-----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, VeceaFHdk+d6Q/PzpUFof5/IjJ3Js0izU/gY4oW2du6thEaQNHnuKz7yeAkOgkHY h1E+8q83nFse94LjT0Xp/A== 0000794154-96-000005.txt : 19960916 0000794154-96-000005.hdr.sgml : 19960916 ACCESSION NUMBER: 0000794154-96-000005 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960913 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14068 FILM NUMBER: 96629463 BUSINESS ADDRESS: STREET 1: 30689 HUNTWOOD DRIVE CITY: HAYWARD STATE: CA ZIP: 94544 BUSINESS PHONE: 5106360707 10QSB/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A Amendment No.1 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1996 [ ] 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 Avenue , 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: 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 require- ments 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: August 11, 1996 Class A Common Stock 2,070,000 Class B Common Stock 786,431 Class E Common Stock 1,209,894 THIS REPORT INCLUDES A TOTAL OF 9 PAGES. THERE ARE NO EXHIBITS. PART I - FINANCIAL INFORMATION Item 1. Financial Statements SEPRAGEN CORPORATION CONDENSED BALANCE SHEETS ASSETS June 30, December 31, 1996 1995 (unaudited Current Assets: Cash and cash equivalents .. $ 1,321,924 $ 23,364 Marketable securities ....... 257,442 3,586,145 Accounts receivable, less allowance for doubtful accounts of $18,782 and $30,459 as of June 30, 1996 and December 31, 1995, respectively.... 444,254 278,688 Inventories ............ 619,862 777,620 Prepaid expenses and other ... 14,470 57,130 Total current assets ..... 2,657,952 4,722,947 Furniture and equipment, net ..... 438,048 252,150 Intangible assets ......... 111,709 111,709 $3,207,709 $5,086,806 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable ........... $210,938 $230,799 Accrued liabilities .......... 28,960 174,395 Accrued payroll and benefits ...... 89,465 80,633 Interest payable .............. -- 4,285 Total current liabilities ..... 329,363 490,112 Class E common stock, no par value - 1,600,000 shares authorized; 1,209,894 shares issued and outstanding at June 30, 1996 and December 31, 1995; redeemable at $.01 per share ...... -- -- Shareholders' equity: Preferred stock, no par value - 5,000,000 shares authorized; none issued or outstanding at June 30, 1996 and December 31, 1995 .... -- -- Class A common stock, no par value - 20,000,000 shares authorized; 2,070,000 shares issued and outstanding at June 30, 1996 and December 31, 1995 ................. 8,353,737 8,353,737 Class B common stock, no par value - 2,600,000 shares authorized; 786,431 shares issued and outstanding at June 30, 1996 and December 31, 1995.......4,559,956 4,559,956 Unrealized loss on available-for-sale securities..........(73,553) (14,462) Accumulated deficit...................(9,961,794) (8,302,537) Total shareholders' equity ............2,878,346 4,596,694 $3,207,709 $5,086,806 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Revenues: Net Sales $230,119 $332,812 $862,781 $797,932 Costs and expenses: Cost of goods sold 186,292 184,802 637,930 408,223 Selling, general and administrative 587,499 538,323 1,225,350 869,604 Research and development 366,472 306,285 729,310 460,406 Total costs and expenses 1,140,263 1,029,410 2,592,590 1,738,233 Loss from operations (910,144) (696,598) (1,729,809) (940,301) Interest income (expense), net 29,635 82,310 70,551 (59,511) Net loss $(880,509) $(614,288) $(1,659,258) $(999,812) Net loss per common and common equivalent share $(.31) $(.23) $(.58) $(.55) Weighted average shares outstanding 2,856,431 2,728,352 2,856,431 1,811,473 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1996 1995 Cash flows from operating activities: Net Loss ............. $(1,659,258)$ (999,812) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation ............. 41,813 10,952 Changes in assets and liabilities: Accounts receivable ...... (165,566) (156,319) Inventories .......... 157,758 (315,415) Prepaid expenses and other ... 42,660 81,809 Accounts payable ....... (19,861) (211,595) Accrued liabilities ...... (145,435) (128,971) Accrued payroll and benefits .. 8,832 (23,750) Interest payable ........ (4,285) (18,667) Customer deposits .......... -- 20,580 Net cash used in operating activities (1,743,342) (1,741,188) Cash flows from investing activities: Acquisition of furniture and equipment ........... (227,711) (31,846) Acquisitions of marketable securities ............. (140,000) -- Proceeds from sale of marketable securities ............ 3,409,613 -- Net cash provided by (used in) investing activities ...... 3,041,902 (31,846) Cash flows from financing activities: Proceeds from issuance of common stock ... -- 8,832,231 Repayment of bridge notes payable ..... -- (1,550,000) Repayment of notes payable ......... -- (25,000) Repayment of convertible note payable to shareholder .......... -- (25,000) Repayment of convertible note ....... -- (65,000) Net cash provided by financing activities ... -- 7,167,231 Net increase in cash ......... 1,298,560 5,394,197 Cash and cash equivalents at the beginning of the period ........ 