-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KlhofgpAhkx3Qchq7/TMagUIXUNighZ+I7MH8XrrEOZMmPo3m7WKgifqq5ntAT2H v/0uVdEGnIZMtCWDuQ7Pag== 0000794154-97-000005.txt : 19970520 0000794154-97-000005.hdr.sgml : 19970520 ACCESSION NUMBER: 0000794154-97-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970516 SROS: NASD SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPRAGEN CORP CENTRAL INDEX KEY: 0000794154 STANDARD INDUSTRIAL CLASSIFICATION: TOTALIZING FLUID METERS & COUNTING DEVICES [3824] IRS NUMBER: 680073366 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-14068 FILM NUMBER: 97610051 BUSINESS ADDRESS: STREET 1: 30689 HUNTWOOD DRIVE CITY: HAYWARD STATE: CA ZIP: 94544 BUSINESS PHONE: 5106360707 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-25726 SEPRAGEN CORPORATION (Exact name of small business issuer as specified in its charter) California 68-0073366 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30689 Huntwood Drive, Hayward, California 94544 (Address of principal executive offices) (Issuer's telephone number (including area code): (510) 476-0650 (Former name, former address and former fiscal year if changed since last report: 30689 Huntwood Drive, Hayward, California 94544 Check whether the issuer (1) has 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the registrant's classes of Common equity, as of the latest practicable date: May 15, 1997 Class A Common Stock 2,155,254 Class B Common Stock 701,177 Class E Common Stock 1,203,719 THIS REPORT INCLUDES A TOTAL OF 11 PAGES. PART I - FINANCIAL INFORMATION Item 1. Financial Statements SEPRAGEN CORPORATION CONDENSED BALANCE SHEETS ASSETS March 31, 1997 December 31, 1996 (unaudited) Current Assets: Cash and cash equivalents $ 62,159 $ 217,057 Accounts receivable, less allowance for doubtful accounts of $10,298 as of March 31, 1997 and December 31, 1996 178,759 183,805 Inventories 492,448 474,892 Prepaid expenses and other 12,631 12,633 Total current assets 745,997 888,387 Furniture and equipment, net 364,937 388,201 Intangible assets 125,684 130,837 $1,236,618 $1,407,425 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 489,250 $ 196,686 Accrued liabilities 74,738 67,665 Accrued payroll and benefits 132,891 110,967 Total current liabilities 696,879 375,318 Class E common stock, no par value - 1,600,000 shares authorized; 1,203,719 and 1,209,894 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively; redeemable at $.01 per share -- -- Shareholders' equity: Preferred stock, no par value - 5,000,000 shares authorized; none issued or outstanding at March 31, 1997 and December 31, 1996 -- -- Class A common stock, no par value - 20,000,000 shares authorized; 2,155,254 and 2,149,155 shares issued and outstanding at March 31, 1997 and at December 31, 1996 8,848,075 8,812,701 Class B common stock, no par value - 2,600,000 shares authorized; 701,177 and 707,276 shares issued and outstanding at March 31, 1997 and at December 31, 1996 4,065,618 4,100,992 Accumulated deficit (12,373,954) (11,881,586) Total shareholders' equity 539,739 1,032,107 $1,236,618 $1,407,425 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 1997 1996 Net Sales $330,909 $632,662 Costs and expenses: Cost of goods sold 125,473 451,638 Selling, general and administrative 486,045 637,851 Research and development 251,946 362,838 Total costs and expenses 863,464 1,452,327 Loss from operations (532,555) (819,665) Other income 40,000 -- Interest income, net 187 40,916 Net loss $(492,368) $ (778,749) Net loss per common and common equivalent share $(.17) $(.27) Weighted average shares outstanding 2,856,431 2,856,431 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1997 1996 Cash flows from operating activities: Net Loss $ (492,368) $ (778,749) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 23,264 23,271 Amortization of patent costs 5,153 -- Changes in assets and liabilities: Accounts receivable 5,046 (300,483) Inventories (17,556) 132,070 Prepaid expenses and other 2 32,460 Accounts payable 292,564 42,700 Accrued liabilities 7,073 (79,135) Accrued payroll and benefits 21,924 8,208 Interest payable -- (4,285) Net cash used in operating activities (154,898) (923,943) Cash flows from investing activities: Acquisition of furniture and equipment -- (220,371) Acquisitions of marketable securities -- (259,514) Proceeds from sale of marketable securities -- 1,500,138 Net cash provided by investing activities -- 1,020,253 Net increase (decrease) in cash (154,898) 96,310 Cash and cash equivalents at the beginning of the period 217,057 23,364 Cash and cash equivalents at the end of the period $62,159 $119,674 Supplemental disclosure of non-cash financing activities: Net unrealized gain on available-for-sale securities -- $2,147 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS THREE MONTH PERIOD ENDED MARCH 31, 1997 (Unaudited) Note 1 - Basis of Presentation These condensed financial statements have been presented on a going concern basis. The Company has incurred recurring losses and cash flow deficiencies from operations that raise substantial doubt about its ability to continue as a going concern. As of March 31, 1997, the Company had an accumulated deficit of $12,282,340. The Company will be required to conduct significant