<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
--------------- ---------------
Commission file number 33-25126-D
----------
SEPTIMA ENTERPRISES, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 85-0368333
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
600 Sandtree Drive
Lake Park FL 33403
----------------------------------------
(Address of Principal Executive Offices)
(561) 624-7299
---------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
---------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers's classes of
common equity, as of the latest practicable date: 8,895,629 as of January 30,
1998.
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
<PAGE>
SEPTIMA ENTERPRISES, INC.
FORM 10-QSB
INDEX
-----
<TABLE>
<CAPTION>
PAGE
PART I: FINANCIAL INFORMATION NUMBER
- ------- --------------------- ------
<S> <C> <C>
Item l. Financial Information:
Financial Statements of Septima Enterprises, Inc.:
Balance Sheet as of December 31, l997.............................2
Statements of Income for the Three Months and the Six
Months ended December 31, 1997, and
December 31, 1996...........................................3
Notes to Financial Statements.....................................4
Item 2. Management's Discussion and Analysis or Plan of Operation............9
PART II: OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings..........................................12
Item 2. Changes in Securities and Use of Proceeds..................12
Item 3. Defaults Upon Senior Securities............................13
Item 4. Submission of Matters to the Vote of Security Holders......13
Item 5. Other Information..........................................13
Item 6. Exhibits and Reports on Form 8-K...........................13
Signature....................................................................16
</TABLE>
1
<PAGE>
SEPTIMA ENTERPRISES, INC.
BALANCE SHEET
DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
December 31,
1997
--------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,178
Accounts receivable 185,278
Inventories 195,225
Prepaid expenses 48,107
Other current assets --
--------------
Total current assets 432,788
--------------
Equipment (net of accumulated depreciation
of $70,152) 48,331
Other assets
Technology license (net of amortization of $11,250) 78,750
--------------
Total assets $ 559,869
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Note payable to related party 337,209
Accounts payable 464,909
Stockholder loan 20,000
Accrued expenses 333,886
Deposits from customers 12,000
Note payable, bank 100,000
Inventory Purchase Receiving 40,495
Payroll Taxes Payable 2,658
--------------
Total current liabilities $ 1,311,157
--------------
Stockholders' equity (deficit)
Preferred stock, no par value, 10,000,000 shares
authorized, no shares issued $ --
Common stock, no par value, 25,000,000 shares
authorized, 8,895,629 shares issued and outstanding 1,466,128
Contributed capital 253,608
Deferred compensation (9,407)
Accumulated (deficit) (2,461,617)
--------------
Total stockholders' equity (deficit) (751,288)
--------------
Total liabilities and stockholders' equity (deficit) $ 559,869
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 16,739 $ 150,800 35,730 150,800
Other income -- -- -- --
----------- ----------- ----------- -----------
Total income 16,739 150,800 35,730 150,800
----------- ----------- ----------- -----------
Costs and expenses
Sales returns/adjustments 1,860 -- 1,860 --
Cost of products sold 103,417 93,649 147,700 93,649
General & administrative 219,194 303,622 434,318 338,763
Research & development 213 8,326 213 11,519
Depreciation & amortization 5,444 4,122 9,966 8,287
----------- ----------- ----------- -----------
Total expenses 330,128 409,719 594,057 452,218
----------- ----------- ----------- -----------
(Loss) before income taxes
and other expenses (313,389) (258,919) (558,327) (301,418)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net (loss) $ (313,389) $ (258,919) (558,327) (301,418)
=========== =========== =========== ===========
Average number of common
shares outstanding 8,838,346 8,235,629 8,736,988 8,010,629
----------- ----------- ----------- -----------
Net (loss) per share $ (.03575) $ (.03143) (.06420) (.03763)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
December 31, 1997
(Unaudited)
NOTE A -- ORGANIZATION AND DEVELOPMENT OF THE COMPANY
The Company was incorporated on September 12, 1988, for the purpose of acquiring
interests in other business entities and commercial technologies. Operations to
date have consisted of acquiring capital, evaluating investment opportunities,
acquiring interests in other businesses and technologies, establishing a
business concept, conducting research and development activities, marketing, and
manufacturing. The Company began making sales on October 16, 1996, and became
operational during the year ended June 30, 1997.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
Basis of Presentation
- ---------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for financial statements. For further
information, refer to the audited financial statements and notes thereto for the
year ended June 30, 1997, included in the Company's Form 10-KSB filed with the
Securities and Exchange Commission on September 26, 1997.
The results of operations for the three month and six month periods ended
December 31, 1997, are not necessarily indicative of the results to be expected
for the entire fiscal year 1998.
