<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 2
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from _________________ to __________________
Commission file number 33-25126-D
SEPTIMA ENTERPRISES, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 85-0368333
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
600 Sandtree Drive
Lake Park, FL 33403
----------------------------------------
(Address of Principal Executive Offices)
(561) 624-7299
---------------------
(Issuer's Telephone Number, Including Area Code)
Former Address: 600 Depot Street, Latrobe, PA 15650, Former Fiscal Year: May 31
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 8,235,629 as of November 1,
1996.
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
<PAGE>
SEPTIMA ENTERPRISES, INC.
FORM 10-QSB/A
AMENDMENT NO. 2
INDEX
-----
<TABLE>
<CAPTION>
PAGE
PART I: FINANCIAL INFORMATION NUMBER
- ------- --------------------- ------
<S> <C> <C>
Item 1. Financial Statements:
Financial Statements of Septima Enterprises, Inc. for the quarter ended
September 30, 1996:
Balance Sheet as of September 30, 1996........................................... 1
Statements of Operations for the period September 12,
1988 (Inception) to September 30, 1996....................................... 2
Statements of Stockholder's Equity for the period September 12,
1988 (Inception) to September 30, 1996....................................... 3
Statements of Cash Flows for the period ended
September 30, 1996........................................................... 7
Notes to Financial Statements.................................................... 9
Item 2. Management's Discussion and Analysis or Plan of Operation ........................... 24
Financial Statements of Septima Enterprises, Inc. for the quarter ended
June 30, 1996:
Balance Sheet as of June 30, 1996................................................ 28
Statements of Operations for the period September 12,
1988 (Inception) to June 30, 1996............................................ 29
Statements of Stockholder's Equity for the period September 12,
1988 (Inception) to June 30, 1996............................................ 30
Statements of Cash Flows for the period ended
June 30, 1996................................................................ 34
Notes to Financial Statements.................................................... 36
Signature ................................................................................. 49
</TABLE>
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents (note A3) $ 72,506
Accounts receivable--trade - 0 -
Inventories (note A4)
Finished products - 0 -
Products in progress - 0 -
Raw materials and supplies - 0 -
Prepaid expenses 64,386
Deposits 20,250
----------
Total current assets 157,142
Equipment (net of accumulated depreciation
of $56,049) (note A5) 28,095
----------
Other assets
Organization costs (net of accumulated
amortization of $250) (note A5) - 0 -
Technology license (note G) - 0 -
----------
Total assets $ 185,237
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable--trade $ 51,382
Note payable--SMC (note C) 267,992
Deposits from customers 125,000
Accrued expenses 23,970
----------
Total current liabilities 468,344
----------
Stockholders' equity
Preferred stock, no par value, 10,000,000 shares
authorized, no shares issued - 0 -
Common stock, no par value, 25,000,000 shares
authorized, 7,785,629 shares issued and
outstanding (note E) 1,029,292
Contributed capital 172,008
Deficit accumulated during the development stage
(note A2) (1,484,407)
----------
Total stockholders' equity ( 283,107)
----------
Total liabilities and stockholders' equity $ 185,237
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1996 and for the Period
September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period From
Sept. 12, 1988
Three Months Ended (inception) to
September 30, 1996 September 30, 1996
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Sales $ - 0 - $ 3,126
Interest income - 0 - 64,583
Other income - 0 - 27,373
--------- ---------
Total Income - 0 - 95,082
--------- ---------
Costs and expenses
General and administrative 44,601 1,077,632
Research and development (note A7) - 0 - 277,929
Loss on debt extinguishment--related
party - 0 - 50,452
Depreciation and amortization 4,165 58,263
Selling expenses - 0 - 5,893
Cost of products - 0 - 47,049
--------- ----------
Total Expenses 48,766 1,517,218
--------- ----------
(Loss) before income taxes
and other expenses ( 48,766) (1,422,136)
Other expenses
Loss on marketable equity securities - 0 - ( 58,924)
Income tax (note D) - 0 - ( 3,347)
--------- ----------
Net (loss) $( 48,766) $(1,484,407)
========= ==========
Weighted average number of common
shares outstanding 7,785,629 7,354,515
--------- ----------
Net (loss) per share $(.00626 ) $(.20184 )
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period September 12, 1988
(Inception) to September 30, 1996
(UNAUDITED)
<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.
3
<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.
4
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY--CONTINUED
For the Period September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<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
--------- ---------
Net loss - 0 - - 0 -
--------- ---------
Balance at June 30, 1996 7,785,629 $1,029,292
--------- ---------
Net loss - 0 - - 0 -
--------- ---------
Balance at September 30, 1996 7,785,629 $1,029,292
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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)
- ----- ------ ------- ---------- --------
- - 0 - - 0 - - 0 - ( 7,255) ( 7,255)
- ----- ------ ------- ---------- --------
- - 0 - - 0 - 172,008 (1,435,641) (234,341)
- ----- ------ ------- ---------- --------
- - 0 - - 0 - - 0 - ( 48,766) ( 48,766)
- ----- ------ ------- ---------- --------
- - 0 - $ - 0 - $172,008 $(1,484,407) $(283,107)
===== ====== ======= ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1996 and for the Period
September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Three Months Ended (inception) to
September 30, 1996 September 30, 1996
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ - 0 - $ 16,811
Interest received - 0 - 59,879
Cash paid to suppliers ( 97,891) ( 751,405)
Income taxes paid - 0 - ( 3,704)
Customer deposits 125,000 125,000
---------- ------------
Cash provided by/(used) in
operating activities 27,109 ( 553,419)
---------- ------------
Cash flows from investing activities:
Purchase of equipment - 0 - ( 77,289)
Purchase of certificates of deposit - 0 - ( 250,473)
Maturity of certificates of deposit - 0 - 250,473
Purchase of marketable equity securities - 0 - ( 293,385)
Proceeds from sale of marketable equity
securities - 0 - 231,961
Loan disbursements - 0 - ( 15,000)
Loan proceeds from related parties 40,000 315,261
Repayments to related parties - 0 - ( 9,889)
Advances to related parties - 0 - ( 44,539)
Acquisition of purchase option - 0 - ( 20,000)
Repayment of note receivable - 0 - 10,000
---------- ------------
Cash provided by investing
activities 40,000 97,120
---------- ------------
Cash flows from financing activities:
Proceeds from issuing common stock - 0 - 620,050
Proceeds from stock subscription - 0 - 30,000
Exercise of stock subscription - 0 - ( 30,000)
Costs associated with public offering
of common stock - 0 - ( 72,297)
Costs associated with private offering
of common stock - 0 - ( 18,948)
---------- ------------
Cash provided by financing
activities - 0 - 528,805
---------- ------------
Net increase in cash
and cash equivalents 67,109 72,506
Cash and cash equivalents at beginning
of period 5,397 - 0 -
---------- ------------
Cash and cash equivalents at end of
period $ 72,506 $ 72,506
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS--CONTINUED
For the Three Months Ended September 30, 1996 and for the Period
September 12, 1988 (Inception) to September 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Three Months Ended (inception) to
September 30, 1996 September 30, 1996
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Reconciliation of net loss to cash
used in operating activities
Net (loss) $( 48,766) $ ( 1,484,406)
Noncash charges to net (loss)
Depreciation 4,165 56,050
Write-off of prepaid parts and freight - 0 - 4,951
Amortization of organization costs - 0 - 250
Donated services - 0 - 474,987
Write-off payables/inventory - 0 - 164,248
Write-off note receivable - 0 - 5,000
Forfeited purchase option - 0 - 20,000
Write down on marketable securities - 0 - 2,500
Loss on sale of marketable equity
securities - 0 - 58,924
Increase in prepaid expenses ( 57,814) ( 64,387)
Increase in deposits - 0 - ( 20,249)
Increase in organization costs - 0 - ( 250)
Increase in accounts payable ( 2,307) 51,382
Increase in accrued expenses 6,831 27,081
Common stock issued for services - 0 - 25,500
Increase in customer deposits 125,000 125,000
---------- ----------
Cash used in operating $ 27,109 $( 553,419)
activities =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
1. Basis of Presentation
- ------------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
The accompanying financial statements, presented on the accrual basis, include
the balances and accounts of Septima Enterprises, Inc. They do reflect the
balances or accounts of Eco-Logics, Inc., a related party, which was liquidated
on May 26, 1994, since its efforts to obtain a permit from the State of New
Mexico to operate a bio-medical incineration plant were unsuccessful.
