-----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, E1PzT19ZoqVK9p+p00flhPXQGH7FfEBxUiZr0nTUwZJ2Z4PCiW9WrHnb5fivzF/1 wlfTBCPytv49LfEETtT2KA== 0000794154-98-000010.txt : 19980525 0000794154-98-000010.hdr.sgml : 19980525 ACCESSION NUMBER: 0000794154-98-000010 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980522 SROS: PCX 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: SEC FILE NUMBER: 001-14068 FILM NUMBER: 98630029 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: March 31, 1998 [ ] 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 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 15,1998 Class A Common Stock 2,155,254 Class B Common Stock 701,177 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 March 31, 1998 Current Assets: Cash and cash equivalents $ 22,779 Accounts receivable, less allowance for doubtful accounts of $12,000 as of December 31, 1997 and March 31, 1998 539,490 Inventories 199,404 Prepaid expenses and other 62,484 Total current assets 824,157 Furniture and equipment, net 248,432 Intangible assets 113,921 1,186,510 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable 851,619 Bridge Loans, net of unamortized discounts of $5,700 534,300 Customer deposits 68,054 Notes Payable, including $175,000 283,000 from shareholders Accrued payroll and benefits 182,127 Accrued liabilities 76,060 Interest payable 44,132 Total current liabilities 2,039,292 Class E common stock, no par value - 1,600,000 shares authorized; 1,209,894 shares issued and outstanding at March 31, 1998 redeemable at $.01 per share - Shareholders' equity (deficit): Preferred stock, no par value - 5,000,000 shares authorized; none issued or outstanding at March 31, 1998 - Class A common stock, no par value - 20,000,000 shares authorized; 2,155,254 shares issued and outstanding at March 31, 1998 8,848,075 Class B common stock, no par value - 2,600,000 shares authorized; 701,177 shares issued and outstanding at March 31, 1998 4,065,618 Additional paid in capital 110,700 Accumulated deficit (13,877,175) Total shareholders' equity (deficit) (852,782) 1,186,510 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION CONDENSED STATEMENTS OF OPERATIONS Three Months Ended March 31 1998 1997 Revenues: Net Sales $ 632,333 $ 330,909 Costs and expenses: Cost of goods sold 383,086 125,473 Selling, general and administrative 293,946 486,045 Research and development 213,094 251,946 Total costs and expenses 890,126 863,464 Loss from operations (257,793) (532,555) Other income -- 40,000 Interest income, (expense) net (89,282) 187 Net loss (347,075) (492,368) Net loss per common share, basic and diluted $(.12) $(.17) 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 Three Months Ended March 31, 1998 1997 Cash flows from operating activities: Net Loss $(347,075) $(492,368) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and Amortization 104,023 28,417 Changes in assets and liabilities: Accounts receivable 31,378 5,046 Inventories 119,456 (17,556) Prepaid expenses and other 2 2 Accounts payable 215,365 292,564 Accrued liabilities (16,660) 7,073 Accrued payroll and benefits 36,988 21,924 Interest payable 19,283 -- Customer deposits (242,429) -- Net cash used in operating activities (79,669) (154,898) Cash flows from financing activities: Proceeds from issuance of notes payable to shareholders 50,000 -- Proceeds from issuance of notes payable 8,000 -- Net cash provided by financing activities 58,000 -- Net increase (decrease) in cash (21,669) (154,898) Cash and cash equivalents at the beginning of the period 44,448 217,057 Cash and cash equivalents at the end of the period $ 22,779 $ 62,159 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, 1998 Note 1 - Basis of Presentation These condensed financial statements have been presented on a going concern basis. Sepragen, ("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, 1998, the Company had an accumulated deficit of $13,877,175. The Company, while continuing its existing operations of selling equipment and instruments for its biopharmaceutical business, is also pursuing licensing of its Sepralac and SepraDebitt processes which are expected to generate additional revenues from equipment sales, licensing fees and royalty income. The Company is expected to achieve profitability only after the next several quarters, when such deals are expected to be consummated and the anticipated revenue stream realized. There can be no assurance that such deals will be consummated. Meanwhile the Company will have to obtain additional financing to support its operating needs beyond May 31, 1998. 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. 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 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, 1997. Note 3 - Net Loss Per Share. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earning per Share for all periods presented. The adoption of SFAS No. 128 had no impact on previously reported loss per share for the three months ended March 31, 1997. In accordance with SFAS No. 128, primary earnings (loss) per share has been replaced with basic earnings (loss) per share, and fully diluted earnings (loss) per share has been replaced with diluted earnings (loss) per share which includes potentially dilutive securities such as outstanding options and convertible securities, using the treasury stock method. The assumed exercise of options and warrants and assumed conversion of convertible securities have not been included in the calculation of diluted loss per share as the effect would be anti-dilutive. Note 4 - Inventory. Inventories consist of the following at March 31, 1998: Raw Materials $143,874 Finished Goods 55,530 $199,404 SEPRAGEN CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS THREE MONTH PERIOD ENDED MARCH 31, 1998 Note 5 - Notes Payable In May 1997, the Company borrowed $100,000 from a shareholder of the Company, payable with interest at 9.5% per annum and was due April 10, 1998. In June 1997, the Company borrowed $25,000 from a shareholder of the Company, payable with interest at 9.5% per annum and was due December 18, 1997. In June 1997, the Company issued a note payable of $100,000 to an unrelated party. The note bears interest of 9.5% per annum and is due June 18, 1998. In March 1998, the Company borrowed $50,000 from a shareholder of the Company, payable with interest at 9.5% per annum and is due May 31, 1998. In March 1998, the Company borrowed $8,000 from an unrelated party, payable with interest of 9.5% per annum and is due May 31, 1998. The notes payable originally due on April 10, 1998 and December 18, 1997 are now past due and subject to collection and additional costs. Terms for repayment and extension are being negotiated. Note 6 - Bridge Notes Payable In November 1997, the Company completed its private placement of bridge of 54 bridge units. Each unit consists of a bridge note in the face amount of $10,000 which bears interest at an annual rate of 10% and warrants to purchase 5,000 shares of Class A Common Stock at $1.25 per share. The warrants are immediately exercisable and expire five years from the date of issuance. No warrants have been exercised as of March 31, 1998. The bridge notes are payable upon the earlier of six months from issuance or completion of any subsequent offering of equity securities with at least $1,000,000 in gross proceeds. As of March 31, 1998, $540,000 of offering proceeds were received from the bridge financing including $55,000 from related parties. Direct debt issuance costs related to these notes totaled $35,000. The aggregated fair value of the warrants issued in connection with the financing was $110,700 and is being amortized, along with the issuance costs, to operations as additional interest expense over the term of the notes. For the three months ended March 31, 1998 the Company amortized $70,000 of issuance cost to operations. Item 2 . Management's Discussion and Analysis. First quarter of 1998 compared to first quarter of 1997 Net sales increased by $301,000 or 91% from $331,000 the first quarter of 1997 to $632,000 in the first quarter of 1998. The increase in sales is primarily due to the increase of sales of its core products, Radial Flow Chromatography (RFC) equipment and a small contribution from of revenues from Sepralac evaluation license fees. Over the balance of the year the Company expects the contribution of revenues from the Sepralac process to grow . Gross Margin increased by $44,000 or 21% from the first quarter of the prior year, and as percent of sales, decreased by 23%. The Changes in gross margin is primarily due to product mix. Selling, general and administrative expenses decreased by $192,000 from $486,000 in the first quarter of 1997 to $294,000 in the first quarter of 1998. The decrease was primarily due to belt tightening measures adopted in mid 1997 in administrative expenses coupled with a reduction in head count in sales and marketing, scaling back of advertising and promotion and travel expenses. Research and development expenses decreased by $39,000 from $252,000 in the first quarter of 1997 to $213,000 in the first quarter of 1998. The decrease was mainly due to the reduction in the cost of software development for the QuantaSep product. Interest expense increased by $89,000 in the first quarter of 1998 compared to the first quarter of 1997 due to amortization of $70,000 of issuance cost and $19,000 interest expense related to the bridge loans and notes payable. 