Employees
- ---------
All persons working for Septima are paid through Septima. The Company had four
compensated employees during the six month period ended December 31, 1997.
Change of Fiscal Year
- ---------------------
The Company changed its fiscal year from June 1 through May 31 of each calendar
year to July 1 through June 30 of each calendar year commencing with the fiscal
year ended June 30, 1996.
Revenue Recognition
- -------------------
The Company recognizes revenue when the product is manufactured and shipped to
the customer. For the six months ended December 31, 1997, the Company had sales
of $35,730.
4
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
December 31, 1997
(Unaudited)
NOTE C - LINE OF CREDIT - BANK
- ------------------------------
The Company has a line of credit with a bank providing borrowings up to $100,000
at the bank's prime rate plus 1% (9.5% during the period October 1 through
December 31, 1997). The note is payable on demand on April 4, 1998, and accrued
interest is payable monthly. Interest expense of $2,428 was incurred for the
quarter ended December 31, 1997. The agreement is collateralized by certain
assets of an officer of the Company. The balance outstanding on this line of
credit as of December 31, 1997, was $100,000.
NOTE D -- COMMON STOCK
- ----------------------
Private Offering
- ----------------
The Company issued 400,000 shares of common stock at $1.00 per share in May 1997
in connection with a private placement memorandum dated December 5, 1996. Net
proceeds from the offering were $400,000 less related costs of $53,164. The
termination date of this offering was December 5, 1997.
Stock Options
- -------------
The Company has developed a compensation arrangement whereby a marketing
consultant was granted options to purchase up to 75,000 shares of the Company's
common stock. In consideration for the consultant's services, the Company
issued to the consultant an option (the "Base Option") to purchase 50,000 shares
of common stock at an exercise price of $2.00 per share. The Base Option shall
expire and become nonexercisable on August 7, 1999. The Company also issued the
consultant an option (the "Expense Option") to purchase 25,000 shares of common
stock at an exercise price of $1.00 per share. The Expense Option shall expire
and become nonexercisable on August 7, 1998. The Company also agreed to issue
up to 60,000 shares of common stock to the consultant as bonus compensation in
the event that the trading price of the Company's common stock reaches certain
levels. Any stock issued as bonus compensation shall not be registered by the
Company and shall be "restricted securities".
On October 20, 1997, the Company filed with the Securities and Exchange
Commission a Form S-8 Registration Statement. The Registration Statement is
intended to be used to register 867,000 shares of the Company's common stock, no
par value per share, reserved for issuance and delivery pursuant to options
granted to a marketing consultant and options awarded to certain of the
Company's current and former employees, directors, consultants and advisors
between February 22, 1994, and May 19, 1997.
Prior to the date of the Registration Statement, R. Edwin Morgan, President,
Chief Executive Officer and Director of the Company, exercised options to
purchase 250,000 shares of common stock at an exercise price of $.20 per share.
The shares of common stock underlying these options were exercised by Mr. Morgan
and sold to him pursuant to the exemption from
5
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
December 31, 1997
(Unaudited)
NOTE D -- COMMON STOCK (CONTINUED)
- ---------------------------------
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
These shares of common stock are restricted securities as defined in Rule
144(a)(3) and may be sold only in compliance with Rule 144, pursuant to another
applicable exemption from registration under the Securities Act, or pursuant to
an effective Securities Act registration statement.
On November 4, 1997, the Company granted an option to the Company's Vice
President and Secretary to purchase 50,000 shares of the Company's common stock
at an exercise price of $1.00 per share, exercisable within five years from the
date on which the respective rights vest.
On January 9, 1998, the company granted options to three of the Company's
employees in recognition of their service to the Company during calendar 1997.
The options are as follows: one option for 10,000 shares of the Company's common
stock at an exercise price of $0.20 per share, exercisable at any time prior to
January 9, 2003, and two options for 5,000 shares each of the Company's common
stock at an exercise price of $0.20 per share, exercisable at any time prior to
January 9, 2003.
NOTE E -- RELATED PARTY TRANSACTIONS
- ------------------------------------
The Company has negotiated a Manufacturing and Distribution Agreement for Mexico
sales with a company operated by a former director and current shareholder.
