U. S. SECURITIES AND EXCHNAGE COMMISSION
Washington, D. C. 20549
Form 10 - KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXHNAGE ACT OF 1934
For the fiscal year ended June 30, 1998
[ ] TRANSISITION 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.
----------------------------------------------
(Name of small business issuer in its charter)
Colorado 85-0368333
------------------------------- ------------------------------------
(State or other Jurisdiction of (I.R.S. Employee Identification No.)
Incorporation or Organization)
15945 Quality Trail North, Scandia, MN 55073
---------------------------------------------------
(Address of principal executive offices) (zip code)
(651) 433-3522
-----------------
Registrant's telephone number, including area code
Securities registered under Section 12 (b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer has (1) filed all reports required to be files
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No X
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended June 30, 1998, were
$38,127.
As of August 1, 2000, the aggregate market value of the registrant's
Common Stock held by non-affiliates computed by reference to the average bid and
asked price of $0.01 for such stock as of such date was $27,521.45
As of August 1, 2000, there were 8,995,629 shares of Common Stock
issued and outstanding.
Transitional Small Business Disclosure Format : Yes No X
--- ---
<PAGE>
TABLE OF CONTENTS
-----------------
Page No.
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 4
ITEM 3. LEGAL PROCEEDINGS 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIY HOLDERS 4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS 4
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 6
ITEM 7. INDEX TO FINANCIAL STATEMENTS 10
ITEM 8. CHANGES AND DISAGREEMENTS WITH
ACCOUNTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES 10
PART III
ITEM 9. OFFICERS AND DIRECTORS 10
ITEM 10. EXCEUTIVE COMPENSATION 11
ITEM 11. SECURITY OWNERSHIP OF CERTIN BENEFICIAL
OWNERS AND MANAGEMENT 11
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. 12
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
2
<PAGE>
Caution Regarding Forward-Looking Information
----------------------------------------------
This annual report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company or
management as well as assumptions made by and information currently available to
the Company or management. When used in this document, the words "anticipate",
"believe", "estimate", "expect" and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions, including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Septima Enterprises, Inc. (the "Company"," Septima" or "Registrant")
was incorporated under the laws of the State of Colorado on September 12, 1988.
The Company was formed for the purpose of creating a corporate vehicle to locate
and acquire by merger, acquisitions or otherwise, an interest or interests in
private business entities seeking relationship with a public company. The
Company became operational during the second quarter ended December 31, 1996,
and began making sales on October 16, 1996.
In 1995, Septima was a company whose only assets were laboratory
equipment and licenses. During 1996, Spark Management Corporation ("Spark"), a
Pennsylvania corporation, negotiated control of Septima. Under the leadership of
Spark, Septima had been brought current on all legal and financial requirements.
The Company obtained a product, Direct Hits/TM/. It was a bipolar,
coaxial, high-voltage capacitor derived from electromagnetic and pulsed power
technology. The Company developed two different models for its product line. The
Model S-100 was intended for the automotive market, while the S-80 is marketed
to the recreation vehicle markets such as motorcycles, marine outboards and jet
skis. This unique new patented high-power capacitor dramatically increases the
performance of spark initiated internal combustion engines. The market sought
had been the global automotive market, though the product could be used in
yachts, motorcycles and other combustion engines.
The Company had began marketing its product, Direct Hits/TM/, in 1996.
A Manufacturing and Distribution Agreement for the territory of Mexico was
signed with Klaire International, Ltd., an international company with operations
in the United States and Mexico. Klaire, through their Mexican affiliate, Urvana
International, tested the product in August 1996 at Consa Ford in Mexico City,
where the emission test results were immediate and conclusive.
In February 1997 a Manufacturing and Distribution Agreement for the
Territory of China, Taiwan, Macao and Hong Kong had been signed with S. W. R.
Industries, Ltd. In June 1997 the Moviemiento Ecologista Mexicano, A. C.
endorsed the product which was known as "Avispon" in Mexico.
In September 1996 the Company had entered into an exclusive
Manufacturing Agreement with Carrera Corporation, Latrobe Pennsylvania wherein
said Company was designated as the exclusive produced for Septima's product for
an initial term of four years.
The Company, due to the unsuccessful nature of its initial operations,
ceased all business in February 1998. In September 1998, Sparks Management
Corporation filed a Civil Suit in The Circuit Court of The Fifteenth Judicial
Circuit, in and for Palm Beach County, Florida, and obtained a Judgement against
Septima in the amount of $1,231,485. On October 16, 1998 a Writ of Garnishment
was served on First Union National Bank. Subsequent thereto, on October 22,
1998, a Judicial Sale of all of the assets of the Company was performed to
satisfy the Judgement.
The Company has had no operations, assets or liabilities since its
fiscal year ended in June 30, 1998. Accordingly, the Company is dependant upon
management and/or significant shareholders to provide sufficient working capital
to preserve the integrity of the corporate entity at this time. Adoption of New
Business Plan and Actions Relating thereto.
3
<PAGE>
To remedy this situation, and to get Septima back as a full reporting
company, the Board determined that specific actions were required which had the
possibility of returning value to the shareholder of Septima. In conjunction
therewith the Board of Directors on June 27, 2000 entered into an Agreement with
M. D. Price, Jr., acting as Escrow Agent ("Price"), whereby the Board agreed
that it would deliver to Price 4,916,876 shares of common stock to Price,
currently held by Richard Urrea (the President and sole Director at that time)
and other insiders. This transfer has not been completed as of the date hereof.
Price agreed to seek and obtain a suitable merger or acquisition agreement with
an on-going privately owned business; engage a qualified public accounting firm
to audit the corporate financial records; validate the corporation's corporate
status and facilitate the filing of all delinquent reports with the U. S.
Securities and Exchange Commission. Price in addition agreed to attempt to
settle the Company's remaining outstanding liabilities, believed to be
approximately $60,000.
As the next step, the Board of Directors, consisting of Richard Urrea,
all other Directors having resigned, on July 12, 2000 appointed new Directors,
consisting of Gregory Johnson, Richard Heidmann and Paul Nichols. Mr. Urrea then
resigned. New Officers were then elected consisting of Gregory Johnson,
President and Chief Executive Officer; Robert Heidmann, Vice-President; Paula
Nichols, Secretary/Treasurer and Chief Financial Office.
INTELLECTUAL PROPERTY
All Intellectual Property of the Company was sold under Judicial Sale
in October 1998.
ITEM 2. DESCRIPTION OF PROPERTY
The Company has no Office space under lease at this time. It principal
office had been in Lake Park, Florida, which was occupied until the later part
of 1998. Currently the Company's principal office is being maintained, at no
cost to the Company, in the Office of the Company's General Counsel, at 15945
Quality Trail North, Scandia, MN 55073.
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 1998 the Company was subject to a Civil Suit commenced
by Sparks Management Corporation who took a Judgement against the Company. A
Judicial sale of all of the Company's assets was conducted in October 1998 to
satisfy this Judgement. There are no continuing obligations of the Company as a
result of this litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no shareholder meeting and no matters were submitted to the
security holders for a vote suring the fourth quarter of the fiscal year ended
June 30, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of June 30, 1999 there were 8.995,629 shares of no par value common
stock (the "Common Stock") of the Company outstanding and owned of record by 192
shareholders of record and Cede has 801,136 shares represented by 46 separate
certificates. On December 21, 1998 the Company amended its Articles of
Incorporation to eliminate all previously authorized preferred stock and
increased its authorized capitalization from 10,000,000 shares to 100,000,000
shares. Since May 1995 the Company's Common Stock has been publicly traded on
the National Association of Securities Dealers electronic bulletin Board System
under the symbol "SEPP".