23,364 240,472 Cash and cash equivalents at the end of the period ......... $1,321,924 $5,634,669 Supplemental disclosure of non-cash financing activities: Conversion of note payable to shareholder and related interest to common stock ............. -- $794,909 Deferred costs of securities registration offset against proceeds from issuance of common stock ...... -- $478,494 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS SIX MONTH PERIOD ENDED JUNE 30, 1996 (Unaudited) Note 1 - 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 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, 1995. The December 31, 1995 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 manage- ment, 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 fluctu- ations. 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. 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 expects to have sufficient working capital to support its operating needs for up to an twelve month period from June 30, 1996. There is no assurance, however, that sufficient revenues will be generated in this and future periods to fund the Company's operations, which would result in the Company needing to raise additional financing in the near future. Note 2 - Initial Public Offering. The Company's initial public offering was declared effective by the Securities and Exchange Commission on March 23, 1995. The offering of 1,800,000 Units, each consisting of one share of Class A common stock, one redeemable five year Class A warrant and one redeemable five year Class B warrant, provided net proceeds of $7,242,351 to the Company. On the effective date of the offering, the Company issued 57,224 shares of Class B common stock and 88,039 shares of Class E common stock in exchange for the cancellation of a note payable to a share- holder of $727,000 and related accrued interest of $67,909. In May, 1995 the underwriter exercised its overallotment option for 270,000 Units, generating an additional $1,181,386 of net proceeds to the Company. SEPRAGEN CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS SIX MONTH PERIOD ENDED JUNE 30, 1996 (Unaudited) 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 contin- gently issuable and, accordingly, are excluded from the weighted average number of common and common equivalent shares outstanding. For the periods ended June 30, 1996 and 1995 common equivalent shares relating to options have been excluded as they are anti-dilutive. Note 4 - Inventory. Inventories consist of the following: 6/30/96 12/31/95 Raw Materials $367,582 $459,474 Finished Goods 252,280 318,146 $619,862 $777,620 Note 5 - Stock Option Plan Effective June 28, 1996, the Company adopted a new 1996 Stock Option Plan which reserves an additional 250,000 shares of Class A common stock for future grant. The terms of this plan are similar to the 1994 Stock Option Plan. Item 2. Management's Discussion and Analysis. First six months of 1996 compared to first six months of 1995 Net sales increased by $65,000 or 8% from the first half of 1995. This increase in sales is due primarily to the shipment of two large QuantaSeps, a computer controlled liquid chromatography system. Gross Margin decreased by $165,000 or 42% from the first half of the prior year, and as a percent of sales, decreased by 23% from 49% to 26%. This decrease was attributable to higher material cost and development of software for the large QuantaSeps, and booking of a reserve for obsolescence and slow moving inventory. Selling, general and administrative expenses increased by $352,- 000 from $870,000 in the first half of 1995 to $1,222,000 in the first half of 1996. The increase was primarily due to: the hiring of additional personnel in sales and marketing, corporate development and administration; and additional expenses related to training, advertis- ing and promotion, public relations, product evaluation and demonstra- tion. Research and development expenses increased by $269,000 or 58% from $460,000 in the first half of 1995 to $729,000 in the first half of 1996. The increase was attributable to expenditures related to the development of a process for dairy whey fractionation, expenditures related to the development of a special absorbent media and further development of QuantaSep products and other related products. Interest income, net for the first half of 1996 reflects interest income earned on the proceeds of the initial public offering; and interest expense, net for the first half of 1995 mainly reflects interest expense relating to bridge financing preceding the initial public offering. Second quarter 1996 compared to second quarter 1995. Net sales decreased by $103,000 or 31% from the second quarter of 1995. The decrease in sales was due to decreased orders of the Quanta-Sep System. Gross margin decreased by $104,000 or 70% from the second quarter of 1995, and as a percent of sales, decreased by 25% from 44% to 19% . Gross Margin decreased due to product mix and booking of a reserve for obsolescence and slow moving inventory. Selling, general and administrative increased by $49,000 from $538,000 in the second quarter of 1995 to $587,000. The increase was mainly due to the preparation of the proxy statement and the annual report to shareholders for the shareholders meeting which was held on June 28, 1996. Inflation The Company believes that the impact of inflation on its opera- tions since its inception has not been material. Volatility of Sales In the last several years, the Company has experienced a relative increase in customer equipment orders in the