On May 31, 1992, the Company issued shares of its common stock to Cottonbloom,
Inc., in exchange for all of the outstanding stock of Eco-Logics. The
transaction effected control of the Company by Cottonbloom and has been
accounted for as a reverse acquisition of the Company by Eco-Logics.
Consolidated financial statements for Eco-Logics previously included the
balances and accounts of the Company.
The 3,960,100 shares issued in the May 31, 1992 transaction, considered to be
recapitalization equity of Eco-Logics, and 2,210,000 shares subsequently issued
to Cottonbloom for certain licenses and technology, were not included in the
Company's stockholders' equity as of May 31, 1994. However, due to the
liquidation of Eco-Logics, Inc., these 6,170,100 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.
9
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
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.
4. Inventory Pricing
- ---------------------
As of September 30, 1996, no inventory exists.
5. Depreciation and Amortization
- ---------------------------------
Costs of organizing the Company have been capitalized and are being amortized by
the straight-line method over sixty (60) months.
The Company's equipment is recorded at cost and depreciated using the
straight-line method over sixty (60) months.
Depreciation expense for the three months ending September 30, 1996, is $4,165.
10
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
6. 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.
7. Research and Development Expenses
- -------------------------------------
Research and development expenses are expensed as incurred.
8. Compensation Costs
- ----------------------
Compensation costs are charged to expense for the period in which stock bonus
and award plans are granted.
9. Qualified Retirement/Profit Sharing Plan
- -------------------------------------------
The Company does not maintain a qualified pension or profit sharing plan.
10. Finance Charges
- --------------------
It is the Company's policy to reflect accounts payable net of finance charges.
11. Employees
- --------------
Septima has no payroll. The Company did not have compensated employees during
the review period.
12. 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.
11
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
13. 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.
14. Revenue Recognition
- ------------------------
The Company recognizes revenue when the product is manufactured and shipped to
the customer. At September 30, 1996, the Company had received $125,000
considered as a deposit on a total order of $282,000.
NOTE B--GOING CONCERN
- ---------------------
As shown in the accompanying financial statements, the Company has incurred
recurring losses during the development stage and has experienced cash flow
problems.
As of September 30, 1996, the issue of going concern is relevant due to a
financing arrangement with Spark Management Corporation providing Septima
Enterprises, Inc., with up to $400,000 of funding. This arrangement will not
continue if Spark Management Corporation does not exercise their $935,000 option
to purchase 51 percent of the outstanding shares of Septima Enterprises, Inc.,
by September 26, 1997.
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.
12
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE C--NOTE PAYABLE--(CONTINUED)
- ---------------------------------
This demand note bears an interest rate of ten percent per annum. The interest
on this note was twelve percent per annum from inception until August 31, 1996.
As of September 30, 1996, the balance due to Spark Management by Septima was
$267,992. Also, $23,908 of accrued interest was due.
NOTE D--INCOME TAXES
- --------------------
The Company has elected for tax purposes to amortize research and development
costs rather than expensing them. The following is a summary of these intangible
assets as of September 30, 1996:
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 September 30, 1996,
accumulated amortization of these assets was $118,062. The amortization expense
for the current period is $12,580. For tax purposes, assets are being
depreciated using the modified accelerated cost recovery system. The tax
depreciation expense for the period is $2,419. See note A5 for description of
book depreciation.
<TABLE>
<CAPTION>
Components of income tax expense are as follows: Period from
9/12/88
Three Months Ended (inception)
September 30, 1996 to 9/30/96
------------------ -----------
<S> <C> <C>
Federal $ - 0 - $3,091
State - 0 - 256
------ -----
$ - 0 - $3,347
====== =====
</TABLE>
The reconciliation of income tax computed at statutory tax rates to income tax
expense is:
13
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE D--INCOME TAXES--(CONTINUED)
- ---------------------------------
<TABLE>
<CAPTION>
Period from
9/12/88
Three Months Ended (inception)
September 30, 1996 to 9/30/96
------------------ -----------
<S> <C> <C>
Expected tax benefit $ (35,189) $(407,967)
Nondeductible expenses - 0 - 350,049
Provision of deferred tax
valuation allowance 35,189 61,265
--------- ---------
Deferred expense $ - 0 - $ 3,347
========= =========
</TABLE>
At September 30, 1996, the Company had net operating losses totaling $560,584
available to offset future income.
If not used, they will expire as follows:
<TABLE>
<CAPTION>
Operating
Year Losses
---- ---------
<S> <C>
2008 $101,787
2009 185,068
2010 249,748
2011 13,127
2012 10,854
-------
$560,584
=======
</TABLE>
The 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.
The net deferred tax asset in the accompanying Balance Sheet consists of the
following:
<TABLE>
<S> <C>
Deferred tax asset $ 407,967
Deferred tax valuation
allowance $(407,967)
--------
Deferred income taxes $ -0-
========
</TABLE>
14
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE D--INCOME TAXES--(CONTINUED)
- ---------------------------------
A deferred tax valuation allowance has been provided because it is more likely
than not that the related deferred tax benefit will not be realized in the
future.
The Internal Revenue Service approved the change in fiscal year (See Note A13)
submitted on Form 1128 on August 9, 1996.