research, development and testing activities which, together with expenses to be incurred for manufacturing, the establishment of a large marketing and distribution presence and other general and administrative expenses, are expected to result in operating losses for the next few years. Accordingly, there can be no assurance that the Company will ever achieve profitable operations. The Company will have to obtain additional financing to support its operating needs beyond May 31, 1997. The Company is currently pursuing alternative funding sources to meet its cash flow needs, including private debt and equity financing. Management intends to use such funding to further its marketing efforts and expand sales and profitability. It is uncertain, however, whether the Company will be successful in such pursuits. No adjustments have been made to the accompanying condensed financial statements for this uncertainty. Note 2 - Interim Financial Reporting. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10- QSB. Accordingly, certain information and footnotes required by generally accepted accounting principles have been condensed or omitted. These interim statements should be read in conjunction with the annual financial statements and the notes thereto, included in the Sepragen Corporation's (the "Company's") Annual Report on Form 10-KSB for the year ended December 31, 1996. The December 31, 1996 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements, and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. The Company's quarterly results may be subject to fluctuations. As a result, the Company believes its results of operations for the interim period are not necessarily indicative of the results expected for any future period. Note 3 - Net Loss Per Share. Net loss per common and common equivalent share is computed using the weighted average number of common shares and common equivalent shares outstanding during each period. Restricted shares issued as Class E common shares and contingent options are considered contingently issuable and, accordingly, are excluded from the weighted average number of common and common equivalent shares outstanding. For the periods ended March 31, 1997 and 1996 common equivalent shares relating to options have been excluded as they are anti-dilutive. Note 4 - Inventory. Inventories consist of the following: Unaudited 3/31/97 12/31/96 Raw Materials $448,073 $294,424 Finished Goods 44,375 180,468 $492,448 $474,892 Note 5 - Other Income Other income represents an insurance recovery in excess of net book value of lost demonstration equipment. Item 2. Management's Discussion and Analysis. First quarter 1997 compared to first quarter 1996 Net sales decreased by $302,000 or 48% from the first quarter of 1996. The decrease in sales is due primarily to the shipment of two large QuantaSeps, a computer controlled liquid chromatography system in the first quarter of 1996. Gross Margin increased by $24,000 or 13% from the first quarter of the prior year, and as a percent of sales, increased from 29% to 62%. The increase is primarily due to product mix. Selling, general and administrative expenses decreased by $152,000 from $638,000 in the first quarter of 1996 to $486,000 in the first quarter of 1997. The decrease was primarily due to the reduction in the number of personnel in sales and marketing, as well as scaling back of advertising and promotion, travel and facility expenses, net of an increase in professional fees and costs for securities compliance matters. Research and development expenses decreased by $111,000 from $363,000 in the first quarter of 1996 to $252,000 in the first quarter of 1997. The decrease was mainly due to the reduction in the cost of software development for the QuantaSep product. Inflation The Company believes that the impact of inflation on its operations since its inception has not been material. Liquidity and Capital Resources. The Company had working capital of $141,000 on March 31, 1997 and $513,000 on December 31, 1996. The decrease in the working capital of $372,000 reflects the use of net cash in operating activities. Since the 1995 IPO, the Company has funded its working capital requirements substantially from the net cash proceeds from the IPO. The increase in inventory form December 31, 1996 to March 31, 1997 was due primarily to build a large QuantaSep System scheduled to ship in the second quarter of 1997. As of March 31, 1997, the Company had no borrowings. During 1997, the Company is committed to pay approximately $245,000 as compensation for its current executive officers. The Company expects to hire additional executive officers as the need arises. Based on the Company's current operating plan, the Company believes that will only be able to fund the Company's operations through May 31, 1997. Accordingly, the Company will have to obtain additional financing to support its operations. The Company is currently attempting to secure additional financing through either the sale of additional equity securities of the Company or some form of debt financing. There can be no assurance that the Company will be able to secure financing on reasonable terms or at all. While the IPO Units, Class A Common Stock and Class A and Class B Warrants