-----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, OFnB9YGWDJyfYRFE5Tedx02GxL6OUdrTruysw3mcRpkW7r8BsRP0Tm0UD90s4Qqw gF/XSAr3nW10Bx5nxdC3rQ== 0000794154-99-000008.txt : 19990714 0000794154-99-000008.hdr.sgml : 19990714 ACCESSION NUMBER: 0000794154-99-000008 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990713 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: 99663198 BUSINESS ADDRESS: STREET 1: 30689 HUNTWOOD DRIVE CITY: HAYWARD STATE: CA ZIP: 94544 BUSINESS PHONE: 5104760760 MAIL ADDRESS: STREET 1: 30689 HUNTWOOD DRIVE CITY: HAYWARD STATE: CA ZIP: 94544 10QSB/A 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, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-14068 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 15,1999 Class A Common Stock 4,057,216 Class B Common Stock 701,177 Class E Common Stock 1,209,894 THIS REPORT INCLUDES A TOTAL OF 12 PAGES. THERE ARE NO EXHIBITS. PART I - FINANCIAL INFORMATION Item 1. - Financial Statements SEPRAGEN CORPORATION CONDENSED BALANCE SHEET ASSETS March 31, 1999 Current Assets: Cash and cash equivalents $ 11,361 Accounts receivable, less allowance for doubtful accounts of $20,000 as of March 31, 1999 494,826 Inventories 279,047 Prepaid expenses and other 32,011 Total current assets 817,245 Furniture and equipment, net 154,826 Intangible assets 88,942 1,061,013 LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable 556,870 Customer deposits 13,069 Notes Payable, including $135,000 from 559,430 shareholders Accrued payroll and benefits 192,561 Accrued liabilities 86,167 Interest payable 49,045 Total current liabilities 1,457,142 Preferred stock, no par value - 5,000,000 shares authorized; and 175,439 convertible, preferred issued and outstanding 500,000 Class E common stock, no par value - 1,600,000 shares authorized; 1,209,894 shares issued and outstanding at March 31, 1999 redeemable at $.01 per share - Shareholders' deficit: Class A common stock, no par value - 20,000,000 shares authorized; 4,057,216 shares issued and outstanding 9,752,226 Class B common stock, no par value - 2,600,000 shares authorized; 701,177 shares issued and outstanding 4,065,618 Additional paid in capital 202,220 Accumulated deficit (14,916,193) Total shareholders' equity (deficit) (896,129) 1,061,013 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION CONDENSED STATEMENTS OF OPERATIONS Three Months Ended March 31 1999 1998 Revenues: Net Sales $553,661 $632,333 Costs and expenses: Cost of goods sold 340,376 383,086 Selling, general and administrative 230,811 293,946 Research and development 156,227 213,094 Total costs and expenses 727,414 890,126 Loss from operations (173,753) (257,793) Interest income, (expense) net (6,000) (89,282) Net loss (179,753) (347,075) Net loss per common share, basic and diluted $(.04) $(.12) Weighted average shares outstanding 4,758,393 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, 1999 1998 Cash flows from operating activities: Net Loss $(179,753) $(347,075) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and Amortization 30,677 104,023 Changes in assets and liabilities: Accounts receivable 33,019 31,378 Inventories 166,345 119,456 Prepaid expenses and other -- 2 Accounts payable (408,808) 215,365 Accrued liabilities (10,456) (16,660) Accrued payroll and benefits 36,498 36,988 Interest payable 6,001 19,283 Customer deposits (27,728) (242,429) Net cash used in operating activities (354,205) (79,669) Cash flows from financing activities: Proceeds from issuance of notes payable to shareholders -- 50,000 Proceeds from issuance of notes payable 324,430 8,000 Net cash provided by financing activities 324,430 58,000 Net (decrease) in cash (29,775) (21,669) Cash and cash equivalents at the beginning of the period 41,136 44,448 Cash and cash equivalents at the end of the period $ 11,361 $ 22,779 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, 1999 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, 1999, the Company had an accumulated deficit of $14,916,193. 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 foreseeable future. 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 July 31, 1999. 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 Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. 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, 1998. 