Spark Management Corporation ("Spark") entered into a Master Licensing Agreement
dated September 10, 1996, with the Company which culminated an understanding
between the parties reached in September 1995. Spark is owned and managed by
two directors of the Company, R. Edwin Morgan and Louis S. Camilli. The Company
acquired developments, information, proprietary rights and trade secrets
collectively referred to as Ignition Systems and Processes. The Agreement will
terminate ten years following the last expired patent acquired by Spark. Also,
this Agreement is subject to termination or cancellation by both parties based
upon various circumstances explained in the Agreement. In consideration of the
Agreement, Spark has received 450,000 shares of common stock. The Company has
recorded the License Agreement as an asset based upon the estimated fair market
value of the common stock at the time the understanding was reached. Also, the
Company will pay Spark $1 for each Product/Insert sold up to 1,000,000 units;
$.50 for each Product/Insert on the next million aggregate units sold, and $.25
for each Product/Insert sold thereafter.
6
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
December 31, 1997
(Unaudited)
NOTE E -- RELATED PARTY TRANSACTIONS (CONTINUED)
- ------------------------------------------------
The Company entered into a Consulting Agreement with Spark whereby Spark will
provide services to the Company as a consultant for a five year period
commencing September 10, 1996. Spark will be compensated on a cost plus 10
percent basis for the first year. During the final four years, the compensation
will be $250,000 annually, paid quarterly. This Consulting Agreement has been
terminated by mutual consent as of January 24, 1998.
Cottonbloom, Inc., a New Mexico corporation and controlling stockholder of
Septima, executed an Option Agreement on September 26, 1995, granting Spark the
option to acquire at least 51 percent of the outstanding stock of Septima. On
or about September 22, 1997, Spark exercised its option, and the first payment,
under the Option Agreement, was scheduled to be made on December 26, 1997. On
December 24, 1997, an Addendum to the Option Agreement was executed by
representatives for Cottonbloom, Inc. and Spark Management Corporation. The
Addendum grants Spark Management an extension until March 26, 1998. An
additional Addendum to the Option Agreement was executed by representatives for
Cottonbloom, Inc. and Spark Management Corporation on January 28, 1998. This
additional addendum waives the interest payment due Cottonbloom and the
royalties payment due Hensley Plasma Plug Partnership until March 24, 1998, or
until negotiations with potential investors have concluded, whichever is sooner.
The option stock is held in a voting trust pursuant to the terms of a Voting
Trust Agreement dated September 26, 1995. Pursuant to the Option Agreement and
the Voting Trust Agreement, Spark possesses the right to vote 4,307,270 shares
of Septima common stock, representing what is presently approximately 50% of the
outstanding shares of Septima common stock.
Spark has entered into a loan agreement with the Company which allows the
Company to borrow up to $500,000 from Spark. This note bears an interest rate
of 10%, and interest only payments are due annually on September 1. Also,
principal and interest payments are due quarterly based upon a certain amount
per product unit sold. The note payable is in default and, therefore, is due on
demand and has been reflected as a current liability at December 31, 1997. All
unpaid principal and interest is due September 1, 2000. The note is secured by
substantially all of the Company's assets. As of December 31, 1997, the
principal balance due to Spark by Septima was $337,209. Also, $65,811 of
accrued interest was due as of such date.
NOTE F -- COMMITMENTS
- ---------------------
The Company entered into a Manufacturing and Distribution Agreement dated August
23, 1996, with a company for the territory of Mexico. The company is required
to order a minimum number of Products/Inserts per year from Septima Enterprises.
7
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements
December 31, 1997
(Unaudited)
NOTE F -- COMMITMENTS (CONTINUED)
- ---------------------------------
The Company entered into a Manufacturing Agreement dated September 4, 1996. The
Company engaged the manufacturer as its exclusive producer for the entire
requirements for the product produced in the United States. The initial term is
for four (4) years automatically renewable for one (1) year periods.
The Company entered into a Manufacturing and Distribution Agreement dated
February 10, 1997, with a third party distributor for the territory of China and
Taiwan. The distributor is required to order a minimum number of products per
year from Septima Enterprises in the second year and beyond.
The Company entered into a Distribution Agreement dated September 23, 1997, with
a third party distributor for the territory of Australia and New Zealand. The
distributor will be required to order a minimum number of products in the second
year and beyond.
The Company renewed its lease for office space in Lake Park, Florida. The lease
agreement expires September 30, 1998. Monthly rental payments are $2,385.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Except for the historical information contained herein, the matters
discussed in the Form 10-QSB include forward-looking statements that involve
risks and uncertainties, including, but not limited to, the ability to raise
sufficient capital to continue the Company's operations, and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings. Actual results may differ materially from management expectations.
See "Forward-Looking Statements".