4
<PAGE>
The following Table sets forth the range of high and low prices per
share of Common stock for each of the periods indicated.
High Low
FY 1997-1998 by quarter:
Quarter Ended September 30, 1996 1.75 .75
Quarter Ended December 31, 1996 1.50 .57
Quarter Ended March 31, 1997 1.00 .9375
Quarter Ended June 30, 1997 1 .875
FY 1997-1998 by quarter
Quarter Ended September 30, 1997 .25 .25
Quarter Ended December 31, 1997 .125 .125
Quarter Ended Marc 31, 1998 .25 .0156
Quarter Ended June 30, 1998 .065 .065
The Company has issued the following Options to purchase shares of its
Common Stock, in the amounts and price as indicated and for the periods as set
out:
NAME NO. OF OPTIONS EXERCISE PRICE EXPIRATION DATE
---- -------------- -------------- ---------------
Spencer 25,000 $1.00 10/16/00
Hisley 25,000 1.00 11/15/00
Casler 200,000 1.00 9/9/01
Miller 12,500 1.00 9/30/01
Darling 4,500 0.50 10/1/01
Baker 25,000 1.00 5/18/02
Dillenback 20,000 1.00 9/9/02
Darling 50,000 1.00 11/4/02
Costello 20,000 1.00 12/13/02
Davidson 20,000 1.00 12/13/02
Darling 10,000 0.20 1/9/03
Kiang 5,000 0.20 1/9/03
Morgan 5,000 0.20 1/9/03
Cambro Construction 35,000 1.00 1/25/04
R. Edwin Morgan 350,000 1.00 1/25/04
Spark Management 340,000 1.00 1/25/04
Canilli 62,500 0.20 1/31/04
In addition the Company entered into a Mutual Release of all claims,
demands, causes of action, right, costs, judgement, fees, expenses and any other
liabilities of every kind and nature now or hereafter existing with Spark
Management Corporation on January 25, 1999. In consideration for the Release
Septima granted an Option to Spark to purchase 340,000 shares at $1.00 per
share.
The same type of Mutual Release was entered into on January 25, 1999
between Septima and R. Edwin Morgan for right to purchase 330,0000 shares at
$1.00 per share.
The same type of Mutual Release was entered into on January 25, 1999
between Cambro Construction and Septima wherein Cambro has the right to purchase
35,000 shares at $1.00 per share.
COMMON STOCK TRANSACTIONS
The Company issued 400,000 shares of common stock at $1 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 expiration date of this memorandum was December 5, 1997.
On September 9, 1997, the Company entered an agreement with a New
Mexico based law firm whereby the Company issued 10,000 restricted, unregistered
shares of the Company's common stock as full and complete payment of law firm's
charges for services The shares were physically issued on October 28, 1997.
These shares of common stock were issued 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.
5
<PAGE>
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 October 20, 1997, the Company filed with the Securities and Exchange
Commission a Form S-8 Registration Statement. The Registration Statement
registered 867,000 shares of the Company's common stock, 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. No shares
under this Registration Statement have been sold or otherwise issued.
On February 12, 1998, the Company sold an aggregate 100,000 shares of
restricted, unregistered common stock to two unrelated individuals at a price of
$0.30 per share for gross proceeds of approximately $30,000. There were no
direct expenses related to the sale of these securities. The shares were
physically issued in March 1998. These shares of common stock were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act. These shares of common stock are restricted securities as
defined in Rule 144(a)(3) and may be sold only in compliance with Rule 144,
pursuant to another applicable exemption from registration under the Securities
Act, or pursuant to an effective Securities Act registration statement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANAYLSIS OR PLAN OF OPERATION
The current management group intends to actively to seek, investigate
and, if warranted, acquire an interest in one or more business opportunities or
ventures. As of the date hereof, the Registrant has divested itself of all
operating assets and has no business opportunities or ventures under
contemplation for acquisition but proposes to investigate potential
opportunities in the form of investors or entrepreneurs with a concept which has
not yet been placed in operation, or in the form of firms which are developing
companies in need of limited additional funds for expansion into new products or
services, and which are seeking to develop a new product or service. The
Registrant may also seek out established businesses which may be experiencing
financial or operational difficulties and are in need of the limited additional
capital the Registrant could provide. The Registrant anticipates that it will
seek to merge with an existing business. After the merger, the surviving entity
will be the Registrant (Septima Enterprises, Inc.); however, management from the
acquired entity will in all likelihood operate the Registrant. There is,
however, a remote possibility that the Registrant may seek to acquire and
operate an ongoing business, in which case the existing management might be
retained. Due to the absence of capital available for investment by the
Registrant, the types of businesses seeking to be acquired by the Registrant
will no doubt be smaller and higher risks of businesses. In all likelihood, a
business opportunity will involve the acquisition of or merger with a
corporation which does not need additional cash but which desires to establish a
public trading market for its Common Stock. Accordingly, the Registrant's
ability to acquire any business of substance may be extremely limited.
During July-August 2000, the Registrant will experience a change in
control due a change in management and the acquisition of 5,000,0000 shares of
common stock of the Registrant by M. D. Price, Jr., Escrow Account.. It is the
intent of the then controlling shareholder and management to continue seeking a
suitable situation for merger or acquisition. Further, the Registrant is
dependent upon management and/or significant shareholders to provide sufficient
working capital to preserve the integrity of the corporate entity during this
phase. It is the intent of management and significant shareholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity.
The Registrant does not propose to restrict its search for investment
opportunities to any particular industry or geographical location and may,
therefore, engage in essentially any business, anywhere, to the extent of its
limited resources.
It is anticipated that business opportunities will be available to the
Registrant and sought by the Registrant from various sources, throughout the
United States and Canada, including its Officers and Directors, professional
advisors such as attorneys, accountants, securities broker(s)/dealer(s), venture
capitalists, members of the financial community, other businesses and others who
may present solicited and unsolicited proposals. The Registrant also anticipates
soliciting proposals through financial periodicals and newspapers. The reason
for this approach is to attract the most favorable business opportunities and
ventures available. Management believes that business opportunities and ventures
will become available to it following the effective date of this Registration
Statement, due to a number of factors, including, among others: a) Management's
willingness to enter into unproven, speculative ventures; b) Management's
contacts and acquaintances; and, c) the Registrant's flexibility with respect to
the manner in which it may structure potential financing and/or acquisitions.
However, there is no assurance that the Registrant will be able to structure or
finance and/or acquire any business opportunity or venture.
6
<PAGE>
Operation of the Registrant
---------------------------
The Registrant intends to search throughout the United States and
Canada for a merger/acquisition candidate, however, because of the lack of
capital, the Registrant believes that the merger/acquisition candidate will be
conducting business within a limited geographical area. In the event of a
consummation of a merger or acquisition with a suitable candidate, it is highly
probable that the Registrant's principal offices will be relocated to the
existing office of the merger or acquisition candidate. Further the Registrant
may also have offices at such other places as the Board of Directors may from
time to time determine or the future business, subsequent to the consummation of
a merger or acquisition of the Registrant may require. to the consummation of a
merger or acquisition, of the Registrant may require.
At the present time, all corporate records will be maintained at 15945
Quality Trail North, Scandia, Minnesota 55073 and it is anticipated that all
reasonably predictable future shareholder meetings will take place in Minnesota.