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 - The "Year 2000 Problem," dates following December 31, 1999 and beyond: Many existing computer systems and applications, and other devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. Such systems and applications could fail or create erroneous results unless corrected. The Company relies on its internal financial systems and external systems of business enterprises such as customers, suppliers, creditors, and financial organizations both domestically and globally, directly and indirectly for accurate exchange of data. The Company has evaluated such systems and believe the cost of addressing the "Year 2000 Problem" will not have a material adverse affect on the result of operations of financial position of the Company. However, even though the internal systems of the Company are not materially affected by the Year 2000 issue the Company could be affected through disruption in the operation of the enterprises with which the Company interacts. Note 5 - Notes Payable Between May 1997 and August 1998, the Company borrowed an aggregate of $400,000 of which $300,000 were from shareholders of the Company, payable with interest at 9.5% per annum and $100,000 from an unrelated party payable with interest at 9.5% per annum. In January 1999, $35,000 was paid to the unrelated party with the remaining balance of $65,000 due on March 1, 1999. In December, 1998, the Company converted $165,000 of shareholder debt including accrued interest of $11,657 into 368,035 shares of Class A Common Stock. with a balance of $135,000 due to shareholders. On January 22, 1999, the Company converted $484,430 due to a major supplier from accounts payable to notes payable. The Note bears 12% interest per annum and is secured by agreement granting this vendor a first priority interest in the assets of the Company excluding patents and trade marks. The Note is to be paid at $65,000 per month and the balance as of March 31, 1999 was $359,430 The notes payable that were due on March 1, 1999, and are now past due. Terms for repayment and extension are being negotiated. Note 6 - Bridge Notes Payable On August 19, 1998, the Company completed a debt-refinancing transaction whereby the Company borrowed $550,000 from Mr. K. Charles Janac pursuant to a Convertible Secured Promissory Note issued by the Company (the "Note") in the principal amount of $550,000 and bearing interest at the rate of 9.75% per annum. The Note is convertible into shares of Class A Common Stock at the option of Mr. Janac at any time before December 15, 1998 by converting the principal balance and any unpaid interest due under the Note into Class A Common Stock at the rate of $0.46875 per share. In addition, as further consideration for the loan of funds to the Company, the Company issued to Mr. Janac a warrant , exercisable at any time on or before August 18, 2003, to purchase up to 234,667 shares of Class A Common Stock at $.46875 per share (the "Warrants"). As security for the Note, the Company entered into a Security Agreement granting Mr. Janac a first priority security interest in the property, tangible and intangible, of the Company, as well as a Patent and Trademark Mortgage granting Mr. Janac a security interest in all the patents and trademarks of the Company. The Company used the funds loaned by Mr. Janac to retire $532,242 of existing debt and accrued interest incurred by the Company in connection with a certain bridge financing undertaken by the Company in October of 1997, to pay legal fees and costs of the transaction, and approximately $7,000 was utilized for working capital. On December 8, 1998, the Company paid $200,000 to Mr. Janac as a partial payment of the Note. Mr. Janac also agreed to convert the remaining balance of $366,308 of the Note in principal and accrued interest into Class A Common Stock at $0.46875 per share. In consideration of the conversion the Company issued 781,457 of Common A Shares to Mr. Janac. At the same time the UCC filing granting Mr. Janac security interest in the Company's assets was removed. In addition, the Company converted an additional $10,000 of Bridge Debt principal and $1,186 in accrued interest into 23,304 shares of Class A Common Stock. Note 7 - Convertible Preferred Stock On September 1, 1998, the Company sold 175,439 Shares of Series A Preferred Stock. All of the shares of Series A Preferred Stock were sold to Anchor Products Limited of Hamilton, New Zealand ("Anchor"). The acquisition of Series Preferred Stock by Anchor was consummated in connection with the execution of a Commercial License Agreement between the Company and Anchor, whereby the Company licensed Anchor a technology that isolates proteins from whey, a low value cheese by-product. The shares of Series A Preferred Stock were sold for cash in the aggregate amount of $500,000 ($2.85 per share). There were no underwriting discounts or commissions paid in connection with the transaction. The shares of Series A Preferred Stock were sold pursuant to exemptions from registration under section 4(2) and registration S under the Securities Act of 1933, in a transaction that was not publicly