Risks Associated with Ongoing Operations of the Company
The Company is currently operating at a net loss. The Company has, in the
past, obtained its working capital through loans from Spark Management
Corporation ("Spark") and from a line of credit with 1st United Bank; however,
the Company has no ability to draw further funds from either of those
facilities. Should new loans or other sources of additional financing not
become available to the Company during the quarter, the Company will be unable
to adequately fund its continuing operations, and, in such event, the Company
will be required to cease its operations at the Lake Park facility.
Results of Operations
Sales for the six months ended December 31, 1997 were $35,730. Sales in
the corresponding period of fiscal 1997 were $150,800. The decrease in sales is
largely due to the lack of sales in Mexico and China.
The Company experienced a net loss of $558,327 for the six months ended
December 31, 1997, compared to a net loss of $301,418 in the prior year period.
This increase in net loss occurred due to increases in general and
administrative expenses, cost of products sold, and the fact that the Company
received no significant sales during the six month period ended December 31,
1997.
General and administrative expenses increased from $338,763 for the six
months ended December 31, 1996, to $434,318 for the six months ended December
31, 1997, an increase of 28%. This increase was due to increases in operating
costs of the Company's office facility, salary costs for two additional
employees, insurance costs, consultants' fees, advertising expenses, and legal
fees and other public company expenses incurred during the six month period
ended December 31, 1997.
Cost of products sold for the six month period ended December 31, 1997,
were $147,700 compared to $93,649 for the prior year period. This increase is
due to increases in manufacturing consulting costs and inventory adjustment
costs incurred during the six month period ended December 31, 1997.
9
<PAGE>
Sales for the six months ended December 31, 1997, were below management's
expectations due to lack of sales in Mexico and Asia. Sales in Mexico are very
slow as a result of the Mexican distributor not having sufficient capital to
advertise or promote the product, and efforts to raise sufficient funds have
produced no results to date. Mexico sales have represented approximately 90% of
the Company's sales in the last 12 months.
Marketing and Distribution
On September 23, 1997, a Distribution Agreement for the territory of
Australia and New Zealand was signed with RH Performance Products, an Australian
sole proprietorship which distributes high performance automotive products in
Australia and New Zealand.
The Company placed advertisements in Hot Rod and Car Craft magazines, both
publications of Petersen Publishing Company, L. L. C., during the months of
October, November, and December 1997. Advertisements have also appeared in
National Dragster, a publication of the NHRA (National Hot Rod Association). In
addition, the Company has implemented a site on the World Wide Web
(www.directhits.com). These marketing efforts have resulted in sales of the
Company's products though not in the volume that the Company initially expected.
Sales resulting from the Company's web site have increased each month since the
web site's implementation, and the Company believes that sales from this effort
will continue to increase at a steady pace.
Liquidity and Capital Resources
The Company's operations for the six months ended December 31, 1997, were
financed by revenues from sales, a $100,000 line of credit from 1st United Bank,
Lake Park, Florida, and loans from Spark to the Company. Should new loans or
sources of additional financing not become available to the Company by the end
of January 1998, the Company will be forced to cease operations.
As of December 31, 1997, current liabilities exclusive of short-term
borrowing and accrued interest totaled $1,145,346. Included in this amount is
$160,000 accrued salary for the President and Chief Executive Officer. Also
included in the $1,145,346 are $156,676 in consulting fees due to Spark,
$108,712 in accrued royalties, $113,077 due for finished goods, and
approximately $139,615 in advertising, legal and accounting fees.
As of December 31, 1997, the balance due to Spark was $337,209 in principal
and $65,811 in accrued interest. Septima has drawn $100,000 of the $100,000
line of credit with 1st United Bank.
As of December 31, 1997, accounts receivable due to Septima totaled
$185,278 compared to $233,395 at fiscal year end June 30, 1997. The majority of
the current accounts receivable is due from one of the Company's distributors
and is now over 90 days past due. The matter has been discussed with the
distributor, and he is seeking outside financing or considering selling an
interest in his company to raise working capital.
10
<PAGE>
On December 5, 1996, the Board of Directors authorized a private placement
of 1,100,000 shares of Septima common stock at a price of $2.00 per share, the
proceeds of which were used for product manufacture, advertising and marketing
in the United States. The private placement was revised on April 1, 1997, to
sell 2,200,000 shares of Septima common stock at a price of $1.00 per share to
reflect current market value and was made by the Company in reliance upon Rule
506 of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). The Company broke escrow on May 30, 1997, and issued to
purchasers 400,000 shares of common stock at a price of $1.00 per share on June
30, 1997. This private placement offering terminated on December 5, 1997.