NOTE E--COMMON STOCK
- --------------------
Donated Services
- ----------------
None of the officers or directors received cash compensation for services
rendered the Company. These services have been valued by the Company and charged
to expense and common stock (donated capital) at $0 and $474,987 for the three
months ended September 30, 1996, and for the period from September 12, 1988
(inception) to September 30, 1996, respectively.
Private Offering
- ----------------
On July 24, 1994, the Company prepared a private offering pursuant to Regulation
D, in which is offered to accredited investors, 1,000,000 units, at a price of
$2.50 per unit. Each unit consists of one share of restricted common stock and
one warrant to purchase one share of common stock at an exercise price of $4.75
per share. The securities comprising the units are immediately separable. The
warrants are exercisable for a period of 18 months commencing on the date of
their issuance and redeemable by the Company at $0.01 per warrant. Costs
associated with this private offering amount to $6,573 at May 31, 1994, and have
been recorded as a prepaid expense. The offering expired September 1, 1994, but
can be extended by the Company. The Company has not released this offering.
Management has indicated they intend to withdraw this offering. In written
action dated September 9, 1996 in lieu of a special meeting of the Board of
Directors, the Company has indicated a private offering authorizing the sale of
1,000,000 to 1,200,000 shares of Septima common stock at a price of $2.00 to
$2.50 per share. The Company intends to complete the offering pursuant to
Regulation D.
15
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE E--COMMON STOCK--(CONTINUED)
- ---------------------------------
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 F)
In connection with the Option Agreement, Septima and Hensley Plasma Plug
Partnership, a Colorado partnership, executed an agreement for Assignment of
Technology and Patents and Assignment of Technology. The
16
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE E--COMMON STOCK--(CONTINUED)
- ---------------------------------
13-D Registration--(Continued)
- ------------------------------
intellectual property assigned pursuant to these agreements had been licensed to
Cottonbloom which had assigned its rights to Septima. The Technology Assignment
replaced the previous agreements and directly granted Septima rights in the
Intellectual Property.
While Spark was negotiating on behalf of Septima to obtain the Technology
Assignment, other partners of the Hensley Partnership were assigning rights in
the Intellectual Property to Pulse Power Technologies Co., Ltd., a New Mexico
limited liability company. Litigation ensued among the various entities
regarding the rights to the Intellectual Property. The litigation was resolved
pursuant to a Settlement Memorandum dated November 16, 1995. The Settlement
Memorandum upholds the Technology Assignment and Option Agreement.
Under the Agreement for Assignment of Technology and Patents, Septima
Enterprises, Inc. is to make royalty payments to Hensley Plasma Plug Partnership
for as long as one or more patents remain in effect according to the following
schedule:
a. A royalty of four percent (4%) of Adjusted Gross
Revenues realized from the sale of Products which
first total One (1) Million Dollars; plus
b. A royalty of three percent (3%) of Adjusted Gross
Revenues realized from the sale of Products which
next total One (1) Million Dollars; plus
c. A royalty of two percent (2%) of Adjusted Gross
Revenues realized from the sale of Products which
next total One (1) Million Dollars; plus
d. A royalty of one percent (1%) of all Adjusted Gross
Revenues realized from the sale of Products
thereafter.
17
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE E--COMMON STOCK--(CONTINUED)
- ---------------------------------
13-D Registration--(CONTINUED)
- ------------------------------
During the first two years of the agreement, there are no minimum royalty
payments. The minimum royalty payment for year three is $100,000 and the minimum
for years four and beyond is $150,000.
NOTE F--RELATED PARTY TRANSACTIONS
- ----------------------------------
On September 26, 1995, an agreement was entered into between George H. Hensley,
individually and as a partner in Hensley Plasma Plug Partnership; James Robert
Hensley, individually, as a partner in Hensley Plasma Plug Partnership, and as
co-trustee under the Ronald Hensley Irrevocable Trust dated February 2, 1982;
Raymond E. Hensley, individually, as a partner in Hensley Plasma Plug
Partnership, and as a co-trustee under the Ronald Hensley Irrevocable Trust
dated February 2, 1982; Cottonbloom, Inc., a New Mexico corporation to release
Septima of all claims, suits, demands, debts, dues, accounts, bonds, covenants,
contracts, promises, agreements, judgements, liabilities, obligations, rights,
costs, expenses, attorney's fees, and actions from the beginning of the world to
the date of the release. As a result of this agreement, the following related
party amounts were written off:
<TABLE>
<CAPTION>
Related Party Amount
------------- ------
<S> <C>
Amarillo Valley Ridge $ 13,013.31
CAMI 13,233.56
Cottonbloom 66,080.82
Ecologics 3,735.50
HDI Partner/CB 10,255.49
HDI Partnership 7,939.44
George Hensley 57,750.00
-----------
Total $172,008.12
===========
</TABLE>
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.
18
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE F--RELATED PARTY TRANSACTIONS--(CONTINUED)
- -----------------------------------------------
Under stock options, related parties, a marketing company, and a former director
were granted or resolved to be granted five year options to acquire 960,000
shares of the Company's common stock at $1.00 per share.
As part of the 960,000 shares, in written action in lieu of a special meeting of
the Board of Directors, a former director of the Company was granted an option
to purchase 200,000 shares of stock at an exercise price of $1.00 per share
exercisable at any time prior to October 1, 2001.
The stock options are due to expire five years from grant date:
<TABLE>
<CAPTION>
Option Price
per share Number of Options Date of Grant
- ------------ ----------------- -------------
<S> <C> <C>
$1.00 160,000 February 22, 1994
$1.00 500,000 May 1, 1994
$1.00 50,000 November 16, 1995
$1.00 25,000 April 1, 1996
$1.00 25,000 July 1, 1996
$1.00 200,000 September 4, 1996
</TABLE>
The Company has developed a compensation arrangement whereby a marketing
consultant will be granted (upon quarterly review by Septima) the option to
purchase 110,000 total shares at $1.00/share for fiscal quarters ending
October 1, 1996 until January 1, 1999. The grant is for 25,000 shares for the
first two quarters and 7,500 shares for the subsequent eight quarters.
A former director of the Company was previously granted 250,000 options at $1.00
per share on May 1, 1994. In an agreement dated September 26, 1995, the former
director released and quit claim all interest in the options. (See Note E)
In a written action in lieu of a special meeting, the Board of Directors on
September 9, 1996 granted stock options to two Board members. The options are
exercisable at $.20/share within ten years.
<TABLE>
<CAPTION>
Option Price Expiration of
Per Share Number of Options Date of Grant Grant
- ------------ ----------------- ------------- -------------
<S> <C> <C> <C>
$ .20 312,500 Sept. 9, 1996 Sept. 9, 2006
</TABLE>
19
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE F--RELATED PARTY TRANSACTIONS--(CONTINUED)
- -----------------------------------------------
Additionally, the Board authorized annual compensation to the members of the
Company's Board of Directors by issuing to each of them options to purchase
20,000 shares of common stock at an exercise price of $1.00 per share.