The Officers and Directors will personally seek acquisition/merger
candidates and/or orally contact individuals or broker(s)/dealer(s) and advise
them of the availability of the Registrant as an acquisition candidate. The
Officers will review material furnished them by the proposed merger/acquisition
candidate and decide if a merger/acquisition is in the best interests of the
Registrant and its shareholders. The proposed merger/acquisition will then be
submitted to all the Registrant's shareholders.
The Registrant may also employ outside consultants, however, no such
consultants will be engaged until a merger/acquisition candidate has been
targeted by the Registrant. Management believes that it is impossible to
consider the specific criteria that will be used to hire consultants; however,
several of the criteria may include the consultant's relevant experience, the
services to be provided, the term of service required by the Registrant. In
prior situations, management has not used any specific outside consultants and
cannot predict the probability that management will recommend any specific
consultant(s) for future use. As of the filing of this document, the Registrant
has not had any discussions with or executed agreements with any outside
consultants.
Other than disclosed herein, there are no other plans for accomplishing
the business purpose of the Registrant.
Selection of Opportunities
--------------------------
The analysis of new business opportunities will be undertaken by or under the
supervision of the Officers and Directors of the Registrant, none of whom is a
professional business analyst or has any previous training or experience in
business analysis. Inasmuch as the Registrant will have no funds available to it
in its search for business opportunities and ventures, the Registrant will not
be able to expend significant funds on a complete and exhaustive investigation
of such business opportunity. The Registrant will, however, investigate, to the
extent believed reasonable by Management, such potential business opportunities
or ventures.
As a part of the Registrant's investigation, the Officers and Directors
will meet personally with management and key personnel of the firm sponsoring
the business opportunity, may visit and inspect plants and facilities, obtain
independent analysis or verification of certain information provided, check
references of management and key personnel, and conduct other reasonable
measures, to the extent of the Registrant's limited financial resources and
management and technical expertise.
Prior to making a decision to recommend to shareholders participation
in a business opportunity or venture, the Registrant will generally request that
it be provided with written materials regarding the business opportunity
containing such items as a description of products, services and company
history; management resumes; financial information; available projections with
related assumptions upon which the projections were based; evidence of existing
patents, trademarks or service marks or rights thereto; present and proposed
forms of compensation to management; a description of transactions between the
prospective entity and its affiliates during relevant periods; a description of
present and required facilities; an analysis of risks and competitive
conditions; and, other information deemed relevant.
7
<PAGE>
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting, and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and costs for accountants, attorneys and others.
If a decision is made not to participate in a specific business opportunity, the
costs theretofore incurred in the related investigation would not be
recoverable. Furthermore, even if an agreement is reached for the participation
in a specific business opportunity, the failure to consummate that transaction
may result in the loss to the Registrant of the costs incurred.
The Registrant will have unlimited flexibility in seeking, analyzing,
and participating in business opportunities. In its efforts, the Registrant will
consider the following kinds of factors:
a) Potential for growth, indicated by new technology, anticipated
market expansion or new products;
b) Competitive position as compared to other firms engaged in similar
activities;
c) Strength of the merger/acquisition candidate's management;
d) Capital requirements and anticipated availability of required funds
from future operations, through the sale of additional securities, through joint
ventures or similar arrangements or from other sources; and
e) Other relevant factors.
Potentially available business opportunities may occur in many
different industries and at various stages of development, all of which will
make the task of comparative investigation and analysis of such business
opportunities extremely difficult and complex. Potential investors must
recognize that due to the Registrant's limited capital available for
investigation and management's limited experience in business analysis, the
Registrant may not discover or adequately evaluate adverse facts about the
opportunity to be acquired.
The Registrant has not had any substantive conversations and is not
currently engaged in substantive discussions related to a proposed merger or
acquisition and, further, is unable to predict when it may identify or
participate in a business opportunity. It expects, however, that the analysis of
specific proposals and the selection of a business opportunity may take several
months or more.
As of August 1, 2000, management has not identified any entity in which
a current officer, director or significant shareholder has a direct or indirect
ownership interest as a potential merger or acquisition candidate. Existing
corporate policy is silent to this situation; however, it is the intent of
management to seek candidates in which current directors, officers and/or
significant shareholders do not have direct or indirect ownership interests.
Further, the consummation of a merger or acquisition transaction may or
may not involve the sale of shares of common stock currently held by members of
management, directors or significant shareholders. The terms and conditions
related to any potential sale of these shares may or may not be made available
to other minority or non-controlling existing shareholders of the Registrant.
Prior to the consummation of any merger or acquisition, the Registrant
will request the approval of the existing shareholders. Accordingly, all
shareholders will be provided with the pertinent information related to the
proposed merger or acquisition, including audited financial statements,
concerning the proposed target company of the merger or acquisition.
Additionally, the Registrant will be subject to all disclosure and
reporting requirements of The Securities and Exchange Commission, including, but
not limited to, the filing of a Form 8-K Current Report for the disclosure of
any pending merger or acquisition and the dissemination of audited financial
statements of the merger or acquisition candidate upon consummation.
Form of Acquisition
-------------------
The manner in which the Registrant participates in an opportunity will
depend upon the nature of the opportunity, the respective needs and desires of
the Registrant and the promoters of the opportunity, and the relative
negotiating strength of the Registrant and such promoters. The exact form or
structure of the Registrant's participation in a business opportunity or venture
will be dependent upon the needs of the particular situation. The Registrant's
participation may be structured as an asset purchase, a lease, a license, a
joint venture, a partnership, a merger or the acquisition of securities.
8
<PAGE>
As set forth above, the Registrant may acquire its participation in a
business opportunity through the issuance of Common Stock or other securities in
the Registrant. Although the terms of any such transaction cannot be predicted,
it should be noted that, in certain circumstances, the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1976, as amended, may depend
upon the issuance to the shareholders of the acquired company of at least 80.0%
of the Common Stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of these
provisions rather than other "tax free" provisions provided under the Internal
Revenue Code, all prior shareholders may, in such circumstances, retain 20.0% or
less of the total issued and outstanding Common Stock. If such a transaction
were available to the Registrant, it will be necessary to obtain shareholder
approval to effectuate a reverse stock split or to authorize additional shares
of Common Stock prior to completing such acquisition. This could result in
substantial additional dilution to the equity of those who were shareholders of
the Registrant prior to such reorganization. Further, extreme caution should be
exercised by any investor relying upon any tax benefits in light of any existing
tax laws or any proposed changes thereto. It is possible that no tax benefits
will exist at all. Prospective investors, if any, should consult their own
legal, financial and other business advisors.
In conjunction with a merger with or acquisition of a privately-owned
company, there exists a probability that a change in control will occur upon the
consummation of the merger or acquisition. In order to make such a transaction
feasible, it is highly probable that management will offer a controlling
interest in the Registrant to any identified merger or acquisition candidate.
The present management and the current shareholders of the Registrant
may not have control of a majority of the voting shares of the Registrant
following a reorganization transaction. As part of such a transaction, all or a
majority of the Registrant's Directors may resign and new Directors may be
appointed without any vote by shareholders.
Present shareholders have not agreed to vote their respective shares of
Common Stock in accordance with the vote of the majority of all non-affiliated
future shareholders of the Registrant with respect to any business combination.