Forward-Looking Statements
The foregoing Management's Discussion and Analysis or Plan of Operation
contains various "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including without limitation the following: methods of and plans for
conducting future operations; the ability of the Company to continue to conduct
future operations; changes in the Company's sales, costs, expenses and other
financial information; changes or adjustments in the Company's marketing and
business strategies; the Company's ability to raise additional capital or secure
additional credit facilities or other future sources of financing, if necessary
for the Company to do so; and the sufficiency of the Company's cash provided by
operating, investing and financing activities of the Company's future liquidity
and capital resource needs.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, including without limitation
the following: general economic conditions; availability of additional sources
of operating or investment capital; specific economic conditions relating to the
production of automotive parts that implement HDI technology; the demand for the
Company's products; the size and timing of future orders and new contracts:
effects of fluctuations in the value of foreign currencies in relation to the U.
S. dollar; production delays or manufacturing inefficiencies; management
decisions to commence or discontinue product lines; the Company's ability to
design and introduce new products or product enhancements on a cost-effective
and timely basis; the amount and timing of research and development
expenditures; the maintenance of present and the availability of future
manufacturing and distribution relationships, strategic alliances and joint
marketing or servicing agreements; the introduction of new products and product
enhancements by competitors; the budgeting cycle of customers; changes in the
level of operating expenses; and the present and future level of competition in
the industry. As a result of these and other important factors, the results
actually achieved may differ materially from expected results included in these
statements.
11
<PAGE>
Outlook
New business opportunities and sources of additional capital are being
actively pursued both domestically and internationally. Raising substantial
capital is essential to implementing a complete marketing program in the United
States. Management will be unable to fund the ongoing operating expenses of the
Company or properly market the Company's products unless it succeeds in getting
the required funds. While the Company remains optimistic that the required
funds needed will be forthcoming, it is projecting that if the needed funds are
not received by the end of the third quarter, the Company will be forced to
cease operations.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds
On October 20, 1997, the Company filed with the Securities and Exchange
Commission a Form S-8 Registration Statement. The Registration Statement is
intended to be used to register 867,000 shares of the Company's common stock, no
par value per share, reserved for issuance and delivery pursuant to options
granted to a marketing consultant and options awarded to certain of the
Company's current and former employees, directors, consultants and advisors
between February 22, 1994, and May 19, 1997.
On October 16, 1997, R. Edwin Morgan, President, Chief Executive Officer
and Director of the Company, exercised options to purchase 250,000 shares of
common stock at an exercise price of $.20 per share. The shares of common stock
underlying these options were exercised by Mr. Morgan and sold to him pursuant
to the exemption from registration provided by Section 4(2) of the Securities
Act. These shares of common stock are restricted securities as defined in Rule
144(a)(3) and may be sold only in compliance with Rule 144, pursuant to another
applicable exemption from registration under the Securities Act, or pursuant to
an effective Securities Act registration statement.
On November 4, 1997, the Company granted an option to the Company's Vice
President and Secretary to purchase 50,000 shares of the Company's common stock
at an exercise price of $1.00 per share, exercisable within five years from the
date on which the respective rights vest.
On January 9, 1998, the company granted options to three of the Company's
employees in recognition of their service to the Company during calendar 1997.
The options are as follows: one option for 10,000 shares of the Company's common
stock at an exercise price of $0.20 per share, exercisable at any time prior to
January 9, 2003, and two options for 5,000 shares each of the Company's common
stock at an exercise price of $0.20 per share, exercisable at any time prior to
January 9, 2003.
12
<PAGE>
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to the Vote of Security Holders
On September 26, 1997, a Notice of Annual Meeting of Shareholders to be
held on October 24, 1997, a Proxy Statement, and a Proxy were mailed to
shareholders of record at the close of business on September 15, 1997. The
Proxy requested votes on the following two proposals: (1) the election of
directors and (2) the ratification of the selection of the accounting firm of
McGladrey & Pullen, LLP as the Company's independent auditors for the fiscal
year ending June 30, 1998.
At the Annual Meeting of Shareholders on October 24, 1997, there were
present, either by proxy or in person, 5,948,979 shares of Septima's common
stock. The number of shares of Septima common stock issued and outstanding on
the record date (September 15, 1997) was 8,635,629. The number of shares present
at the Annual Meeting constituted 68.89% of the issued and outstanding stock of
the Company, which established a proper quorum for such meeting. Of the
5,948,979 shares present at the Annual Meeting, all 5,948,979 shares were voted
for the election of the following persons to continue to serve as directors of
the Company: Louis S. Camilli, Ronald J. Costello, Roy H. Davidson, Darryl J.