The Company has negotiated with Worldwide Associates, an entity in which a prior
officer and current stockholder of the Company have an interest, whereby
Worldwide would be given nearly exclusive distribution rights outside the United
States for the Company's products. The Company considers the agreement void.
No confirmation was received, in a prior period, from Worldwide Associates
regarding their view of the status of the agreement. (See Note J)
The Company has negotiated a Manufacturing and Distribution Agreement for Mexico
sales with a company operated by a former director and current shareholder. (See
Note H) The Company has entered into a Master Licensing Agreement with Spark
Management Corporation. (See Note G) Spark Management is owned by two directors
of the Company. The Company has entered into a Manufacturing Agreement with a
company owned by two former directors. (See Note H)
NOTE G--TECHNOLOGY LICENSE
- --------------------------
Currently, Spark Management Corporation (Spark) anticipates that Septima will
sublicense certain Intellectual Property obtained pursuant to the Technology
Assignment to Spark for the manufacture of certain aftermarket auto parts. As of
September 30, 1996, Spark intends that another corporation will manufacture
various components of the products and sell them to Septima.
Spark Management Corporation entered into a Master Licensing Agreement dated
September 10, 1996 with the Company. The Company acquired developments,
information, proprietary rights, and trade secrets collectively referred to as
Ignition Systems and Processes. (See Note H) Unless terminated or cancelled, the
Agreement will terminate ten (10) years following the last expired patent
acquired by Spark Management.
20
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE G--TECHNOLOGY LICENSE--(CONTINUED)
- ---------------------------------------
Spark intends to periodically review and evaluate the market for Septima's
common stock; Septima's business, prospects, and financial condition; general
economic conditions, and other opportunities available to Spark. On the basis of
such periodic reviews and evaluations, Spark may determine to increase or
decrease its investments in Septima through exercise of the option in whole or
in part or not at all.
NOTE H--COMMITMENTS
- -------------------
The Company's research, development, and manufacturing activities are conducted
from facilities leased under short-term operating leases. The facilities are
leased by Spark Management Corporation.
An agreement dated March 22, 1994, exists between Septima Enterprises, Inc., and
a company, whereby the company will pursue capital and licensing endeavors.
Septima is to pay the company six percent of any funds, money, or renumeration,
plus any applicable taxes received by Septima as a result of the company's
efforts.
In consideration of the Master Licensing Agreement (See Note G), Spark
Management Corporation will receive 450,000 shares of Company stock. The Company
will pay Spark Management one dollar ($1.00) for each Product/Insert until one
million aggregate Products/Inserts are sold; fifty cents ($.50) for each
Product/Insert sold on the next million aggregate units; and twenty-five cents
($.25) for each Product/Insert sold thereafter.
The Company entered into a Consulting Agreement with Spark Management
Corporation. Spark Management will provide services to the Company as a
consultant for a five year period commencing September 10, 1996. Spark
Management will be compensated on a cost plus 10 percent basis for the first
year. During the final four years, the compensation will be $250,000 annually,
paid quarterly.
The company entered into a Manufacturing and Distribution Agreement dated August
23, 1996 with a company. The company is required to order a minimum aggregate of
Products/Inserts per year from Septima Enterprises.
21
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE H--COMMITMENTS--(CONTINUED)
- --------------------------------
The Company entered into a Manufacturing Agreement dated September 4, 1996. (See
Note F) The Company engaged the manufacturer as its exclusive producer for the
entire requirements for the product produced in the United States. The initial
term is for four (4) years automatically renewable for one (1) year periods.
NOTE I--UNCERTAINTIES
- ---------------------
The Company accounts payable listing differs materially from an amount
confirmed, in a prior period, directly with a vendor. The vendor has indicated
legal action will be pursued to collect the difference between Company account
payable amount and vendor amount. The Company has filed a declaratory action
against the vendor.
NOTE J--DEMAND FOR ARBITRATION-WORLDWIDE ASSOCIATES, INC.
- ---------------------------------------------------------
On June 17, 1996, a demand for arbitration was filed with the American
Arbitration Association in Phoenix, Arizona relating to an agreement dated May
27, 1994. The nature of the dispute: 1) Failure of Worldwide Associates, Inc. to
make payment for product delivered as per Article 5.03 of the agreement in the
amount of $1,050 and 2) Failure of consideration to support the Agreement. The
claim or relief being sought: 1) Award of damages on invoice stated above plus
costs and attorney's fees, and 2) Declaration that the agreement was void at its
inception for failure of consideration or, in the alternative, that the
agreement is terminated because of Worldwide breach. An arbitration hearing has
been scheduled for the week of December 9, 1996.
NOTE K--WITHDRAWAL OF DIRECTORS
- -------------------------------
Effective September 4, 1996, an individual has resigned as a Director of Septima
Enterprises, Inc. The individual was later replaced by another individual, as
indicated in written action in lieu of a special meeting of the Board of
Directors dated September 9, 1996.
NOTE L--SUBSEQUENT EVENTS
- -------------------------
The Company intends to reimburse Spark Management Corporation for Company
related start-up and travel costs incurred in 1995-1996 in the second quarter of
the 1996-1997 fiscal year. Amounts of the reimbursement are being calculated by
the Company.
22
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996
(UNAUDITED)
NOTE L--SUBSEQUENT EVENTS--(CONTINUED)
- --------------------------------------
The Company has assumed a lease for office space in Lake Park, Florida. The
period of the agreement is 11 1/2 months with a provision to extend the
agreement for an additional year. Monthly rental payments are $2,062.50.
The Company intends to change the Corporate Offices to Lake Park, Florida.
NOTE M--CORRECTION OF ERROR
- ---------------------------
Subsequent to the issuance of the auditors' report for the year ended May 31,
1996, 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, were restated to reflect this. Additionally,
$21,847 of advertising costs included in prepaid expenses were expensed under
general and administrative. Also, $81,558 of costs previously classified as
research and development were reclassified as general and administrative.
Subsequent to the issuance of the accountants' review report, the three months
ended September 30, 1996, dated October 23, 1996, it was determined that $6,713
of advertising costs included in prepaid expenses should have been expensed
under general and administrative. Additionally, it was determined that $3,193 of
expenses classified as research and development should have been expensed under
general and administrative. Further, it was discovered that the interest rate on
the note payable described in Note C had changed to ten percent effective
September 1, 1996. As a result, accrued interest has been reduced by $446. The
financial statements for the three months ended September 30, 1996 have been
restated to reflect these corrections.
23
<PAGE>
Item 2. Management's Discussion and Analysis.