Not an "Investment Advisor"
---------------------------
The Registrant is not an "investment advisor" under the Federal
Investment Advisers Act of 1940, which classification would involve a number of
negative considerations. Accordingly, the Registrant will not furnish or
distribute advise, counsel, publications, writings, analysis or reports to
anyone relating to the purchase or sale of any securities within the language,
meaning and intent of Section 2(a)(11) of the Investment Advisers Act of 1940,
15USC 80b2(a)(11).
Not an "Investment Company"
---------------------------
The Registrant may become involved in a business opportunity through
purchasing or exchanging the securities of such business. The Registrant does
not intend, however, to engage primarily in such activities and is not
registered as an "investment company" under the Federal Investment Company Act
of 1940. The Registrant believes such registration is not required.
The Registrant must conduct its activities so as to avoid becoming
inadvertently classified as a transient "investment company" under the Federal
Investment Company Act of 1940, which classification would affect the Registrant
adversely in a number of respects. Section 3(a) of the Investment Company Act
provides the definition of an "investment company" which excludes an entity
which does not engage primarily in the business of investing, reinvesting or
trading in securities, or which does not engage in the business of investing,
owning, holding or trading "investment securities" (defined as "all securities
other than United States government securities or securities of majority-owned
subsidiaries") the value of which exceeds forty (40.0%) of the value of its
total assets (excluding government securities, cash or cash items). The
Registrant intends to implement its business plan in a manner which will result
in the availability of this exemption from the definition of "investment
company". The Registrant proposes to engage solely in seeking an interest in one
or more business opportunities or ventures.
Effective January 14, 1981, the U. S. Securities and Exchange
Commission adopted Rule 3a-2 which deems that an issuer is not engaged in the
business of investing, reinvesting, owning, holding or trading in securities for
purposes of Section 3(a)(1), cited above, if, during a period of time not
exceeding one year, the issuer has a bona fide intent to be engaged primarily,
or as soon as reasonably possible (in any event by the termination of a one year
period of time), in a business other that of investing, reinvesting, owning,
holding or trading in securities and such intent is evidenced by the
Registrant's business activities and appropriate resolution of the Registrant's
Board of Directors duly adopted and duly recorded in the minute book of the
Registrant. The Rule 3a-2 "safe harbor" may not be relied on more than a single
time. The Registrant expects to have invested or committed all, or substantially
all, of the proceeds of this public offering in the investigation and/or
acquisition of a business opportunity acquisition within a year after completion
of the offering and thereafter to not encounter the possibility of being
classified as a transient investment company.
9
<PAGE>
ITEM 7 - INDEX TO FINANCIAL STATEMENT
The required accompanying financial statements begin on page F-1 of this
document.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Accounting firm Henderson, Black & Company, P. C., the independent
auditors of the Company, were dismissed effective as of July 27, 2000. They had
been hired on June 2, 1999 by the Company. They have not issued any audited
reports to the Company. They have declined to furnish the Exhibit required by
the Security and Exchange Regulations. Prior to that time the Company's
independent auditors were McGladrey & Pullen, LLP, who resigned on November 11,
1998. There have been no disagreements with McGladrey & Pullen, LLP on any
matter of events. McGladrey & Pullen's report on the financial statements for
the fiscal year ended June 30, 1997 contained no adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principals.
The Company engaged the accounting firm of S. W. Hatfield, CPA as
independent auditors for the Company, effective as of July 27, 2000 for the
fiscal years ended October 31, 1996 and 1997 and for subsequent periods. The
engagement of S. W. Hatfield, CPA was approved by the Company's Board of
Directors. During the fiscal years ended June 30, 1997and 1998 and the interim
period subsequent to June 30, 1998 and prior to July 2000, there were no
consultants with S. W. Hatfield, CPA on any matter of accounting principles to a
specific transaction, either completed or proposed, or the type of audit opinion
that might be rendered on the Company's financial condition.
PART III
ITEM 9. OFFICERS AND DIRECTORS
The Officers and Directors are as follows:
Name Age Position
---------- --- ------------
Gregory Johnson 36 President and Chief Executive Officer, Director
Robert Heidmann 51 Vice-President, Director
Paula Nichols 34 Secretary/Treasurer and Chief Financial Officer
Director.
During the year 1997-1998, the Officers and Directors were as follows:
R. Edwin Morgan Director, President, Chief Executive Officer and
Treasurer. Resigned 3/24/98
Louis S. Camilli Director; Elected Secretary 1/25/98; Elected President
3/24/98 Resigned 11/23/98
Darryl J. Dillenback Director Resigned 1/25/98
Ronald Costello Director Resigned 1/25/98
Roy H. Davidson Director Resigned 1/25/98
Charlotte Darling Secretary; Elected
Vice-President 11/4/97 Resigned 1/25/98
Richard A. Urrea Director, President, Secretary &
Treasurer; 11/23/98 Resigned 7/12/00
10
<PAGE>
ITEM 10 EXECUTIVE COMPENSATION
Long-Term
Compensation
Annual Compensation (1) Awards
----------------------- ------------
Number of
Securities
Underlying
Position Year Salary (2) Options(3)
--------------- ---- ---------- -----------
R. Edwin Morgan 1997 $100,000 250,000
1) In accordance with the rules of the Commission, the compensation described in
this table does not include medical group life insurance or other benefits
received by the named executive officer which are available generally to all
salaried employees of the Company, and certain perquisites and other personal
benefits, securities or property received by the executive which do not exceed
the lesser of $50,000 or 10% of any such named executive officer's salary and
bonus disclosed in this table.
(2) Under Mr. Morgan's employment agreement dated September 1, 1996, his annual
salary is $120,000. For the fiscal year ending June 30, 1997, Mr. Morgan had
earned $100,000 which has been accrued by the Company.
(3) The value of these options are detailed in the "Option Grants in Last Fiscal
Year" table below. (4) For the 1996 fiscal year, the Company changed its fiscal
year end from May 31 to June 30. For purposes of this table, these amounts
reflect Mr. Morgan's compensation for both the 1996 fiscal year ended June 30
(as changed) and the 1996 fiscal year ended May 31 (as if no change had taken
place).
There was no significant compensation paid during the Fiscal year ended
6/30/98
None of the Registrants current officers or directors receives or has
received any salary from Registrant during the preceding five years. The
Registrant does not anticipate entering into Employment agreements with any of
its officers or directors in the near future. Directors do not receive
compensation for their services as directors and are not reimbursed for expenses
incurred in attending board meeting.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Name Number of Shares owned Percent
---- ---------------------- -------
M. D. Price, Jr., Escrow Agent 5,007,876* 55.67%
15945 Quality Trail North
Scandia, MN 55073
Louis S. Camilli 450,000 5%
8087 Windjammer Way
Hobe Sound, FL 33455
Septima Partnership (**) 473,150 5.3%
901 Rio Grand Blvd. N.W. #G-250
Albuquerque, NM 87104
* Under Agreement dated June 27, 2000 Mr. Urrea on behalf of himself and other
insiders agreed to deliver said shares to Price. This transaction and delivery
of shares is in the process of being completed. (See Part I, Item 1, Adoption of
New Business Plan and Actions Relating thereto.)
(**) Septima Partnership is a Urrea Family Partnership of which Francisco Urrea
is the Managing Partner
11
<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
On August 23, 1996, the Company entered into a Manufacturing and
Distribution Agreement with Klaire International, Ltd., a New Mexico
corporation("Klaire"). Francisco Urrea, Jr., a beneficial owner of greater than
5% of the Company's Common Stock, is the President and the beneficial owner of a
majority of the voting stock of Klaire.