have been listed on Nasdaq SmallCap Market and the Pacific Exchange ( PSE ) Tier II, the Company does not currently meet the criteria for continued listing of securities on Nasdaq or the PSE. These continued listing criteria for Nasdaq Small Cap Market generally include a minimum of $2,000,000 in total assets, $1,000,000 in capital and surplus, a minimum bid price of $1.00 per share of common stock and 100,000 shares in the public float. In addition, the common stock must have at least two registered and active market makers and must be held by at least 300 holders and the market value of its public float must be at least $200,000. If an issuer does not meet the $1.00 minimum bid price standard, it may, however, remain on Nasdaq if the market value of its public float is at least $1,000,000 and the issuer has capital and surplus of at least $2,000,000. The continued listing criteria for the PSE generally include a minimum of $500,000 in net tangible assets, at least $2,000,000 in net worth, a minimum bid price of $1.00 per share of common stock, 300,000 shares in the public float and at least 250 public beneficial holders. The Company's financial statements indicate it did not meet the net asset requirements for continued listing on Nasdaq SmallCap Market as of December 31, 1996 or the net asset and capital surplus requirements for continuing listing as of March 31, 1997. If the Company remains unable to meet the continued listing criteria of Nasdaq and the PSE and is delisted therefrom, trading, if any, in the IPO Units, Class A Common Stock and the Warrants would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" or, if then available, the "OTC Bulletin Board Service." As a result, an investor would likely find it more difficult to dispose of, or to obtain accurate quotations as to the value of, the Company's securities. The Company's securities would also be less liquid with a resulting negative effect on the value of such securities and the ability of the Company to raise additional capital. As indicated above, the Company does not currently meet the listing requirements for the NASDAQ SmallCap Market or the Tier II PSE. Nasdaq has requested that the submit a plan for meeting the listing requirements and the Company has submitted a plan to Nasdaq The Company intends to increase its assets by selling additional equity securities of the Company or some form of debt financing. There can be no assurance that the Company's plan will be accepted by NASDAQ or that the Company will be successful in obtaining additional funds. The Company is also exploring alternatives available to the Company, including the possible sale of certain intellectual property or technology to obtain working capital. The can be no assurance that such alternatives will be feasible or successful in increasing working capital or the Company's financial position. The Company's financing and cash requirements may vary materially from those now planned because of changes in the focus and direction of research and development programs, relationships with strategic partners, competitive advances, technological change, changes in the Company's marketing strategy and other factors, many of which will be beyond the Company's control. The Company currently has no credit facility with a bank or other financial institution. Historically, the Company and certain of its customers have jointly borne a substantial portion of developmental expenses on projects with such customers through purchase price advances or joint development projects with each party sharing some of the costs of development. There can be no assurance that such sharing of expenses will continue. The Company continues its efforts to increase sales of its existing products and to complete development and initiate marketing of its products and processes now under development. The Company is seeking to enter into strategic alliances with corporate partners in the industries comprising its primary target markets (biopharmaceutical, food, dairy and environmental management). The Company's ability to develop and market its Sepralac(TM) process for whey separation and other potential food and environmental products and processes will be substantially dependent upon its ability to negotiate partnerships, joint ventures or alliances with established companies in each market. In particular, the Company will be reliant on such joint venture partners or allied companies for both market introduction, operational assistance and financial assistance. The Company believes that development, manufacturing and market introduction of products in these industries, will cost millions of dollars and require operational capabilities in excess of those currently available to the Company. No assurance can be given, however, that the terms of any such alliance will be successfully negotiated or that any such alliance will be successful. The Company hopes to enter into alliances that will provide funding to the Company for the development of new applications of its RFC technology in return for agreements to purchase its equipment and royalty bearing licenses to the developed applications. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that, while such assumptions or bases are believed to be reasonable and are made in good faith, assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The words "believe," "expect," "estimate," "anticipate," and similar expressions may identify forward-looking statements. Taking into account the foregoing, the following are identified as some but not all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of the Company: Inability to Secure Additional Capital. The Company has incurred operating losses each fiscal year since its inception. The Company must secure additional financing through either the sale of additional securities or debt financing to continue operations past June 1, 1997. Although the Company is attempting to secure such financing, there can be no assurance that such financing will be available to Company on reasonable terms or at all. If the Company is unable to secure such capital it will not meet the net asset and capital and surplus levels required for continued listing of its securities on the Nasdaq SmallCap Market and the Pacific Exchange Tier II. See Item 2 "Management's Discussion and Analysis-Liquidity and Capital Resources." Competition. In both its biopharmaceutical industry market and in the market for its process systems for food, beverage, dairy and environmental industries, the Company faces intense competition from better capitalized competitors. Dependence on Joint Ventures and Strategic Partnerships. The Company's entry into the food, dairy and beverage market for its process systems will be substantially dependent upon its ability to enter into strategic partnerships, joint ventures or similar collaborative alliance with established companies in each market. As of the date of this report, no such alliances have been finalized and there can be no assurance that the terms of any such alliance will produce profits for the Company. PART II - OTHER INFORMATION Item 1 Legal Proceedings. Not Applicable. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. Item 5. Other Information. Not Applicable. Item 6. Exhibits and Reports on Form 8-K Each exhibit identified below is filed as part of this report. Exhibits incorporated by reference to a prior filing are designated by a numbered footnote. (a) Exhibits. The following exhibits are filed as part of this Report: 1.1(1) Form of Underwriting Agreement 3.1(1) Restated Articles of Incorporation of the Company, as amended to date 3.2(2) Restated Bylaws, as amended to date. 4.1(1) Form of Warrant Agreement among the Company, the Underwriter and American Stock Transfer Company, including Forms of Class A Warrant Certificates and Class B Warrant Certificates 4.2(1) Form of Unit Option Agreement between the Company and the Underwriter 4.3(1) Form of Specimen Class A Common Stock Certificate 4.4(1) Form of Specimen Class B Common Stock Certificate 4.5(1) Form of Specimen Class E Common Stock Certificate 4.6(1) Bridge Warrant Agreement, including forms of Bridge Warrant Certificate 10.1(2) Lease dated July 3, 1995 between Hayward Business Park, Inc. and the Company. 10.2(1) Employment Agreement between the Company and Vinit Saxena effective September 1, 1994 10.3(1) Employment Agreement between the Company and Q. R. Miranda effective September 1, 1994 10.4(1) Form of Indemnification Agreement between the Company and each director and officer of the Company 10.5(1) Convertible Promissory Notes and Warrants 10.6(1) 1994 Stock Option Plan 10.7(3) Master Purchasing Agreement with Thermax Limited dated April 23, 1996 10.8(4) 1996 Stock Option Plan 27 Financial Data Schedule (1) These exhibits which are incorporated herein by reference were previously filed by the Company as exhibits to its Registration Statement on Form SB-2 and Amendments Nos. 1, 2, 3, 4 and 5 and Post Effective No. 1 (File No. 33-86888). (2) These exhibits which are incorporated herein by reference were previously filed by the Company as exhibits to its Quarterly Report on Form 10-QSB for the quarter ended September 30, 1995. (3) These exhibits which are incorporated herein by reference were previously filed by the Company as exhibits to its Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996. (4) These exhibits which are incorporated herein by reference were previously filed by the Company as exhibits to its Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996. Exhibits not listed above have been omitted because they are inapplicable or because the required information is given in the financial statements or notes thereto. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report is filed. 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. SEPRAGEN CORPORATION Date: May 15, 1997 By: /s/Vinit Saxena Vinit Saxena Chief Executive Officer, President and Principal Financial and Chief Accounting Officer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR MARCH 31, 1997 AS FILED ON FORM 10QSB WITHT HE SECURITIES EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000794154 SEPRAGEN CORPORATION 3-MOS DEC-31-1997 MAR-31-1997 62,159 0 178,759 10,298 492,448 745,997 364,937 0 1,236,618 696,879 0 0 0 12,913,693 (12,373,954) 539,739 330,909 330,909 125,473 125,473 737,991 0 0 (492,368) (492,368) (492,368) 0 0 0 (492,368) (.17) (.17)
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