The Company's plan of operation for the three months ended September
30, 1996 was continuing research, development and testing of the HDI technology,
as well as the manufacturing and assembly of HDI products. Product testing was
done in-house as well as at the Amoco Naperville Lab, Naperville Illinois, U.S.,
First Automobile Works in Chang Chun, China, Nanjing Electric in Nanjing, China
and Consa Ford in Mexico. Once the testing phase is completed, the Company
intends to have limited numbers of HDI products manufactured for sale. The
Company believes the product is ready for marketing on a limited basis.
The Company's operations for the three months ended September 30, 1996
were financed by loans from Spark Management ("Spark") to the Company. The cash
requirements for operations for the three months ended September 30, 1996 were
$48,766, which were met by the loans from Spark to the Company. Should loans
from Spark not be available to the Company in the future, there is no assurance
that the Company will be able to raise sufficient capital from other sources to
adequately fund the continuing operations of the Company.
The Company does not anticipate any significant equipment acquisition
during the next twelve months. The person who functions as an office manager and
administrative secretary for the Company is paid directly by Spark as an
employee of Spark. The work necessary to accomplish the research and development
and testing program is currently supervised by a director of the Company who is
compensated directly by Spark. Spark intends to be reimbursed by the Company for
moneys expended on behalf of Spark and moneys loaned directly to the Company
when the Company realizes sufficient revenues from sales to reimburse Spark.
There can be no assurances that the Company will be able to reimburse Spark from
sales revenues.
In March of 1995, the Company signed a Memorandum of Understanding
("MOU") with Spark. Pursuant to the MOU, Spark agreed to manage the affairs of
the Company for a 90-day period ending July 15, 1995, during which a due
diligence effort would be performed by the management of Spark. Upon the
successful completion of the due diligence, Spark agreed to purchase 3.8 million
shares of Septima common stock from Cottonbloom, Inc. ("Cottonbloom") and
thereby obtain control of the Company. The stock purchase agreement negotiations
between Spark and Cottonbloom failed in July 1995. The failure of the stock
purchase agreement terminated a previously established line of credit from Spark
to the Company which would have provided up to $1,300,000 in working capital.
Subsequent to the termination of the MOU, Spark has agreed to fund the
Company up to $500,000 at 12% per annum interest for working capital. As of
September 30, 1996, the balance due to Spark was $267,992 in principal and
$24,354 in accrued interest.
On September 26, 1995, Spark executed an Option Agreement (the "Option
Agreement") with Cottonbloom for the right to purchase 4,307,270 shares of
Septima common stock no par for $935,000. The option may be exercised within two
years from the Option Agreement date. The Option Stock is held in a voting trust
(the "Voting Trust") by David Norvell, an Albuquerque, New Mexico attorney, as
trustee (the "Trustee"). Upon execution of the Option Agreement, the previous
Chairman and other Board Members of the Company resigned. The Officers of Spark
were subsequently elected as the Board of Directors of the Company in January
1996.
As of September 30, 1996, no Option Stock had been purchased pursuant
to the Option Agreement.
24
<PAGE>
In connection with the Option Agreement, Septima and Hensley Plasma
Plug Partnership, a Colorado partnership ("Hensley Partnership"), executed an
Agreement for Assignment of Technology and Patents and Assignment of Technology
(together, the "Technology Agreement"). The intellectual property assigned
pursuant to the Technology Assignment (the "Intellectual Property") had been
licensed to Cottonbloom which has assigned its rights to Septima. The Technology
Assignment replaced the previous agreement with the Hensley Partnership and
directly granted Septima rights in the Intellectual Property.
While Spark was negotiating on behalf of Septima to obtain the
Technology Assignment, other partners of the Hensley Partnership had assigned
certain rights in the Intellectual Property to Pulse Power Technologies Co.,
Ltd., a New Mexico limited liability company. Litigation ensued among the
various entities regarding the rights to the Intellectual Property. The
litigation was resolved pursuant to a Settlement Memorandum dated November 16,
1995. The Settlement Memorandum validates the Company's rights in the Technology
Assignment and Option Agreement.
Septima, in conjunction with Spark, is actively pursuing marketplace
penetration, engineering design, manufacturing process development, and other
efforts such as product dress, packaging, marketing and laboratory and field
testing at recognized facilities in China, Mexico and the United States. Other
Company expenses include general operating expenses, patent costs associated
with patent maintenance and patent applications, and expenses related to the
search for trading partnerships in the field of distribution in foreign markets.
Spark has been financing these efforts and anticipates repayment from Septima at
some future date. There is no assurance that the Company will be able to
reimburse Spark.
In calendar 1995 and 1996, all domestic and foreign patent
delinquencies and fees that were owing were paid by the Company and brought up
to date with the financial assistance of Spark. In addition, all delinquent SEC
and IRS filings were brought up to date.
Accounting Matters. On September 9, 1996, the Board of Directors
authorized the Company to change its fiscal year end from May 31 to June 30. The
Company intends to file a timely transition report covering the resulting
transition period between the closing date of its 1996 fiscal year (May 31) and
the opening date of its new fiscal year (July 1).
Officers and Directors. At the Board of Directors meeting held on
September 9, 1996, the Board of Directors accepted the resignation of R. Keith
Casler as a Director and as Secretary/Treasurer of the Board of Directors. There
was no disagreement between Mr. Casler and the Company.
On September 9, 1996, Darryl J. Dillenback was elected to the Board of
Directors. Mr. Dillenback is currently the President and Chief Executive Officer
of Explosive Technologies International, Inc. ("E.T.I.") which is a subsidiary
of Canadian Investment Capital, Ltd. of Toronto, Canada. E.T.I. is a commercial
explosives manufacturer and distributor located in Wilmington, Delaware.
R. Edwin Morgan, President and CEO of Septima, will be paid $10,000 per
month salary beginning September 1, 1996. This salary will accrue until Septima
has sufficient funds for payment.
Stock Options. R. Keith Casler was granted an option to purchase
200,000 shares of Septima stock at an exercise price of $1.00 per share
exercisable at any time prior to October 1, 2001. The option was granted for
work done on behalf of Septima over the previous 18 months.
25
<PAGE>
R. Edwin Morgan was awarded options for 250,000 shares of Septima stock
at $0.20 per share for work done for Septima over the previous 18 months.
Louis S. Camilli was granted an option for 62,500 shares of Septima
stock at $0.20 per share for work done for Septima over the previous 24 months.
Recent Events
Lease Commitments. A one-year lease for office space at 600 Sandtree
Drive, Lake Park, Florida 33403, was signed October 15, 1996. The corporate
offices will be relocated from Latrobe, Pennsylvania, and Albuquerque, New
Mexico, to Florida in the month of November.
Employees. Two new employees were added in October: Andrew S. Miller,
Global Market Manager Recreational Products, and Charlotte Darling, Executive
Assistant. Additional financial, customer service, and technical sales employees
will be added in the second and third quarters.
