UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
--------------------------------------------------------------------------------
(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--------- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE 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 of incorporation) (IRS Employer ID Number)
15945 Quality Trail North, Scandia, MN 55073
--------------------------------------------
(Address of principal executive offices)
(651) 433-3522
--------------
(Issuer's telephone number)
--------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES NO X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: August 1, 2000: 8,995,629
-------------------------
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
<PAGE>
Septima Enterprises, Inc.
Form 10-QSB for the Quarter ended March 31, 1998
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 18
Part II - Other Information
Item 1 Legal Proceedings 19
Item 2 Changes in Securities 19
Item 3 Defaults Upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 19
2
<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
Item 1 - Part 1 - Financial Statements
Accountant's Review Report
--------------------------
Board of Directors and Shareholders
Septima Enterprises, Inc.
We have reviewed the accompanying balance sheets of Septima Enterprises, Inc. (a
Colorado corporation) as of March 31, 1998 and the accompanying statements of
operations and comprehensive income for the nine and three months then ended and
1999 and statements of cash flows for the nine months ended March 31, 1998.
These financial statements are prepared in accordance with the instructions for
Form 10-QSB, as issued by the U. S. Securities and Exchange Commission, and are
the sole responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression on an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be 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 has no viable operations or significant assets
and is dependent upon significant shareholders to provide sufficient working
capital to maintain the integrity of the corporate entity. These circumstances
create substantial doubt about the Company's ability to continue as a going
concern and are discussed in Note A. The financial statements do not contain any
adjustments that might result from the outcome of these uncertainties.
S. W. HATFIELD, CPA
Dallas, Texas
August 1, 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]
3
<PAGE>
<TABLE>
<CAPTION>
Septima Enterprises, Inc.
Balance Sheets
March 31, 1998 and 1997
(Unaudited)
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
------
Current Assets
Cash on hand and in bank $ -- $ 44,238
Net current assets of discontinued operations 340,552 237,372
----------- -----------
Total current assets 340,552 281,610
----------- -----------
Other Assets
Net other assets of discontinued operations 113,285 128,261
----------- -----------
Total other assets 113,285 128,261
----------- -----------
Total Assets $ 453,837 $ 409,871
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Net current liabilities of discontinued operations $ 1,319,241 $ 876,899
----------- -----------
Total current liabilities 1,319,241 876,899
----------- -----------
Commitments and Contingencies
Shareholders' Equity
Common stock - No par value
100,000,000 shares authorized; 8,995,629 and
8,235,629 shares issued and outstanding, respectively 1,551,128 1,123,198
Contributed capital 203,608 172,008
Deferred compensation (9,407) --
Accumulated deficit (2,610,733) (1,762,234)
----------- -----------
Total shareholders' equity (865,404) (467,028)
----------- -----------
Total Liabilities and Shareholders' Equity $ 453,837 $ 409,871
=========== ===========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
Septima Enterprises, Inc.
Statements of Operations and Comprehensive Income
Nine and Three months ended March 31, 1998 and 1997
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Expenses -- -- -- --
----------- ----------- ----------- -----------
Loss from continuing operations
before income taxes -- -- -- --
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Loss from continuing operations -- -- -- --
Discontinued operations,
net of income taxes
Income (Loss) from
discontinued operations (707,443) (348,440) (149,116) (47,022)
----------- ----------- ----------- -----------
Net Loss (707,443) (348,440) (149,116) (47,022)
Other comprehensive income -- -- -- --
----------- ----------- ----------- -----------
Comprehensive Income $ (707,443) $ (348,440) $ (149,116) $ (47,022)
=========== =========== =========== ===========
Loss per weighted-average share
of common stock outstanding,
calculated on Net Loss
From continuing operations $ 0.00 $ 0.00 $ 0.00 $ 0.00
From discontinued operations (0.08) (0.04) (0.02) (0.01)
----------- ----------- ----------- -----------
Total loss per share $ (0.08) $ (0.04) $ (0.02) $ (0.01)
=========== =========== =========== ===========
Weighted-average number of shares
of common stock outstanding 8,812,965 8,084,642 8,948,962 8,235,629
=========== =========== =========== ===========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
Septima Enterprises, Inc.
Statements of Cash Flows
Nine months ended March 31, 1998 and 1997
(Unaudited)
Nine months Nine months
ended ended
March 31, March 31,
1998 1997
--------- ---------
Cash Flows from Operating Activities
Net loss $(707,443) $(348,440)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 24,136 14,092
Consulting fees and other expenses
paid with common stock -- --
Change in net assets and liabilities
of discontinued operations 589,020 373,189
--------- ---------
Net cash used in operating activities (94,287) 38,841
--------- ---------
Cash Flows from Investing Activities -- --
--------- ---------
Cash Flows from Financing Activities
Proceeds from sale of common stock 30,000 --
--------- ---------
Net cash provided by financing activities 30,000 --
--------- ---------
Increase (Decrease) in Cash (64,287) 38,841
Cash at beginning of period 64,287 5,397
--------- ---------
Cash at end of period $ -- $ 44,238
========= =========
Supplemental disclosure of interest
and income taxes paid
Interest paid for the period $ -- $ --
========= =========
Income taxes for the period $ -- $ --
========= =========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
6
<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.
During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the U. S. Securities and Exchange Commission.
The information presented herein may not include all disclosures required by
generally accepted accounting principles and the users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB when reviewing the interim
financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending June 30, 1998.
7
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note A - Organization and Description of Business - Continued
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.
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.
8
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note B - Summary of Significant Accounting Policies - Continued
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.
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.
9
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note B - Summary of Significant Accounting Policies - Continued
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 March 31, 1998 and 1997, the Company's
outstanding stock options are considered to be antidilutive due to the
Company's net operating loss position.
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.
10
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note D - Going Concern Uncertainty and Discontinued Operations - Continued
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)
========= =========
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.
11
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note G - Common Stock Transactions - Continued
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.
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.
12
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note H - Stock Options - Continued
Non-employees - continued
-------------
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.
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:
13
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note H - Stock Options - Continued
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
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.
14
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note I - Related Party Transactions - Continued
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.
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.
15
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
Note I - Related Party Transactions - Continued
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.
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.
16
<PAGE>
Septima Enterprises, Inc.
Notes to Financial Statements - Continued
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.
(Remainder of this page left blank intentionally)
17
<PAGE>
Part I - Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(1) Caution Regarding Forward-Looking Information
This quarterly 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.
(2) General comments
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.
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.
(3) Results of Operations, Liquidity and Capital Resources
As of the date of this filing, the Company has no operations, assets or
liabilities. 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 Company is currently seeking a suitable merger or acquisition candidate.
18
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
On February 12, 1998, the Company sold 50,000 shares of restricted,
unregistered common stock each to Thomas F. Dansbury and Anthony J.
Falzone 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 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings
of shareholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 23.1 - Consent of Independent Certified Public Accountants
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K - None
--------------------------------------------------------------------------------
SIGNATURES
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.
Septima Enterprises, Inc.
August 1 , 2000 /s/ Gregory Johnson.
------- -------------------------
Gregory Johnson
President and Director
19