Dillenback, and R. Edwin Morgan. With regard to the ratification of the
selection of the accounting firm of McGladrey & Pullen, LLP as the Company's
independent auditors for the fiscal year ending June 30, 1998, of the 5,948,979
shares present, 5,947,954 shares were voted in favor of the ratification, and
there were 1,025 shares that abstained from voting.
Item 5. Other Information
On January 30, 1998, the Company will file a Form 8-K stating that the
following directors resigned from the Board of Septima Enterprises, Inc.
effective January 25, 1998: Ronald J. Costello, Roy H. Davidson, and Darryl J.
Dillenback.
Item 6. Exhibits, List and Reports on Form 8-K
Exhibit Index
3.1 Articles of Incorporation of the Company, as amended(8)
3.2 Bylaws of the Company, as amended(8)
4.1 Form of Common Stock Certificate(8)
4.2 Agreement dated August 8, 1997, by and between the Company and First
American Financial Group(9)
4.3 Form of Septima Enterprises, Inc. Stock Option Agreement, between the
Company and certain of the Optionees, with respect to non-transferable
options(9)
4.4 Form of Septima Enterprises, Inc. Stock Option Agreement, as amended,
between the Company and certain of the Optionees, with respect to options
with limited transferability(9)
13
<PAGE>
Item 6 Exhibits and Reports on Form 8-K (Continued)
9.1 Voting Trust Agreement dated September 26, 1995, by and between
Cottonbloom, Inc. And Spark(3)
9.2 Irrevocable Proxy dated May 1, 1995(3)
10.1 Management and Operating Agreement dated April 14, 1995, by and among
Spark, the Company and George Hensley(3)
10.2 Option Agreement dated September 26, 1995, by and among Cottonbloom, Inc.
and Spark(3)
10.3 Agreement for Assignment of Technology and Patents dated September 26,
1995, by and among Hensley Plasma Plug Partnership and the Company(3)
10.4 Settlement Memorandum dated November 16, 1995, by and among Cottonbloom,
Inc., Spark, Hensley Plasma Plug Partnership, Pulsed Power Technologies
Co., Ltd., Allan J. Hisey, George Hensley, James Robert Hensley, Raymond
Hensley, Francisco Urrea, Jr., David Norvell, Samuel Francis and the
Company(3)
10.5 Mutual Release in Full dated December 4, 1995, by and among Cottonbloom,
Inc., Spark, Hensley Plasma Plug Partnership, Pulsed Power Technologies
Co., Ltd., Allan J. Hisey, George Hensley, James Robert Hensley, Raymond
Hensley, Ronald Hensley, Francisco Urrea, Jr., David Norvell, Samuel
Francis and the Company(3)
10.6 Manufacturing and Distribution Agreement dated August 23, 1996, by and
between the Company and Klaire International, Ltd.(4)
10.7 Manufacturing Agreement dated September 4, 1996, by and between the
Company and Carrera Corporation(5)
10.8 Manufacturing and Distribution Agreement dated February 10, 1997, by and
between the Company and S.W.R. Industries, Ltd.(7)
10.9 Consulting Agreement dated September 10, 1996, by and between the Company
and Spark(6)
10.10 Promissory Note and Security Agreement dated September 9, 1996, by and
between the Company and Spark(8)
10.11 Master Licensing Agreement dated September 10, 1996, by and between
the Company and Spark(8)
10.12 Employment Agreement dated September 1, 1996, by and between the
Company and R. Edwin Morgan(8)
10.13 Distribution Agreement dated September 23, 1997, by and between the
Company and RH Performance Products(2)
10.14 Addendum dated December 24, 1997, to the Option Agreement by and
between Spark Management and Cottonbloom, Inc. dated September 26, 1995(1)
10.15 Addendum dated January 28, 1997, to the Option Agreement by and
between Spark Management and Cottonbloom, Inc. dated September 26, 1995(1)
11.1 Statement Regarding Computation of Per Share Earnings(1)
27.1 Financial Data Schedule for three and six months ended December 31,
1997(1)
- -----------------------------
(1) Filed as an exhibit hereto.
(2) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended September 30, 1997, as
filed with the Commission on November 14, 1997 (File No. 33-25126-D).
14
<PAGE>
Item 6 Exhibits and Reports on Form 8-K (Continued)
(3) Previously filed as an exhibit to the Company's Annual Report to
Shareholders on Form 10-KSB for the year ended May 31, 1996, as filed with
the Commission on August 29, 1996 (File No. 33-25126-D).
(4) Previously filed as an exhibit to the Company's Form 8-K, as filed with the
commission on September 23, 1996, and as amended by Form 8-K/A, as filed
with the commission on September 27, 1996.
(5) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended September 30, 1996, as
filed with the Commission on November 14, 1996, as amended by Amendment No.