Capital Resources. The Board of Directors has authorized a private
offering of 1,100,000 shares of Septima common stock at a price of $2.00 per
share to be sold to raise capital for a product launch in the United States
market. The Company intends to complete the offering pursuant to Regulation D.
Additional Information
Application has been made for the trademarks "Direct Hits" and
"Yellowjacket". An application number has been assigned to "Direct Hits", and
management does not anticipate any problems with obtaining these trademarks.
Orders for finished goods inventory have been placed with Carrera for
100,000 pieces of finished and semi-finished parts for sale in the United States
and Mexico.
An exclusive contract was signed with Klaire International Limited to
manufacture and distribute product in Mexico. An initial order of 50,000 parts
was received for shipment in the third quarter. Total value of the contract is
$282,000.
A Consulting Agreement was signed between the Company and Spark
Management whereby Septima would compensate Spark for services during the next
five years.
The Company entered into a Master Licensing Agreement dated September
10, 1996, with Spark Management Corporation. The Company acquired developments,
information, proprietary rights, and trade secrets collectively referred to as
Ignition Systems and Processes. Unless terminated or canceled, the Agreement
will terminate ten (10) years following the last expired patent acquired by
Spark Management.
The Company entered into a Manufacturing Agreement with Carrera
Corporation, Latrobe, Pennsylvania, to be the exclusive producer for the entire
requirements for the product produced in the United States for the next four
years.
The Company's accounts payable listing differs materially from an
account confirmed, in a prior period, directly with CAMI. CAMI has indicated
legal action will be pursued to collect the difference
26
<PAGE>
between the Company's accounts payable amount and CAMI's amount. The Company has
filed a declaratory action against CAMI.
On June 17, 1996, a demand for arbitration was filed with American
Arbitration Association in Phoenix, Arizona, relating to an Agreement dated May
27, 1994, with Worldwide Associates. The nature of the dispute is: (1) failure
of Worldwide Associates, Inc. to make payment in the amount of $1,050 for
product delivered as per Article 5.03 of the Agreement and (2) failure of
consideration to support the Agreement. The claim or relief being sought is: (1)
award of damages on invoice stated above plus costs and attorney's fees and (2)
declaration that the Agreement was void at its inception for failure of
consideration or, in the alternative, that the Agreement is terminated because
of Worldwide's breach. An arbitration hearing has been scheduled for the week of
December 9, 1996.
27
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
BALANCE SHEET
June 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents (note A3) $ 5,397
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
---------
Total current assets 32,220
Equipment (net of accumulated depreciation
of $51,884) (note A5) 32,260
---------
Other assets
Organization costs (net of accumulated
amortization of $250) (note A5) - 0 -
Technology license (note H) - 0 -
---------
Total assets $ 64,480
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable--trade $ 53,690
Note payable--SMC (note C) 227,992
Accrued expenses 17,139
---------
Total current liabilities 298,821
---------
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) (1,435,641)
---------
Total stockholders' equity ( 234,341)
---------
Total liabilities and stockholders' equity $ 64,480
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Month Ended June 30, 1996 and for the Period
September 12, 1988 (Inception) to June 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Month Ended (inception) to
June 30, 1996 June 30, 1996
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
Sales $ - 0 - $ 3,126
Interest income - 0 - 64,583
Other income (note D) 125 27,373
--------- ---------
Total Income 125 95,082
--------- ---------
Costs and expenses
General and administrative 5,986 1,033,031
Research and development (note A7) - 0 - 277,929
Loss on debt extinguishment--related
party - 0 - 50,452
Depreciation and amortization 1,403 54,098
Selling expenses - 0 - 5,893
Cost of products ( 9) 47,049
--------- ----------
Total Expenses 7,380 1,468,452
--------- ----------
(Loss) before income taxes
and other expenses ( 7,255) (1,373,370)
Other expenses
Loss on marketable equity securities - 0 - ( 58,924)
Income tax (note E) - 0 - ( 3,347)
--------- ----------
Net (loss) $( 7,255) $(1,435,641)
========= ==========
Weighted average number of common
shares outstanding 7,785,629 7,340,577
--------- ----------
Net (loss) per share $(.00093 ) $(.19558 )
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period September 12, 1988 (Inception) to June 30, 1996
(UNAUDITED)
<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.
30
<PAGE>
<TABLE>
<CAPTION>
Deficit accumulated
Contributed during the development
Common stock subscribed capital stage Total
--------------------------- ------- ---------------------- ---------
Shares Amount
-------- ------
<S> <C> <C> <C> <C> <C>
Common stock issued on
September 12, 1988 for
$.00009 per share - 0 - $ - 0 - $ - 0 - $ - 0 - $ 15,000
Common stock issued on
March 10, 1989 for
$0.01 per share, net of
underwriter's fees and
other costs - 0 - - 0 - - 0 - - 0 - 257,753
Donated services - 0 - - 0 - - 0 - - 0 - 2,945
Net loss - 0 - - 0 - - 0 - ( 517) ( 517)
------- ------- ----- ---------- ----------
Balance at May 31, 1989 - 0 - - 0 - - 0 - ( 517) 275,181
Donated services - 0 - - 0 - - 0 - - 0 - 14,135
Net loss - 0 - - 0 - - 0 - ( 12,099) ( 12,099)
------- ------- ----- ---------- ----------
Balance at May 31, 1990 - 0 - - 0 - - 0 - ( 12,616) 277,217
Donated services - 0 - - 0 - - 0 - - 0 - 13,559
Net loss - 0 - - 0 - - 0 - ( 71,687) ( 71,687)
------- ------- ----- ---------- ----------
Balance at May 31, 1991 - 0 - - 0 - - 0 - ( 84,303) 219,089
Donated services - 0 - - 0 - - 0 - - 0 - 18,280
Net loss - 0 - - 0 - - 0 - ( 28,122) ( 28,122)
------- ------- ----- ---------- ----------
Balance at May 31, 1992 - 0 - - 0 - - 0 - ( 112,425) 209,247
One for two hundred reverse
stock split on October 23,
1992 - 0 - - 0 - - 0 - - 0 - - 0 -
Common stock subscribed on
May 25, 1993 for $1.00 per
share 30,000 30,000 - 0 - - 0 - 30,000
Donated services - 0 - - 0 - - 0 - - 0 - 73,670
Net loss - 0 - - 0 - - 0 - ( 253,334) ( 253,334)
------- ------- ----- ---------- ----------
Balance at May 31, 1993 30,000 30,000 - 0 - ( 365,759) 59,583
Common stock issued between
July 15, 1993 and October 25, 1993
for $1.00 per share, net
of costs (30,000) (30,000) - 0 - - 0 - 226,052
Common stock issued on March 8,
1994 for services rendered,
valued at $1.00 per share - 0 - - 0 - - 0 - - 0 - 25,500
Donated services - 0 - - 0 - - 0 - - 0 - 102,147
Net loss - 0 - - 0 - - 0 - ( 422,723) ( 422,723)
------- ------- ----- ---------- ----------
Balance at May 31, 1994 - 0 - $ - 0 - $ - 0 - $( 788,482) $( 9,441)
------- ------- ----- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY--CONTINUED
For the Period September 12, 1988 (Inception) to June 30, 1996
(UNAUDITED)