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 used cash in operations of $79,700 and $154,000 during the first quarter ended March 31, 1998 and 1997, respectively. Cash used in operation in the first quarter of 1998 was the result of net loss incurred for the first quarter of $347,000, offset by net non-cash expense of $104,000, and the net change in operating assets and liabilities resulting in source of cash of $163,400. Cash used in the first quarter of 1997 was the result of the net operating assets and liabilities resulting in a source of cash of $309,100. Financing activities provided cash of $58,000 during the first quarter ended March 31, 1998. The cash provided resulted from the issuance of $58,000 in notes payable. At March 31, 1998 the Company had cash and cash equivalents of $22,800 and $44,400 on December 31, 1997. At March 31, 1998, the Company had working capital deficit of $1,215,000, as compared to working capital deficit of $902,000 at December 31, 1997. The decrease in cash in the first quarter of 1998 is a result of the aforementioned increase or decrease in cash from operating and financing activities noted above. The decrease in working capital for the quarter is primarily a result of the net loss incurred offset by non-cash charges. This negative cash out flow from operations must be reversed and working capital increased significantly in order for the Company to fund its existing activities and to extend the use of its technology to new applications in the food and dairy and environmental industries, and to attract the interest of strategic partners in one or more of these markets. Based on the Company's current operating plan, the Company believes that it will only be able to fund the Company's operations through May 31, 1998. 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. Additionally, the Company is pursuing several alliances in the dairy industry which if consummated successfully could potentially contribute to increasing the Company's liquidity through licensing, fees, revenue from product sales and royalty income. Sepragen has announced the signing of a letter of intent with California Gold for licensing the Sepralac process and has also previously signed evaluation agreements with two other companies. There can be no assurance that a deal will be consummated or that the Company will be able to secure financing on reasonable terms or at all. The IPO Units, Class A Common Stock and Class A and Class B warrants were delisted from the Nasdaq SmallCap Market on August 15, 1997. The Company's financial statements indicate it did not meet the asset requirements for continued listing of securities on Nasdaq SmallCap Market as of December 31, 1996 or the net asset and capital surplus requirements for continued listing as of June 30, 1997. Since August 16, 1997, the IPO Units, Class A Common Stock and the warrants have been trading in the over-the-counter market. As a result, an investor will likely find it more difficult to dispose of or to obtain accurate quotations as to the value of the company's securities. It is also likely the Company's securities will 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. The Company has received notice that the IPO Units, Class A Common Stock and the Class A and Class B warrants will be delisted from the Pacific Exchange ("PSE") Tier II in May 1998. The Company does not meet the criteria for continued listing of securities on the PSE. The continued listing criteria for 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 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 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 Radial Flow Chromatography (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," "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, 1998. Although the Company is attempting to secure such financing, there can be no assurance that such financing will be available to the Company on reasonable terms. The Company has not met the net asset and capital and surplus levels required for continued listing of its securities on the Pacific Exchange Tier II and has been delisted from the Nasdaq SmallCap Market. 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. 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. Reports on Form 8-K The following Forms 8-K were filed in the first quarter of 1998: January 13, 1998 Form 8-K, item 4. February 6, 1998 Form 8-K, item 4. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SEPRAGEN CORPORATION DATE: May 21, 1998 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, 1998 AS FILED ON FORM 10QSB WITH THE SECURITIES EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 MAR-31-1998 22,779 0 539,490 12,000 199,404 824,157 248,432 0 1,186,510 2,039,292 0 0 0 12,913,693 (13,766,475) 1,186,510 632,333 632,333 383,086 383,086 507,040 0 89,282 (347,075) 0 (347,075) 0 0 0 (347,075) (.12) (.12)
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