Pursuant to this agreement, the Company appointed Klaire as the
Company's exclusive manufacturer and distributor of the Company's S-80 and S-100
product models in Mexico. To prevent termination of the agreement, Klaire is
required to order a minimum of 100,000 of the Company's products or
sub-assemblies each year. The initial term of this agreement expired on August
31, 1997, and was automatically renewed for an additional one-year term.
Subsequent one-year renewals shall occur so long as Klaire continues to meet or
exceed its minimum order requirement. The agreement provides for automatic
termination if the Company is in default under its Agreement for Assignment of
Technology and Patents with Hensley Plasma Plug Partnership, described
hereinbelow. The agreement may also be terminated by Klaire upon 90 days prior
written notice.
Spark Management Corporation ("Spark") entered into a Master Licensing
Agreement with the Company dated September 10, 1996, which culminated an
understanding between the parties reached in September 1995. Spark is owned by
two directors of the Company. The Company acquired exclusive 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, the 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 $1.00 for each Product/Insert sold up to 1,000,000 units, $.50 for each
Product/Insert on the next million aggregate units sold, and $.25 for each
Product/Insert sold thereafter.
The Company entered into a Consulting Agreement with Spark Management
Corporation ("Spark"). 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.
On September 9, 1996, Spark Management Corporation ("Spark") entered
into a loan agreement with the Company. Spark is owned by R. Edwin Morgan,
executive officer and director of the Company, and Louis S. Camilli, a director
of the Company. This loan agreement allows for borrowings by the Company up to
$500,000. This note bears an interest rate of ten percent 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 June 30, 1997. All unpaid principal and interest is due
September 1, 2000. The note is secured by a security interest in substantially
all of the Company's assets. As of June 30, 1997, 1996, and May 31, 1996, the
principal balance due to Spark by Septima was $337,209, $227,992, and $217,638,
respectively. Also, $48,948, $16,965, and $14,685 of accrued interest was due.
12
<PAGE>
The Company entered into a Consulting Agreement with Spark Management
Corporation. 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. Included in accounts
payable at June 30, 1997 is approximately $113,000 related to this agreement.
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. 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 received 450,000 shares
of restricted, unregistered common stock of the Company. 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 $1.00 for each Product/Insert sold up to 1,000,000 units;
$0.50 for each Product/Insert on the next million aggregate units sold, and
$0.25 for each Product/Insert sold thereafter. Included in accrued expenses is
approximately $94,000 related to this agreement at June 30, 1997.
On August 20, 1998 the Company was sued by Sparks Management Corp. in
the Fifteenth Circuit Court, Palm Beach County, FL and obtained a Judgement
against the Company for $1,231,244. Garnishment proceedings were undertaken in
September 1998, and a Judicial Sale of all of the Company's assets was conducted
on October 22, 1998. Sparks is owned by two past Directors of the Company.
On January 25, 1999 the Company entered into a Mutual Release with
Sparks Management Corp whereby the parties mutually released each other form all
claims, demands, actions, causes of action, rights, costs, judgement, fees,
expenses and compensation and any other liabilities of ever kind and character.
The consideration for this Release was the granting to Sparks Option to purchase
340,000 shares of Septima at $1.00 per share.
On January 25, 1999 the Company entered into a Mutual Release with R.
Edwin Morgan whereby the parties mutually released each other form all claims,
demands, actions, causes of action, rights, costs, judgement, fees, expenses and
compensation and any other liabilities of ever kind and character. The
consideration for this Release was the granting to Sparks Option to purchase
330,000 shares of Septima at $1.00 per share.
On January 25, 1999 the Company entered into a Mutual Release with
Cambro Construction whereby the parties mutually released each other form all
claims, demands, actions, causes of action, rights, costs, judgement, fees,
expenses and compensation and any other liabilities of ever kind and character.
The consideration for this Release was the granting to Sparks Option to purchase
35,000 shares of Septima at $1.00 per share.
ITEM 13 EXHIBTS AND REPORTS ON FROM 8-K
----------------------------------------
1.1 Form 8-K, filed 7/12/00
Exhibit 27 - Financial Data Schedule
13
<PAGE>
SIGNATURES
In accord with Section 13 or 15(d) of the Securities Act of 1993, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
SEPTIMA ENTERPRISES, INC.
Dated: August 7, 2000 By /s/ Gregory Johnson
-----------------------------------------
Gregory Johnson,
President and Chief Executive
Officer
In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date as indicated.
Date: August 7, 2000 By: /s/ Gregory Johnson
-----------------------------------------
Gregory Johnson, Director,
President, and Chief Executive
Officer
Dated: August 7, 2000 By: /s/ Robert Heidmann
-----------------------------------------
Robert Heidmann, Director,
Vice-President
Dated: August 7, 2000 By: /s/ Paul Nichols
-----------------------------------------
Paula Nichols, Director, Secretary/
Treasurer and Chief Financial
Officer
14
<PAGE>
SEPTIMA
ENTERPRISES, INC.
Financial Statements
and
Auditor's Report
June 30, 1998 and 1997
S. W. HATFIELD, CPA
certified public accountants
Use our past to assist your future sm
<PAGE>
SEPTIMA ENTERPRISES, INC.
CONTENTS
Page
Reports of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets
as of June 30, 1998 and 1997 F-4
Statements of Operations and Comprehensive Income
for the years ended June 30, 1998 and 1997 F-5
Statement of Changes in Stockholders' Equity
for the years ended June 30, 1998 and 1997 F-6
Statements of Cash Flows
for the years ended June 30, 1998 and 1997 F-7
Notes to Financial Statements F-8
F-1
<PAGE>
S. W. HATFIELD, CPA
certified public accountants
Member: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Septima Enterprises, Inc.
We have audited the accompanying balance sheet of Septima Enterprises, Inc. (a
Colorado corporation ) as of June 30, 1998 and the related statements of
operations and comprehensive income, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Septima Enterprises, Inc. as of
June 30, 1998 and the related statements of operations, changes in stockholders'
equity and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company's lack of operating assets makes it fully
dependent upon the majority shareholder's continuing support to provide all
nominal working capital support on the Company's behalf. This situation raises a
substantial doubt about the Company's ability to continue as a going concern.
The majority shareholder intends to continue the funding of nominal necessary
expenses to sustain the corporate entity. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
S. W. HATFIELD, CPA
Dallas, Texas
July 27, 2000
P. O. Box 820395 9002 Green Oaks Circle, 2nd Floor
Dallas, Texas 75382-0395 Dallas, Texas 75243-7212
214-342-9635 (voice) (fax) 214-342-9601
800-244-0639 [email protected]
F-2
<PAGE>
Board of Directors and Stockholders
Septima Enterprises, Inc.
We have audited the accompanying balance sheet of Septima Enterprises, Inc. (a
Colorado corporation ) as of June 30, 1997 and the related statements of
operations and comprehensive income, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Septima Enterprises, Inc. as of
June 30, 1997 and the related statements of operations, changes in stockholders'
equity and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the notes to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in the
notes to the financial statements. The financial statements do not include any
adjustments that might results from the outcome of this uncertainty.
Delisi, Henniger and Associates
Greenburg, Pennsylvania
July 22, 1996 (except for Note L,
as to which the date is
March 7, 1997)
F-3
<PAGE>
<TABLE>
<CAPTION>
SEPTIMA ENTERPRISES, INC.