<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
--------- ---------
Net loss - 0 - - 0 -
--------- ---------
Balance at June 30, 1996 7,785,629 $1,029,292
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<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)
- ----- ------ ------- ---------- --------
- - 0 - - 0 - - 0 - ( 7,255) ( 7,255)
- ----- ------ ------- ---------- --------
- - 0 - $ - 0 - $172,008 $(1,435,641) $(234,341)
===== ====== ======= ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Month Ended June 30, 1996 and for the Period
September 12, 1988 (Inception) to June 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Month Ended inception) to
June 30, 1996 June 30, 1996
(Unaudited) (Unaudited)
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ - 0 - $ 16,811
Interest received - 0 - 59,879
Cash paid to suppliers ( 11,687) ( 653,514)
Income taxes paid - 0 - ( 3,704)
---------- ------------
Cash used in operating activities ( 11,687) ( 580,528)
---------- ------------
Cash flows from investing activities:
Purchase of equipment - 0 - ( 77,289)
Purchase of certificates of deposit - 0 - ( 250,473)
Maturity of certificates of deposit - 0 - 250,473
Purchase of marketable equity securities - 0 - ( 293,385)
Proceeds from sale of marketable equity
securities - 0 - 231,961
Loan disbursements - 0 - ( 15,000)
Loan proceeds from related parties 10,354 275,261
Repayments to related parties - 0 - ( 9,889)
Advances to related parties - 0 - ( 44,539)
Acquisition of purchase option - 0 - ( 20,000)
Repayment of note receivable - 0 - 10,000
---------- ------------
Cash provided by investing
activities 10,354 57,120
---------- ------------
Cash flows from financing activities:
Proceeds from issuing common stock - 0 - 620,050
Proceeds from stock subscription - 0 - 30,000
Exercise of stock subscription - 0 - ( 30,000)
Costs associated with public offering
of common stock - 0 - ( 72,297)
Costs associated with private offering
of common stock - 0 - ( 18,948)
---------- ------------
Cash provided by financing
activities - 0 - 528,805
---------- ------------
Net increase (decrease) in cash
and cash equivalents ( 1,333) 5,397
Cash and cash equivalents at beginning
of period 6,730 - 0 -
---------- ------------
Cash and cash equivalents at end of
period $ 5,397 $ 5,397
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS--CONTINUED
For the Month Ended June 30, 1996 and for the Period
September 12, 1988 (Inception) to June 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Sept. 12, 1988
Month Ended (inception) to
June 30, 1996 June 30, 1996
(Unaudited) (Unaudited)
------------------- -----------------
<S> <C> <C>
Reconciliation of net loss to cash
used in operating activities
Net (loss) $ ( 7,255) $ ( 1,435,640)
Noncash charges to net (loss)
Depreciation 1,403 51,885
Write-off of prepaid parts and freight - 0 - 4,951
Amortization of organization costs - 0 - 250
Donated services - 0 - 474,987
Write-off payables/inventory - 0 - 164,248
Write-off note receivable - 0 - 5,000
Forfeited purchase option - 0 - 20,000
Write down on marketable securities - 0 - 2,500
Loss on sale of marketable equity
securities - 0 - 58,924
Increase in prepaid expenses - 0 - ( 6,573)
Increase in deposits - 0 - ( 20,249)
Increase in organization costs - 0 - ( 250)
Increase in accounts payable ( 8,065) 53,689
Increase in accrued expenses 2,230 20,250
Common stock issued for services - 0 - 25,500
----------- -----------
Cash used in operating
activities $ ( 11,687) $ ( 580,528)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
1. Basis of Presentation
- ------------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for month ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
The accompanying financial statements, presented on the accrual basis, include
the balances and accounts of Septima Enterprises, Inc. They do reflect the
balances or accounts of Eco-Logics, Inc., a related party, which was liquidated
on May 26, 1994, since its efforts to obtain a permit from the State of New
Mexico to operate a bio-medical incineration plant were unsuccessful.
On May 31, 1992, the Company issued shares of its common stock to Cottonbloom,
Inc., in exchange for all of the outstanding stock of Eco-Logics. The
transaction effected control of the Company by Cottonbloom and has been
accounted for as a reverse acquisition of the Company by Eco-Logics.
Consolidated financial statements for Eco-Logics previously included the
balances and accounts of the Company.
The 3,960,100 shares issued in the May 31, 1992 transaction, considered to be
recapitalization equity of Eco-Logics, and 2,210,000 shares subsequently issued
to Cottonbloom for certain licenses and technology, were not included in the
Company's stockholders' equity as of May 31, 1994. However, due to the
liquidation of Eco-Logics, Inc., these 6,170,100 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.
36
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
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.
4. Inventory Pricing
- ---------------------
As of June 30, 1996, no inventory exists.
5. Depreciation and Amortization
- ---------------------------------
Costs of organizing the Company have been capitalized and are being amortized by
the straight-line method over sixty (60) months.
The Company's equipment is recorded at cost and depreciated using the
straight-line method over sixty (60) months.
Depreciation expense for the month ended June 30, 1996, is $1,403.
37
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
6. 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.
7. Research and Development Expenses
- -------------------------------------
Research and development expenses are expensed as incurred.
8. Compensation Costs
- ----------------------
Compensation costs are charged to expense for the period in which stock bonus
and award plans are granted.
9. Qualified Retirement/Profit Sharing Plan
- -------------------------------------------
The Company does not maintain a qualified pension or profit sharing plan.
10. Finance Charges
- --------------------
It is the Company's policy to reflect accounts payable net of finance charges.
11. Employees
- --------------
Septima has no payroll. The Company did not have compensated employees during
the review period.
12. 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.
38
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
- ---------------------------------------------------------------
13. 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.
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 June 30, 1996, the issue of going concern is relevant due to a financing
arrangement with Spark Management Corporation providing Septima Enterprises,
Inc., with up to $400,000 of funding. This arrangement will not continue if
Spark Management Corporation does not exercise their $935,000 option to purchase
51 percent of the outstanding shares of Septima Enterprises, Inc., by September
26, 1997. 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 June 30, 1996, the
balance due to Spark Management by Septima was $227,992. Also, $16,965 of
accrued interest was due.
NOTE D--OTHER INCOME
- --------------------
As indicated on the Statement of Operations, other income is comprised of
write-offs of accrued commissions and taxes in the amount of $125.
