPP's sale,
installation or operation of the Products or (b) conduct of RHPP's business.
5
<PAGE>
ARTICLE VII
-----------
Term
----
7.01 This Agreement shall become effective on the date of execution by RHPP
and SEPTIMA, and shall run until October 1, 2000, 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. XXXXX
ARTICLE VIII
Termination
8.01 RHPP 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.
8.02 SEPTIMA may terminate this Agreement immediately by delivering to RHPP
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 RHPP without the
prior written approval of SEPTIMA; said approval shall not be unreasonably
withheld; or
ii. The execution by RHPP of an assignment for the benefit of
creditors; the conviction of RHPP or any principal officer of RHPP of any crimes
which in the opinion of SEPTIMA may adversely affect the ownership, operation,
management, business or interest of RHPP or SEPTIMA; or
iii. Failure of RHPP to pay when due any indebtedness owing by RHPP
to SEPTIMA, unless expressly waived in writing by SEPTIMA; or
iv. The sale of all or substantially all of RHPP's assets.
8.03 This Agreement shall terminate automatically and without the giving of
notice in the event RHPP shall become insolvent or shall have outstanding
balances due and owing SEPTIMA for a period longer than ninety (90) days or
shall suffer appointment of a
6
<PAGE>
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.
8.04 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.
8.05 Notwithstanding any other provision of this Article VIII, 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.
8.06 Any termination of this Agreement shall not release RHPP from paying
any amount which may then be due and owing to SEPTIMA or from any obligation to
pay for any Products which may be ordered by RHPP and shipped prior to the
effective date of such termination. In the event of any termination of this
Agreement, all obligations owed by RHPP 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 RHPP), and SEPTIMA may offset and deduct from any or all
amounts owed to RHPP any or all amounts owed by RHPP to SEPTIMA rendering to
RHPP the excess, if any.
8.07 Upon the termination of this Agreement the following shall occur:
i. RHPP and its Affiliates shall immediately cease to, directly or
indirectly, represent to the public or hold itself out as a present or former
distributor of the Products or in any other way affiliate itself with SEPTIMA;
and
ii. RHPP 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. RHPP and its Affiliates shall immediately deliver to SEPTIMA
all marketing and sales materials for the Products, all technical drawings and
specifications for the Products and all other confidential information provided
by SEPTIMA to RHPP.
iv. Notwithstanding termination, RHPP shall be at liberty to sell
its remaining
7
<PAGE>
stock without being in breach of the terms of this Agreement.
8.08 During the term of this Agreement and for a period of three (3) years
after the termination of this Agreement, for any reason whatsoever, RHPP and its
Affiliates shall not in any manner engage directly or indirectly in the
marketing or distribution of any products competitive with the Products covered
by this Agreement. Competitive products are defined as those products falling
within the scope of the patents listed on Schedule B, attached hereto.
ARTICLE IX
----------
Miscellaneous
-------------
9.01 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, RHPP 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.
9.02 This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their respective successors and assigns, except that RHPP
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.
9.03 SEPTIMA shall not by reason of termination of the Agreement be liable
to RHPP 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 RHPP.
9.04 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.
8
<PAGE>
9.05 RHPP 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 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 least thirty (30) days' advance written notice to SEPTIMA prior to
such cancellation or reduction in coverage.
9.06 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.
9.07 This Agreement shall be governed by and construed under the laws of the
State of Florida.
9.08 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.
9.09 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.
9.10 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 9.05 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 VIII herein.
IN WITNESS WHEREOF, The parties herein have caused this Agreement to be executed
as of the date first above written.
RH PERFORMANCE PRODUCTS
By: /s/ Rick Hay Date: 1 - Oct - 1997
------------------- ------------------
9
<PAGE>
SEPTIMA ENTERPRISES, INC.
By: /s/ R. Edwin Morgan Date: Sept. 23, 1997
-------------------------- ------------------
10
<PAGE>
SCHEDULE A
COUNTRIES OF DISTRIBUTION
Australia
New Zealand
11
<PAGE>
SCHEDULE B
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.
12
<PAGE>
SEPTIMA ENTERPRISES, INC EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
----------------------------------------------------------
<S> <C> <C>
NET (LOSS) $ (244,938) $ (48,766)
==========================================================
DETERMINATION OF SHARES:
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,635,629 7,785,629
SHARES ISSUABLE ON EXERCISE OF STOCK OPTIONS, NET OF
SHARES ASSUMED TO BE REPURCHASED * *
----------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING FOR FULLY DILUTED
COMPUTATION 8,635,629 7,785,629
===========================================================
EARNINGS PER COMMON SHARE:
PRIMARY $ (.03) $ (A)
FULLY DILUTED (.03) (A)
</TABLE>
____________________________
*SHARES NOT INCLUDED IN COMPUTATION SINCE EFFECT IS ANTI-DILUTIVE.
(A) LESS THAN $.01 PER SHARE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
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