BALANCE SHEETS
June 30, 1998 and 1997
ASSETS
------
1998 1997
----------- -----------
<S> <C> <C>
Current assets
Cash on hand and in bank $ -- $ 64,287
Net current assets of discontinued operations -- 459,849
----------- -----------
Total current assets -- 524,136
----------- -----------
Other assets
Net other assets of discontinued operations -- 157,577
----------- -----------
Total other assets -- 157,577
----------- -----------
TOTAL ASSETS $ -- $ 681,713
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable - trade $ 125,000 $ 241,589
Other current liabilities of discontinued operations -- 687,425
----------- -----------
Total current liabilities 125,000 929,014
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock - no par value
100,000,000 shares authorized
8,995,629 and 8,635,629 shares
issued and outstanding, respectively 1,551,128 1,466,128
Contributed capital 203,608 203,608
Deferred compensation (9,407) (13,747)
Accumulated deficit (1,870,329) (1,903,290)
----------- -----------
Total stockholders' equity (125,000) (247,086)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ -- $ 681,713
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended June 30, 1998 and 1997
1998 1997
----------- -----------
<S> <C> <C>
Net revenues $ -- $ --
Operating expenses
General and administrative -- --
----------- -----------
Net Loss from continuing
operations before income taxes -- --
Income tax benefit (expense) -- --
----------- -----------
Loss from continuing operations -- --
----------- -----------
Discontinued operations, net of income taxes
Income (Loss) from discontinued operations,
net of income taxes of $-0- and $-0-, respectively (713,239) (447,649)
Income (Loss) on disposition, net of income
taxes of $-0- and $-0-, respectively 746,200 --
----------- -----------
Income (loss) from discontinued operations 32,961 (447,649)
----------- -----------
Net Income (Loss) 32,961 (447,649)
Other comprehensive income -- --
----------- -----------
Comprehensive Income (Loss) $ 32,961 $ (447,649)
=========== ===========
Earnings (Loss) per weighted-average
share of common stock outstanding,
basic and fully diluted, calculated on
Net Income (Loss)
From continuing operations $ 0.00 $ (0.00)
From discontinued operations 0.00 (0.05)
----------- -----------
Total earnings (loss) per share $ 0.00 $ (0.05)
=========== ===========
Weighted-average number of
common shares outstanding 8,858,506 8,185,218
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
SEPTIMA ENTERPRISES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1998 and 1997
Common Stock
------------ Contributed Deferred Accumulated
Shares Amount capital compensation deficit Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1996 7,785,629 $ 1,029,292 $ 172,008 $ -- $(1,455,641) $ (254,341)
Issuance of common stock to
acquire technology license 450,000 90,000 -- -- -- 90,000
Issuance of common stock in
connection with Regulation D
offering, net of issuance costs
of approximately $53,164 400,000 346,834 -- -- -- 346,836
Issuance of stock options to
non-employees -- -- 31,600 (13,747) -- 17,853
Net loss for the year -- -- -- -- (447,649) (447,649)
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1997 8,635,629 1,466,128 203,608 (13,747) (1,903,290) (247,301)
Stock issued in payment of
professional fees 10,000 5,000 -- -- -- 5,000
Stock issued for exercise
of stock options to
former officer 250,000 50,000 -- 4,340 -- 54,340
Stock sold for cash 100,000 30,000 -- -- -- 30,000
Net loss for the year -- -- -- -- 32,961 32,961
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1998 8,995,629 $ 1,521,125 $ 203,608 $ (9,407) $(1,840,329) $ (125,000)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
Years ended June 30, 1998 and 1997
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) for the period $ 32,961 $(447,649)
Adjustments to reconcile net loss to net
cash provided by operating activities
Gain on disposition of discontinued operations (746,200) --
Depreciation and amortization 24,136 16,974
Professional fees paid with common stock 5,000 --
Compensation expense related to
non-employee stock options -- 17,853
Change in net assets and liabilities
of discontinued operations 539,816 (12,433)
--------- ---------
Net cash provided by (used in) operating activities (144,287) (425,255)
--------- ---------
Cash flows from investing activities
Cash paid for other assets of discontinued operations -- (52,291)
--------- ---------
Net cash used in investing activities -- (52,291)
--------- ---------
Cash flows from financing activities
Cash received from other liabilities
of discontinued operations -- 189,600
Proceeds from sales of common stock 80,000 346,836
--------- ---------
Net cash provided by (used in) financing activities 80,000 536,436
--------- ---------
Increase (Decrease) in Cash (64,287) 58,890
Cash at beginning of period 64,287 5,397
--------- ---------
Cash at end of period $ -- $ 64,287
========= =========
Supplemental disclosure of interest
and income taxes paid
Interest paid for the period $ -- $ --
========= =========
Income taxes paid for the period $ -- $ --
========= =========
Supplemental disclosure of non-cash
investing and financing activities
Technology license acquired with common stock $ -- $ 90,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Septima Enterprises, Inc. (Company) was incorporated on September 12, 1988 under
the laws of the State of Colorado tor 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.
The Company initially had a fiscal year ending May 31 and changed to a June 30
year end, effective June 30, 1996. The effect of this change has been reported
in previous Annual Reports on Form 10-KSB as filed with the U. S. Securities and
Exchange Commission.
During the year ended June 30, 1997, the Company began operations consisting
primarily of the sale of Ultra High Power Spark Amplifiers for automotive
ignition systems. Sales were primarily to distributors for retail sales to the
Mexican and Asian markets on credit terms that the Company established for
individual customers. The Company began an unsuccessful marketing campaign to
retail customers in the United States.
The Company, due to the unsuccessful nature of its initial operations, ceased
all operations in February 1998. In September 1998, creditors of the Company
were successful in obtaining a judgment against the Company for unpaid debts. In
October 1998, the Company was subject to a Judicial Sale whereby all assets of
the Company were sold in satisfaction of the September 1998 judgment. The
economic effect of these transactions are reported in the accompanying financial
statements as of June 30, 1998 as "discontinued operations". The only remaining
identifiable liability of the Company at the satisfaction of the judgment is
approximately $125,000 in open trade payables.
The Company has had no operations, assets or liabilities since its fiscal year
ended June 30, 1998. Accordingly, the Company is dependent upon management
and/or significant shareholders to provide sufficient working capital to
preserve the integrity of the corporate entity at this time. It is the intent of
management and significant shareholders to provide sufficient working capital
necessary to support and preserve the integrity of the corporate entity.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
-------------------------
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
F-8
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2. Accounts receivable
-------------------
In the normal course of business, the Company's sales were primarily to
distributors for further retail sale into the Mexican and Asian markets on
credit terms that the Company established for individual customers. Because
of the credit risk involved, management has provided an allowance for
doubtful accounts which reflects its opinion of amounts which will
eventually become uncollectible. In the event of complete non- performance,
the maximum exposure to the Company is the recorded amount of trade
accounts receivable shown on the balance sheet at the date of
non-performance.
3. Inventories
-----------
Inventories were comprised of finished goods and were stated at the lower
of cost or market. Cost is determined using the first-in, first-out method.
4. Property and Equipment
----------------------
Property and equipment was stated at cost. Depreciation was calculated on
the straight-line method over the estimated useful lives of 5-7 years.
5. Technology license
------------------
The Company's acquired technology license is recorded at historical cost
and was amortized on the straight- line basis using an estimated life for
the technology license of five years.
6. Impairments
-----------
The Company assesses long-lived assets for impairment under FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. Under those rules, the technology
license is included in impairment evaluations when events or circumstances
exist that indicate the carrying amount of that asset may not be
recoverable
7. Revenue recognition
-------------------
The Company recognized revenue when the product was shipped to the
respective customer.