offered. Anchor is a New Zealand corporation. The Company's Series A Preferred Stock provides for both a 7% dividend and liquidation preferences. The dividend is payable from time to time at the election of the Board of Directors of the Company subject to the Company retaining sufficient earnings and profits. The Preferred Stock is also convertible on or before September 30, 2000 into Class A Common Stock, at the conversion rate of $2.86 per share. On any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of series A Preferred Shares shall receive, out of the assets of the Company, the sum of $2.86 per Series A Preferred Share, plus an amount equal to any dividends accrued and unpaid on those Series A Preferred Shares, before any payment shall be made or any assets distributed to the holders of Common Stock. The Series A Preferred Shares shall be redeemable at the option of the holders of the Series A Preferred Shares commencing September 30, 2003 and expiring December 31, 2008, at the cash price of $2.86 per share, plus any accrued and unpaid dividends on the Series A Preferred Shares which are redeemed. In addition, each share of Series A Preferred Stock shall be automatically converted into one (1) share of Class A Common Stock, if not previously redeemed, on January 1, 2009, or at any time the closing bid price per share of the Company's Class A Common Stock shall average at least $3.86 per share over ninety (90) consecutive trading days prior to January 1, 2004. The conversion ratio for the Series A Preferred Stock shall be adjusted in the event of recapitalization, stock dividend, or any similar event effecting the Class A Common Stock. Anchor may require the Company to immediately redeem the preferred shares in the event of certain covenant breaches of the license agreement by the Company. The Company is currently in compliance with all such covenants and does not anticipate any breaches in the future. Note 8 - Class A Common Stock: On December 15, 1998, the Company issued to Charles Janac 781,457 shares of Class A Common stock and Warrants to purchase 234,667 shares of Class A Common Stock at $0.46875 per share (expiring August 19, 2003) in exchange for the conversion of $366,308 of notes and accrued interest held by Mr. Janac. The shares of Class A Common Stock and warrants were sold pursuant to exemptions from registration under sections 3(a)(11), 4(2) and 4(6) and Regulation D under the Securities Act of 1933, in a transaction that was not publicly offered. On December 15, 1998, the Company issued to Eliezer Sternheim 520,833 shares of Class A Common stock and Warrants to purchase 52,083 shares of Class A Common Stock at $0.48 per share (expiring December 15, 2003) in exchange for $250,000 cash. The shares of Class A Common Stock and warrants were sold pursuant to exemptions from registration under sections 3(a)(11), 4(2) and 4(6) under the Securities Act of 1933, in a transaction that was not publicly offered. On December 15, 1998, the Company issued to Armin Ramel, a director of the Company, 59,946 shares of Class A Common stock and Warrants to purchase 5,995 shares of Class A Common Stock at $0.48 per share (expiring December 15, 2003) in exchange for the conversion of $28,774 of notes and accrued interest held by Mr. Ramel. The shares of Class A Common Stock and warrants were sold pursuant to exemptions from registration under sections 3(a)(11), 4(2) and 4(6) under the Securities Act of 1933, in a transaction that was not publicly offered. On December 15, 1998, the Company issued to Henry Edmunds, a director of the Company, 127,471 shares of Class A Common stock and Warrants to purchase 12,747 shares of Class A Common Stock at $0.48 per share (expiring December 15, 2003) in exchange for $50,000 cash and the conversion of $11,186 of notes and accrued interest held by Mr. Edmunds. The shares of Class A Common Stock and warrants were sold pursuant to exemptions from registration under sections 3(a)(11), 4(2) and 4(6) under the Securities Act of 1933, in a transaction that was not publicly offered. On December 15, 1998, the Company issued to Marcel Raedts 104,167 shares of Class A Common stock and Warrants to purchase 10,417 shares of Class A Common Stock at $0.48 per share (expiring December 15, 2003) in exchange for the conversion of $50,000 in amounts owed to Mr. Raedts for services rendered. The shares of Class A Common Stock and warrants were sold pursuant to exemptions from registration under sections 3(a)(11) and 4(2) and under the Securities Act of 1933, in a transaction that was not publicly offered. On December 15, 1998, the Company issued to Michael Schneider, principal and director of Romic Technologies Corp., 275,614 shares of Class A Common stock and