1 on Form 10-QSB/A, as filed with the Commission on December 3, 1996, and
as amended by Amendment No. 2 on Form 10-QSB/A, as filed with the
Commission on May 23, 1997 (File No. 33-25126-D).
(6) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended December 31, 1996, as
filed with the Commission on February 14, 1997, and as amended by Amendment
No. 1 on Form 10-QSB/A, as filed with the Commission on May 22, 1997 (File
No. 33-25126-D).
(7) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended March 31, 1997, as filed
with the Commission on May 14, 1997 (File No. 33-25126-D).
(8) Previously filed as an exhibit to the Company's Annual Report to
Shareholders on Form 10-KSB for the year ended June 30, 1997, as filed with
the Commission on September 26, 1997 (File No. 33-25126-D).
(9) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, as filed with the Commission on October 20, 1997 (File No. 333-
38273).
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the six months
ended December 31, 1997.
On January 30, 1998, the Company will file a Form 8-K stating that the
following directors resigned from the Board of Septima Enterprises, Inc.
effective January 25, 1998: Ronald J. Costello, Roy H. Davidson, and Darryl J.
Dillenback.
15
<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: February 6, 1998 SEPTIMA ENTERPRISES, INC.
/s/ R. Edwin Morgan
-------------------------------------------
R. Edwin Morgan
Director, Chairman of the Board,
President and Treasurer
16
<PAGE>
EXHIBIT 10.14
-------------
ADDENDUM
To the Option Agreement by and between Spark Management, Inc., a Pennsylvania
corporation, and Cottonbloom, Inc., A New Mexico corporation dated September 26,
1995.
WHEREAS: The first quarterly installment under the terms of the Option
Agreement, One Hundred Twenty-Five Thousand and 00/100 Dollars, is due on
December 26, 1997.
WHEREAS: Spark Management desires to move the calendar of payments forward
ninety (90) days. The first payment to be due on March 26, 1998 and all other
payments in successive quarters as per the Option Agreement.
WHEREAS: Spark Management is in negotiations to secure permanent financing for
the project underlying the Option and requires the additional time to conclude
those negotiations.
WHEREAS: Cottonbloom believes it is in the best interests of all parties to
grant Spark Management the additional time to conclude the negotiations.
NOW, THEREFORE, in consideration of the facts set forth in the recitals above
and intending to be legally bound hereby, Cottonbloom and Spark Management agree
as follows:
1. Spark Management shall be granted an extension until January 31, 1998.
2. If Spark Management has identified a financing source and is in final
negotiations prior to January 31, 1998, Spark shall pay $10,000 against interest
due under the Option Agreement and have an additional sixty (60) days to
complete the financing agreement.
3. The first payment due under the Option Agreement, provided Spark Management
is granted the additional sixty (60) day extension, is hereby reset to March 26,
1998.
4. All succeeding quarterly payments shall fall on the last day of the quarter
following the prior payment.
Dated this 24th day of December, 1997.
/s/ George Hensley /s/ R. Edwin Morgan
-------------------- --------------------------
for Cottonbloom, Inc For Spark Management, Inc.
12/24/97
<PAGE>
Exhibit 10.15
ADDENDUM
To the Option Agreement by and between Cottonbloom, Inc. (hereinafter
Cottonbloom), a New Mexico corporation and Spark Management Corporation
(hereinafter Spark), a Pennsylvania corporation, dated September 26, 1995.
WHEREAS: A previous addendum to the Option Agreement was executed December 24,
1997 extending the Option period under the Option Agreement to January 31, 1998,
and
WHEREAS: The December 24, 1997 addendum provided for a further extension to
March 24, 1998 upon payment by Spark to Cottonbloom of $10,000 against interest
due under the Option Agreement, and
WHEREAS: The December 24, 1997 addendum references the reason for the extension
as being the negotiations of a financing for Septima Enterprises, Inc.
(hereinafter Septima) between Spark and certain investment bankers and venture
capitalists, and
WHEREAS: Spark and Cottonbloom are desirous of completing the financing
negotiations.
NOW, THEREFORE, in consideration of the facts set forth in the recitals above
and intending to be legally bound hereby, Cottonbloom and Spark agree as
follows:
1. Cottonbloom waives the $10,000 interest payment and Spark is hereby granted
an extension of the Option period to March 24, 1998 or until the
negotiations with the investors introduced by the Chenoweth Group have
concluded, whichever is sooner.
2. Spark will on a regular basis keep Cottonbloom advised of the status of the
negotiations during the extension period and upon receiving funds from a
successful negotiation, will within five days from receipt, pay to
Cottonbloom $10,000 against interest due under the Option Agreement.