8. Research and development
------------------------
Research and development costs were charged to expense as incurred.
9. Advertising costs
-----------------
The Company followed the policy of charging advertising costs to expense as
incurred.
F-9
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
10. Stock-based compensation
------------------------
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, which establishes a fair value based method
for financial accounting and reporting for stock-based employee
compensation plans and for transactions in which an entity issues its
equity instruments to acquire goods and services from non- employees.
However, the new standard allows compensation to employees to continue to
be measured by using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, but requires expanded
disclosures. The Company has elected to continue to apply to the intrinsic
value based method of accounting for stock options issued to employees.
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the estimated market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock. No
compensation expense has been recorded in the accompanying statements of
operations related to stock options issued to employees. All transactions
in which goods or services are the consideration received for the issuance
of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
11. Income taxes
------------
Deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
12. Net earnings (loss) per common share
------------------------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of June 30, 1998 and 1997, the Company's
outstanding stock options are considered to be antidilutive due to the
Company's net operating loss position.
F-10
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments: Cash, accounts receivable and accounts
payable, The carrying amounts approximated fair value because the demand nature
of these instruments; . Notes payable, bank, The carrying amounts approximated
fair value as the rates and maturities of the notes were similar to market value
for similar notes with similar collateral requirements, Note payable to related
party, It was not practicable to estimate the fair value of the note payable to
related party due to the relationship of the parties involved.
NOTE D - GOING CONCERN UNCERTAINTY AND DISCONTINUED OPERATIONS
The Company had incurred recurring losses and experienced cash flow problems.
These factors raised substantial doubt about the Company's ability to continue
as a going concern without new capital investment to complete the development,
manufacture and marketing of its products. The Company was then obtaining its
working capital through loans from Spark Management and from a line of credit
with a financial institution. Should these credit facilities not be available to
the Company in the future, there was no assurance that the Company would be able
to raise sufficient capital from other sources to adequately fund the operations
of the Company. The viability of the Company as a going concern depended upon
the willingness of Spark to continue to advance funds to the Company through a
series of loans or the Company's ability to obtain sufficient funds elsewhere
until the Company was able to generate revenues from the sale of its products.
There were no assurances that the Company will be able to raise sufficient
capital should Spark cease loaning funds to the Company.
The Company, due to the unsuccessful nature of its initial operations, ceased
all operations in February 1998. In September 1998, creditors of the Company
were successful in obtaining a judgment against the Company for unpaid debts. In
October 1998, the Company was subject to a Judicial Sale whereby all assets of
the Company were sold in satisfaction of the September 1998 judgment. The
economic effect of these transactions are reported in the accompanying financial
statements as of June 30, 1998 as "discontinued operations". The only remaining
identifiable liability of the Company at the satisfaction of the judgment is
approximately $125,000 in open trade payables.
The results of the Company's operations for the respective periods presented are
reported as a component of discontinued operations in the accompanying
statements of operations. Additionally, the respective gain or loss incurred on
the sale of the Company's operations are also presented separately as a
component of discontinued operations.
Summarized results of operations for the disposed operations for the years ended
June 30, 1998 and 1997, respectively, are as follows:
June 30, June 30,
1998 1997
--------- ---------
Net sales $ 38,127 $474,723
======== =======
Operating income (loss) $(410,860) $(447,649)
======= =======
Loss from discontinued operations $(410,860) $(447,649)
======= =======
F-11
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 1998 and 1997,
respectively:
1998 1997
--------- ---------
Office equipment $ - $ 15,350
Manufacturing and testing equipment - 89,587
--------- ---------
- 104,937
Less accumulated depreciation - (62,108)
--------- ---------
Net property and equipment $ - $ 42,829
========= =========
NOTE F - PREFERRED STOCK
For periods prior to December 21, 1998, the Company was authorized to issue up
to 10,000,000 shares of no par value preferred stock. No terms are stated as to
dividend, liquidation or other rights applicable to these shares. On December
21, 1998, the Company amended its Articles of Incorporation to eliminate all
previously authorized preferred stock. No shares of this type had ever been
issued by the Company.
NOTE G - COMMON STOCK TRANSACTIONS
On December 21, 1998, the Company amended its Articles of Incorporation to allow
for the issuance of up to 100,000,000 shares of no par value common stock. The
effect of this change is reflected in the accompanying financial statements as
of the first day of the first period presented.
The Company issued 400,000 shares of common stock at $1 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
expiration date of this memorandum was December 5, 1997.
On September 9, 1997, the Company entered an agreement with a New Mexico based
law firm whereby the Company issued 10,000 restricted, unregistered shares of
the Company's common stock as full and complete payment of law firm's charges
for services The shares were physically issued on October 28, 1997. These shares
of common stock were issued 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 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.
F-12
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - COMMON STOCK TRANSACTIONS - Continued
On October 20, 1997, the Company filed with the Securities and Exchange
Commission a Form S-8 Registration Statement. The Registration Statement
registered 867,000 shares of the Company's common stock, 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. No shares
under this Registration Statement have been sold or otherwise issued.
On February 12, 1998, the Company sold an aggregate 100,000 shares of
restricted, unregistered common stock to two unrelated individuals at a price of
$0.30 per share for gross proceeds of approximately $30,000. There were no
direct expenses related to the sale of these securities. The shares were
physically issued in March 1998. These shares of common stock were issued
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.
NOTE H - STOCK OPTIONS
Non-employees
-------------
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 Company has
developed a compensation arrangement whereby a marketing consultant will be
granted, upon quarterly review by the Company, the option to purchase 160,000
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 each of the first four
quarters and 7,500 shares for each of the subsequent eight quarters. The Company
has estimated the fair value of these options at $25,000. At June 30, 1998,
$9,407 has not yet been earned by the consultant, and accordingly has been
reflected as a reduction of stockholders' equity. The Company recognized expense
associated with these options of $16,797 during the year ended June 30, 1997.
The Company has developed a compensation arrangement with a manufacturing
consultant. The Company has granted options to purchase 25,000 total shares at
$1.00 per share. These options vest monthly starting June 1, 1997 at 4,000
shares per month until November 1, 1997 at which date the final 5,000 shares
vest. The Company has estimated the fair value of these options at $6,600. The
Company recognized expense associated with these options of approximately $5,544
and $1,056, respectively, for the years ended June 30, 1998 and 1997.
Employees and Directors
-----------------------
In September 1996, the Company granted 17,000 options to purchase common stock
for $0.50 per share to two employees at any time prior to September 2001. These
options are fully vested as of grant date.
In a written action in lieu of a special meeting, the Board of Directors during
the year ended June 30, 1997, granted to two Board members options to purchase
312,500 shares of the Company's stock at an exercise price of $.20 per share
based on a previous understanding reached in fiscal year 1996 when the stock
price was approximately $.20 per share. The options are exercisable at any time
prior to September 9, 2006. Additionally, the Board authorized the issuance to
three members of the Company's Board of Directors options to purchase 20,000
shares (each) of common stock at the exercise price of $1.00 per share. These
options vest one year after date of issuance.
F-13
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE H - STOCK OPTIONS - Continued
Employees and Directors - continued
-----------------------
In written action in lieu of a special meeting of the Board of Directors, a
former director of the Company was granted, during the year ended June 30, 1997,
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.