third and fourth quarters and a relative decrease in orders in the first and second quarters. The Company believes this fluctuation relates to capital appropria- tions and spending cycles in the biopharmaceutical business. Liquidity and Capital Resources. The Company had working capital of $2,329,000 on June 30, 1996 and $4,233,000 on December 31, 1995. The decrease in the working capital of $1,904,000 reflects the use of net cash in operating activities and leasehold improvements. Since the IPO, the Company has funded its working capital re- quirements substantially from the net cash proceeds from the IPO. Prior to the IPO, the Company had funded its activities primarily through sales of its SuperfloR columns and QuantaSepR systems, loans from its principal shareholders, and private placements of securities. The IPO generated net proceeds of $7,242,000 and the exercise by the underwriter of its over-allotment option generated additional net proceeds of $1,111,000. From its inception in 1985 until the IPO, the Company's expendi- tures have exceeded its revenues. Prior to the IPO, the Company financed its operations primarily through private equity placements in an aggregate amount of approximately $3,971,000, a substantial portion of which was purchased by H. Michael Schneider, the secretary and a director of the Company until October 1, 1995, and his affiliates, including Romic Environmental Technologies Corporation ("Romic"), an entity controlled by Mr. Schneider. In addition, the Company has historically relied on customers to provide purchase price advances for development and scale-up of its radial flow chromatography col- umns. As of June 30, 1996, the Company had shareholders' equity of approximately $2,878,000. As of June 30, 1996, the Company had a working capital balance of approximately $2,329,000. For the first half of 1996, net cash used in operating activities was $1,743,000. This negative cash out flow of working capital from operations must be reversed and working capital increased significantly in order for the Company to fund the level of manufacturing and marketing required to meet the anticipated growth in demand for its products from the pharmaceutical and biotech- nology industries during the next two years. Moreover, the Company requires additional funds to extend the use of its technology to new applications within the pharmaceutical and biotechnology industries as well as to applications within the food and dairy and environmental industries and to attract the interest of strategic partners in one or more of these markets. The decrease of $158,000 in inventory from December 31, 1995 to June 30, 1996 was due primarily to the shipment of two large QuantaSep Systems. As of June 30, 1996, the Company had no borrowings. During fiscal year 1996, 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. The Company's financing requirements may vary materially from those now planned because of results and 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. Based on the Company's current operating plan, the Company believes that the net proceeds of the 1995 IPO, together with trade credit arrangements and cash flow generated from operations, will be sufficient to fund the Company's operations for the twelve month period following June 30, 1996. There is no assurance, however, that sufficient revenues will be generated in this and future periods to fund the Company's operations, which would result in the Company needing to raise additional financing in the near future. Company's cash requirements may vary materially from those planned because of factors such as the timing of significant product orders, commercial acceptance of new products, patent develop- ments and the introduction of competitive products. 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. 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 devel- opment. 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 hopes to enter into alliances that will provide funding to the Company for the development of new applications of its radial flow chromatography technology in return for royalty bearing licenses to the developed applications. 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's Class A Common Stock, Class A Warrants, Class B Warrants and Units are quoted on the NASDAQ SmallCap Market and are listed on the Pacific Stock Exchange (Tier II). The Company entered into a lease for new facilities in Hayward, California with annual rent of $76,900 and relocated its facilities in February 1996. 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: September 12, 1996 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 REGISTRANT'S ANNUAL REPORT ON FORM 10KSB FOR THE YEAR ENDED 12/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS 12-MOS JUN-30-1996 DEC-31-1995 JUN-30-1996 DEC-31-1995 1,321,924 23,364 257,442 3,586,145 444,254 278,688 18,782 30,459 619,862 777,620 2,657,952 4,722,947 438,048 252,150 0 0 3,207,709 5,086,806 329,363 490,112 0 0 12,913,693 12,913,693 0 0 0 0 (73,553) (14,462) 3,207,709 4,086,806 862,781 1,046,256 862,781 1,046,256 637,930 685,291 637,930 685,291 1,954,660 3,357,472 0 0 (70,551) (83,650) (1,659,258) (2,912,857) 0 0 (1,659,258) (2,912,857) 0 0 0 0 0 0 (1,659,258) (2,912,857) (.58) (1.25) (.58) (1.25)
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