39
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 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 June 30, 1996:
<TABLE>
<S> <C>
Organization costs $ 250
Reorganization costs 9,075
Stock offering costs 4,910
Sales brochures 2,726
Capitalized R & D 248,496
--------
$ 265,457
========
</TABLE>
The deferred expenses will be amortized over 60 months, beginning in the month
the Company realized benefit from such expenses. As of June 30, 1996,
accumulated amortization of these assets was $105,482. The amortization expense
for the current period is $4,187. For tax purposes, assets are being depreciated
using the modified accelerated cost recovery system. The tax depreciation
expense for the period is $815. See note A5 for description of book
depreciation.
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
Period from
9/12/88
Month Ended (inception)
June 30, 1996 to 6/30/96
------------- ----------
<S> <C> <C>
Federal $ - 0 - $3,091
State - 0 - 256
------ -----
$ - 0 - $3,347
====== =====
</TABLE>
The reconciliation of income tax computed at statutory tax rates to income tax
expense is:
40
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE E--INCOME TAXES--(CONTINUED)
- ---------------------------------
<TABLE>
<CAPTION>
Period from
9/12/88
Month Ended (inception)
June 30, 1996 to 6/30/96
------------- -----------
<S> <C> <C>
Expected tax benefit $ (12,240) $(372,778)
Nondeductible expenses - 0 - 350,049
Provision of deferred tax
valuation allowance 12,240 26,076
--------- --------
Deferred expense $ - 0 - $ 3,347
========= ========
</TABLE>
At June 30, 1996, the Company had net operating losses totaling $560,584
available to offset future income. If not used, they will expire as follows:
<TABLE>
<CAPTION>
Operating
Year Losses
---- ---------
<S> <C>
2008 $101,787
2009 185,068
2010 249,748
2011 13,127
2012 10,854
--------
$560,584
========
</TABLE>
The 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.
The net deferred tax asset in the accompanying Balance Sheet consists of the
following:
<TABLE>
<S> <C>
Deferred tax asset $ 372,778
Deferred tax valuation
allowance $(372,778)
--------
Deferred income taxes $ -0-
========
</TABLE>
41
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE E--INCOME TAXES--(CONTINUED)
- ---------------------------------
A deferred tax valuation allowance has been provided because it is more likely
than not that the related deferred tax benefit will not be realized in the
future.
The Internal Revenue Service approved the change in fiscal year (See Note A13)
submitted on Form 1128 on August 9, 1996.
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 and $474,987 for the month
ended June 30, 1996, and for the period from September 12, 1988 (inception) to
June 30, 1996, respectively.
Private Offering
- ----------------
On July 24, 1994, the Company prepared a private offering pursuant to Regulation
D, in which is offered to accredited investors, 1,000,000 units, at a price of
$2.50 per unit. Each unit consists of one share of restricted common stock and
one warrant to purchase one share of common stock at an exercise price of $4.75
per share. The securities comprising the units are immediately separable. The
warrants are exercisable for a period of 18 months commencing on the date of
their issuance and redeemable by the Company at $0.01 per warrant. Costs
associated with this private offering amount to $6,573 at May 31, 1994, and have
been recorded as a prepaid expense. The offering expired September 1, 1994, but
can be extended by the Company. The Company has not released this offering.
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.
42
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE F--COMMON STOCK--CONTINUED)
- --------------------------------
13-D Registration--(Continued)
- ------------------------------
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
Technology and Patents and Assignment of Technology. The intellectual property
assigned pursuant to these agreements had been licensed to Cottonbloom which had
assigned its rights to Septima. The Technology Assignment replaced the previous
agreements and directly granted Septima rights in the Intellectual Property.
While Spark was negotiating on behalf of Septima to obtain the Technology
Assignment, other partners of the Hensley Partnership were assigning rights in
the Intellectual Property to Pulse Power
43
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE F--COMMON STOCK--CONTINUED)
- --------------------------------
13-D Registration--(Continued)
- ------------------------------
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 Mexico corporation to release
Septima of all claims, suits, demands, debts, dues, accounts, bonds, covenants,
contracts, promises, agreements, judgements,
44
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE G--RELATED PARTY TRANSACTIONS--(CONTINUED)
- -----------------------------------------------
liabilities, obligations, rights, costs, expenses, attorney's fees, and actions
from the beginning of the world to the date of the release.
As a result of this agreement, the following related party amounts were written
off:
<TABLE>
<CAPTION>
Related Party Amount
------------- ------
<S> <C>
Amarillo Valley Ridge $ 13,013.31
CAMI 13,233.56
Cottonbloom 66,080.82
Ecologics 3,735.50
HDI Partner/CB 10,255.49
HDI Partnership 7,939.44
George Hensley 57,750.00
-----------
Total $172,008.12
===========
</TABLE>
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:
<TABLE>
<CAPTION>
Number of Options Date of Grant
----------------- -------------
<S> <C>
160,000 February 22, 1994
500,000 May 1, 1994
50,000 November 16, 1995
25,000 April 1, 1996
</TABLE>
45
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE G--RELATED PARTY TRANSACTIONS--(CONTINUED)
- -----------------------------------------------
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.
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)
The Company has negotiated with Worldwide Associates, an entity in which a prior
officer and current stockholder of the Company have an interest, whereby
Worldwide would be given nearly exclusive distribution rights outside the United
States for the Company's products. The Company considers the agreement void. No
confirmation was received, in a prior period, from Worldwide Associates
regarding their view of the status of the agreement. (See Note K)
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
June 30, 1996, Spark intends that Carrera Corporation, a Pennsylvania
Corporation, 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.
46
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE I--COMMITMENTS
- -------------------
The Company's research, development, and manufacturing activities are conducted
from facilities leased under short-term operating leases. The facilities are
leased by Spark Management Corporation.
An agreement dated March 22, 1994, exists between Septima Enterprises, Inc., and
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, in a prior period, directly with a vendor. The vendor has indicated
legal action will be pursued to collect the difference between Company account
payable amount and vendor amount.
NOTE K--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.
NOTE L--WITHDRAWAL OF DIRECTORS
- -------------------------------
Effective June 24, 1996, two individuals have resigned as Directors of Septima
Enterprises, Inc.
NOTE M--SUBSEQUENT EVENTS
- -------------------------
The Company received a deposit of $125,000 in September 1996 for a customer
order that will total $250,000.
47
<PAGE>
Septima Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
NOTE N--CORRECTION OF ERROR
- ---------------------------
Subsequent to the issuance of the auditors' report for the year ended May 31,
1996, 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, were restated to reflect this. Additionally,
$21,847 of advertising costs included in prepaid expenses were expensed under
general and administrative. Also, $81,558 of costs previously classified as
research and development were reclassified as general and administrative.
As a result of the above corrections, the financial statements for the month
ended June 30, 1996 have been restated as necessary.
48
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: May 19, 1997 SEPTIMA ENTERPRISES, INC.
/s/ R. Edwin Morgan
-----------------------------
R. Edwin Morgan
President, Chief Executive Officer and
Principal Financial Officer
49
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