Warrants to purchase 27,561 shares of Class A Common Stock at $0.48 per share (expiring December 15, 2003) in exchange for the conversion of $132,294 of notes and accrued interest held by Mr. Schneider. The shares of Class A Common Stock and warrants were sold pursuant to exemptions from registration under sections 3(a)(11), 4(2) and 4(6) under the Securities Act of 1933, in a transaction that was not publicly offered. On December 15, 1998, the Company issued to Robert Leach, a former director of the Company, 32,475 shares of Class A Common stock and Warrants to purchase 3,248 shares of Class A Common Stock at $0.48 per share (expiring December 15, 2003) in exchange for the conversion of $15,588 of notes and accrued interest held by Mr. Leach. The shares of Class A Common Stock and warrants were sold pursuant to exemptions from registration under sections 3(a)(11), 4(2) and 4(6) under the Securities Act of 1933, in a transaction that was not publicly offered. Item 2. Management's Discussion and Analysis. First quarter of 1999 compared to first quarter of 1998. The main focus of the company in the first quarter of 1999 was to ensure a successful installation and commissioning of the dairy installation at Anchor Products and Carbery Milk products. Related to this was the work with a resin manufacturing partner to ensure a rapid, cost-effective scaled-up production of resin to meet current and up-coming needs in the dairy industry. In addition, some progress was made toward the submission of a petition to the Federal Drug Administration (FDA) for the approval of the Sepraprep resin as a secondary food additive for use in dairy and food process. Despite some increase in bookings, net sales decreased by $78,000 or 12% from $632,000 in the first quarter of 1998 to $554,000 for the comparable period in 1999. Net sales has been adversely affected by the Company's cash shortage creating difficulties to procure inventory to manufacture and ship goods. Management is working on securing external financing (see Liquidity and Capital Resources). Gross Margin as a percentage of gross sales remained essentially the same at 39% for the first quarters of 1998 and 1999. However, the absolute dollar gross margin decreased by $36,000 or 14% from $249,000 in the first quarter of 1998 to $213,000 in the first quarter of 1999. The decrease in gross margin is due to lower volume from the biotech sector and no contribution from licenses or royalties. Selling, general and administrative expenses decreased by $63,000 from $294,000 in the first quarter of 1998 to $231,000 in the first quarter of 1999. The decrease was primarily due to the Company's choosing to sell its biotech products through external channels as opposed to making direct sales. Research and development expenses decreased by $57,000 from $213,000 in the first quarter of 1998 to $156,000 in the first quarter of 1998. The decrease was due to reduction in management overhead associated with Research and development expenses. Interest expense decreased by $82,000 in the first quarter of 1999 compared to the first quarter 1998 due to the payment of the bridge notes and conversion of some of the notes payable to equity in December 1998. Net loss decreased by half from $347,000 in the first quarter of 1998 to $179,700 for the comparable period in 1999. The Company's plan is to continue to keep expenses down and minimize losses while building up the revenue and profit contribution from the dairy/juice business. The ability of the Company to become profitable is dependent for now from the biotech sector, which is being hampered by cash shortage to procure goods for sale. Management is currently pursuing several alternatives to raise additional capital which the Company hopes will materialize in the near future. No assurances can be made that the Company will be profitable. 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 of $354,200 and $79,600 for operations during the first quarter of 1999 and 1998, respectively. Cash used in operations in the first quarter of 1999 was the result of net loss incurred for the quarter of $179,700, offset by net non-cash expense of $30,700, the net change in operating assets and liabilities resulting in use of cash of $205,200. Cash used in the first quarter of 1998 was the result of net loss incurred for the quarter of $347,000, offset by net non-cash expenses of $104,000, and the net change in operating assets and liabilities resulting in source of cash of $163,400. Financing activities provided cash of $354,200 and $58,000 during the first quarter of 1999 and 1998, respectively. The cash provided in the first quarter of 1999 was due to conversion of $359,500 in accounts payable to notes payable partially