On January 9, 1998, the Company's Board of Directors granted options to purchase
up to an aggregate of 20,000 shares of the Company's common stock at a price of
$0.20 per share to three individuals serving as officers or key employees of the
Company. These options may be exercised at any time prior to January 9, 2002.
On November 4, 1997, the Company's Board of Directors granted an option to
purchase up to 50,000 shares of the Company's common stock at an exercise price
of $1.00 per share to an individual who was appointed to be a Vice President of
the Company. This option may be exercised at any time prior to November 4, 2002.
On January 25, 1999, the Company's Board of Directors granted an option to
purchase up to 705,000 shares of the Company's common stock at $1.00 per share
to an individual who was formerly a Company officer, Spark Management
Corporation and another related entity. These options may be exercised at any
time through January 25, 2005.
The fair value of each option grant is estimated on the date of grant using the
present value of the exercise price with the following weighted-average
assumptions used for grants in 1997: risk-free interest rates of 7.5 percent;
expected lives of 5 to 10 years, no dividends and price volatility of 30%. The
weighted average remaining life of the options outstanding is 6 years as of June
30, 1997. A reconciliation of the Company's stock option activity, and related
information, for the years ended June 30, 1998 and 1997 is as follows:
1998 1997
-------------------- ----------------------
Weighted Weighted
average average
Number exercise Number exercise
of options price of options price
---------- ---------- ---------- ----------
Outstanding at beginning of year 1,484,500 $0.83 870,000 $1.00
Granted 70,000 $0.77 614,500 $0.58
Exercised (250,000) $0.20 - -
Expired/Forfeited - - - -
---------- ----------
Outstanding at end of year 1,304,500 $0.94 1,484,500 $0.83
========== ==========
The Company applies Accounting Principles Board (APB) Opinion 25 and related
Interpretations in accounting for its options. Accordingly, no compensation cost
has been recognized for the stock options issued to employees discussed above.
Had compensation cost for the Company's stock options issued to employees been
determined based on the fair value at the grant dates for awards under the Plan,
the Company's reported net loss for the years ended June 30, 1997 would have
been increased to the pro forma amounts shown below.
F-14
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE H - STOCK OPTIONS - Continued
Net loss As reported $(447,649)
Pro forma $(576,907)
Net loss per share: As reported $(0.05)
Pro forma $(0.07)
The following table summarizes information about the stock options at June 30,
1998
June 30, 1998
------------------------
Exercise Number Number
Expiration Date Price Outstanding Exercisable
--------------- -------- ----------- -----------
September 2006 $0.20 62,500 62,500
January 2003 $0.20 20,000 20,000
September 2001 $0.50 17,000 17,000
Various from February 1999 to January 2004 $1.00 1,205,000 1,205,000
--------- ---------
1,304,500 1,304,500
========= =========
NOTE I - RELATED PARTY TRANSACTIONS
The various transactions by and between the Company and Spark Management
Corporation were canceled and set aside as a result of a Civil lawsuit commenced
by Spark Management Corporation, who took a judgment against the Company and all
of its operating assets on September 24, 1998. A Judicial Sale was held on
October 24, 1998 to satisfy this judgment. Accordingly, due to the timing of
these events, the operations and assets of the Company have been reflected as
"discontinued operations" in the accompanying financial statements and treated
as if they had been disposed of on June 30, 1998.
Note payable
------------
Spark Management Corporation ("Spark") entered into a loan agreement with the
Company. Spark is owned by two directors of the Company. This loan agreement
allows for borrowings up to $500,000. This note bears an interest rate of ten
percent and interest only payments were due annually on September 1. Also,
principal and interest payments were due quarterly based upon a certain amount
per product unit sold. The note payable is in default and was due on demand and
has been reflected as a current liability at June 30, 1997. All unpaid principal
and interest is due September 1, 2000. The note is secured by secured interest
in substantially all of the Company's assets. As of June 30, 1997, the balance
due to Spark by the Company was approximately $337,209 and approximately $48,948
of accrued interest was due.
Consulting Agreement with Spark Management Corporation
------------------------------------------------------
The Company entered into a Consulting Agreement with Spark Management
Corporation. 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. Included in accounts
payable at June 30, 1997 is approximately $113,000 related to this agreement.
F-15
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE I - RELATED PARTY TRANSACTIONS - Continued
Option Agreement
----------------
On September 26, 1995, Spark Management Corporation filed a Form 13-D
Registration Statement related to its ownership of the common stock of the
Company. 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 the
Company. The option was to expire on September 26, 1997. While the option was
outstanding, the option stock was held in a voting trust, pursuant to the terms
of a Voting Trust Agreement dated September 26, 1995. On or about September 22,
1997, Spark exercised its option, and the first payment was scheduled to be made
on December 26, 1997. 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
the Company's common stock, representing what is presently approximately 50
percent of the outstanding shares of the then issued and outstanding common
stock.
Assignment of technology and patents
------------------------------------
Under an Agreement for Assignment of Technology and Patents, entered into
September 26, 1995, the Company was scheduled to make royalty payments to
Hensley Plasma Plug Partnership, a partnership related to Cottonbloom through
common ownership, for as long as one or more patents remain in effect according
to the following schedule: 1) a royalty of four percent (4%) of adjusted gross
revenues realized from the sale of products which first total one (1) million
dollars; plus 2) a royalty of three percent (3%) of adjusted gross revenues
realized from the sale of products which next total one (1) million dollars;
plus 3) a royalty of two percent (2%) of adjusted gross revenues realized from
the sale of products which next total one (1) million dollars; plus 4) a royalty
of one percent (1%) of all adjusted gross revenues realized form 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. The agreement is
cancelable if Spark does not execute the option agreement with Cottonbloom.
Royalty expense for the year ended June 30, 1997 amounted to $18,989. There was
no royalty expense in 1998.
Master Licensing Agreement
--------------------------
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. 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 received 450,000 shares of
restricted, unregistered common stock of the Company. 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 $1.00 for each Product/Insert sold up to 1,000,000 units; $0.50
for each Product/Insert on the next million aggregate units sold, and $0.25 for
each Product/Insert sold thereafter. Included in accrued expenses is
approximately $94,000 related to this agreement at June 30, 1997.
F-16
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE J - INCOME TAXES
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to the deferred tax assets and
liabilities relate to the following as of June 30, 1998 and 1997, respectively:
1998 1997
--------- ---------
Deferred tax assets
Research and development expenditures
capitalized for tax purposes $ -- $ 37,795
Net operating loss carryforwards 305,000 367,975
--------- ---------
305,000 405,770
Deferred tax liability
Difference in statutory depreciation methods -- (9,674)
--------- ---------
Net deferred tax asset 305,000 396,096
Less valuation allowance (305,000) (396,096)
--------- ---------
Net Deferred Tax Asset $ -- $ --
========= =========
The Company has net operating loss carryforwards of approximately $1,000,000 as
of June 30, 1998. 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.
NOTE K - COMMITMENTS
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. Under this
agreement, the manufacturer is responsible for defects in workmanship. 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 August 23, 1996, with a company for the territory of Mexico. The Company
entered in a Distribution Agreement dated February 10, 1996, with a company for
the territories of China and Taiwan. The foreign distributors of the Company's
products are required to order a minimum number of products per year from the
Company, starting in the second contract year and beyond.
NOTE L - SIGNIFICANT CUSTOMER
Sales for the year ended June 30, 1997 include sales of $440,436 to a major
customer. Accounts receivable from this customer was $232,350 at June 30, 1997.
F-17