3. Royalties due Hensley Plasma Plug Partnership (HP3) under the Assignment of
Patents dated September 26, 1995 between HP3 and Septima by January 31,
1998 will be waived during the extension period pending agreement with the
new Septima equity investment group.
4. Royalties due Spark under the Technology License Agreement will be waived
during the extension period pending agreement with the new Septima equity
investment group.
Dated this 28th day of January, 1998
/s/ George Hensley /s/ R. Edwin Morgan
- ----------------------------------- --------------------------------
for Cottonbloom, Inc. for Spark Management Corp.
/s/ J. Robert Hensley
- -----------------------------------
for Hensley Plasma Plug Partnership
<PAGE>
Exhibit 10.15
-------------
ADDENDUM
To the Option Agreement by and between Cottonbloom, Inc. (hereinafter
Cottonbloom), a New Mexico corporation and Spark Management Corporation
(hereinafter Spark), a Pennsylvania corporation, dated September 26, 1995.
WHEREAS: A previous addendum to the Option Agreement was executed December 24,
1997 extending the Option period under the Option Agreement to January 31, 1998,
and
WHEREAS: The December 24, 1997 addendum provided for a further extension to
March 24, 1998 upon payment by Spark to Cottonbloom of $10,000 against interest
due under the Option Agreement, and
WHEREAS: The December 24, 1997 addendum references the reason for the extension
as being the negotiations of a financing for Septima Enterprises, Inc.
(hereinafter Septima) between Spark and certain investment bankers and venture
capitalists, and
WHEREAS: Spark and Cottonbloom are desirous of completing the financing
negotiations.
NOW, THEREFORE, in consideration of the facts set forth in the recitals above
and intending to be legally bound hereby, Cottonbloom and Spark agree as
follows:
1. Cottonbloom waives the $10,000 interest payment and Spark is hereby granted
an extension of the Option period to March 24, 1998 or until the
negotiations with the investors introduced by the Chenoweth Group have
concluded, whichever is sooner.
2. Spark will on a regular basis keep Cottonbloom advised of the status of the
negotiations during the extension period and upon receiving funds from a
successful negotiation, will within five days from receipt, pay to
Cottonbloom $10,000 against interest due under the Option Agreement.
3. Royalties due Hensley Plasma Plug Partnership (HP3) under the Assignment of
Patents dated September 26, 1995 between HP3 and Septima by January 31,
1998 will be waived during the extension period pending agreement with the
new Septima equity investment group.
4. Royalties due Spark under the Technology License Agreement will be waived
during the extension period pending agreement with the new Septima equity
investment group.
Dated this 28th day of January, 1998
/s/ R. Edwin Morgan
- ----------------------------------- --------------------------------
for Cottonbloom, Inc. for Spark Management Corp.
/s/ J. Robert Hensley
- -----------------------------------
for Hensley Plasma Plug Partnership
<PAGE>
SEPTIMA ENTERPRISES, INC. EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, December 31,
1997 1996
--------------------------------------------
<S> <C> <C>
Net (loss) $ (313,389) $ (258,919)
============================================
Determination of shares:
Weighted average number of common
shares outstanding 8,838,346 8,235,629
Shares issuable on exercise of stock
options, net of shares assumed to
be repurchased * *
--------------------------------------------
Average common shares outstanding
for fully diluted computation 8,838,346 8,235,629
============================================
Earnings per common share:
Primary $ (.03575) $ (.03143)
Fully diluted (.03575) (.03143)
- ------------------------
</TABLE>
*Shares not included in computation since effect is anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> OCT-01-1997 JUL-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 4,178 4,178
<SECURITIES> 0 0
<RECEIVABLES> 185,278 185,278
<ALLOWANCES> 0 0
<INVENTORY> 195,225 195,225
<CURRENT-ASSETS> 432,788 432,788
<PP&E> 127,081 127,081
<DEPRECIATION> 81,402 81,402
<TOTAL-ASSETS> 559,869 559,869
<CURRENT-LIABILITIES> 1,311,157 1,311,157
<BONDS> 0 0
0 0
0 0
<COMMON> 1,466,128 1,466,128
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 559,869 559,869
<SALES> 16,739 35,730
<TOTAL-REVENUES> 16,739 35,730
<CGS> 103,417 147,700
<TOTAL-COSTS> 330,128 594,057
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (313,389) (558,327)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (313,389) (558,327)
<EPS-PRIMARY> (.035) (.064)
<EPS-DILUTED> (.035) (.064)
</TABLE>