offset by $35,000 paid notes payable. The cash provided in the first quarter of 1998 resulted from the issuance of $58,000 in notes payable. At March 31, 1999 the Company had cash and cash equivalents of $11,300 as compared with $41,100 on December 31, 1998. At March 31, 1999, the Company had working capital deficit of $651,900, as compared to working capital deficit of $490,800 at December 31, 1998. The decrease in cash in the first quarter of 1999 is a result of the aforementioned decrease in cash used in operating and increase in cash from financing activities noted above. The decrease in working capital for the first 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 juice 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 July 31, 1999. Accordingly, the Company will have to either turn profitable or obtain additional funds to support its operations. The Company is currently pursuing several avenues including increasing revenues and reducing costs in order to turn profitable, secure funds through additional strategic partnerships and secure either debt or equity financing. Following this strategy, on August 25, 1998 Sepragen announced the signing of a license agreement with Anchor Products. Under this agreement, Anchor Products will have exclusive manufacturing rights to the Sepralac(R) process in Australia and New Zealand and non- exclusive worldwide marketing rights to products produced by the Sepralac(R) Process. In return, Sepragen has received $700,000 out of a total of about $1 million from Anchor Products, comprised of a license fee of $200,000 and an equity investment of $500,000 for the purchase of 175,439 redeemable, cumulative, preferred stock at $2.85 per share. The preferred stock is convertible into common stock (on share for share basis) at any time within the next 2 years and extendible for a further 1 year at Sepragen's option. On October 15, 1998 the Company announced a licensing agreement for the Sepralac(R) Process with Carbery Milk Products of Ballineen, County Cork, Ireland. Under the agreement, Carbery will have manufacturing and marketing rights to certain products produced from the Sepralac(R) Process. In return the Company will receive a license fee of $350,000, $200,000 was received in 1998 with the balance over three years at $50,000 per year. In addition to Mr. Janac's conversion of debt to equity (see Note 6), in December, 1998 the Company converted $604,151 of its debt and accrued expenses in to Class A Common stock. It also sold 625,000 shares of Class A Common Stock in a private transactions, exempt from securities registration under the Securities Act of 1993, as amended, and raised $300,000 of proceeds. In all, a total of $904,151 (including Mr. Janac's) was either invested or converted in to stock. In consideration of the above, 1,901,962 shares of Class A Common Stock and 346,718 Warrants to purchase Common Stock were issued. The Company currently has no credit facility with a bank or other financial institution. Further, the Company's stock is traded over-the-counter and as such there is limited liquidity in the Company's stock which makes financing difficult. The Company is seeking to enter into strategic alliances with corporate partners in the industries comprising its primary target markets (biopharmaceutical, food, dairy and juice). The Company's ability to further develop and market its Sepralac(R) Process for whey separation and other potential food and juice 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 additional alliances will be successfully negotiated or that such alliance will be successful in generating the revenue required to make the Company profitable. 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 July 31, 1999. 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 been delisted from the Nasdaq SmallCap Market and the Pacific Stock Exchange. 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, two licensing agreements have been signed but there can be no assurance that the terms of any such alliance will produce profits for the Company nor can there be assurance that additional joint ventures or alliances will be signed. 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 No Forms 8-K were filed in the first quarter of 1999: 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: July 12, 1999 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, 1999 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-31-1999 MAR-31-1999 11,361 0 494,826 20,000 279,047 817,245 88,942 0 1,061,013 1,457,142 500,000 0 0 14,020,064 (14,916,193) 1,061,013 553,661 553,661 340,376 340,376 387,038 0 6,000 (179,753) (179,753) (179,753) 0 0 0 (179,753) (.04) (.04)
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