-----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, OZczdj1SfDRE8wHk+sKigiD4QVZoeY26gNW2BOmcl7Mvzt2Gg6hx7vqgZsaCqwYN kbeptmpbWGg2cNTWNj5adA== 0000794154-99-000009.txt : 19990910 0000794154-99-000009.hdr.sgml : 19990910 ACCESSION NUMBER: 0000794154-99-000009 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990909 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: SEC FILE NUMBER: 001-14068 FILM NUMBER: 99708100 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 1 CONFORMED COPY 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: June 30, 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: 1-14068 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: August 31, 1999 Class A Common Stock 4,057,216 Class B Common Stock 701,177 Class E Common Stock 1,209,894 PART I - FINANCIAL INFORMATION Item 1. - Financial Statements SEPRAGEN CORPORATION CONDENSED BALANCE SHEET ASSETS June 30, 1999 Current Assets: Cash and cash equivalents $54,673 Accounts receivable, less allowance for doubtful accounts of $20,000 as of June 30, 1999 429,640 Inventories 229,606 Prepaid expenses and other 32,011 Total current assets 745,930 Furniture and equipment, net 138,947 Intangible assets 82,698 967,575 LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 498,903 Customer deposits 88,499 Notes Payable, including $135,000 from shareholders 539,598 Accrued payroll and benefits 292,844 Accrued liabilities 76,556 Interest payable 61,045 Total current liabilities 1,557,445 Preferred stock, no par value - 5,000,000 shares authorized; and 175,439 convertible, preferred issued and outstanding 500,000 Commitments: Class E common stock, no par value - 1,600,000 shares authorized; 1,209,894 shares issued and outstanding at September 30, 1998, redeemable at $.01 per share - Deficit in Shareholders' equity: 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 (15,109,934) Total deficit in shareholders' equity (589,870) 967,575 The accompanying notes are an integral part of these condensed financial statements. SEPRAGEN CORPORATION CONDENSED STATEMENTS OF OPERATIONS Three Months Six Months Ended June 30 Ended June 30 1999 1998 1999 1998 Revenues: Net Sales $330,206 $211,471 $883,867 $843,804 Selling, general and administrative 197,968 311,570 428,779 605,516 Research and development 131,907 191,430 288,134 404,524 Total costs and expenses 511,947 629,741 1,239,361 1,519,867 Loss from operations (181,741) (418,270) (355,494) (676,063) Interest income, (expense) net (12,000) (20,000) (18,000) (109,282) Net loss (193,741) (438,270) (373,494) (785,345) Net loss per common share, basic and diluted $(.04) $(.15) $(.08) $(.28) Weighted average shares outstanding 4,758,393 2,856,431 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 Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net Loss $(373,494) $(785,345) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and Amortization 59,109 138,047 Changes in assets and liabilities: Accounts receivable 98,205 362,612 Inventories 215,786 74,698 Prepaid expenses and other - (1) Accounts payable (466,775) 287,307 Accrued liabilities (20,067) (35,503) Accrued payroll and benefits 136,781 84,040 Interest payable 18,001 39,282 Customer deposits 47,702 (254,681) Net cash used in operating activities (284,752) (89,544) Cash flows from investing activities: Acquisition of fixed assets (6,309) - Net cash used by investing (6309) - Proceeds from notes payable to shareholders - 50,000 Proceeds from issuance of notes payable 304,598 8,000 Net cash provided by financing activities 304,598 58,000 Net increase (decrease) in cash 13,537 (31,544) Cash and cash equivalents at the beginning of the period 41,136 44,448 Cash and cash equivalents at the end of the period $ 54,673 $ 12,904 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, 1999 Note 1 - Basis of Presentation These condensed financial statements have been presented on a going concern basis. Sepragen Corporation ("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 June 30, 1999, the Company had an accumulated deficit of $15,109,934. 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 September 30, 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 June 30, 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 was 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 June 30, 1999 was $339,598. The notes payable that were due on March 1, 1999, 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 regulation 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 exemption s 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 exemption 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 exemption from registration under section 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 six months of 1999 compared to first six months of 1998. On August 6, 1999, Sepragen announced the beginning of commercial production utilizing its patented Sepralac process at Anchor Products, Ltd. of New Zealand. The commercial facility commissioned by Anchor Products, Ltd. has the capacity to extract several hundred kilograms of purified proteins from several hundred thousand liters of cheese whey each day. The Company is working on commissioning the production installation at Carbery Milk Products. While significant in strategic and long term sense, these plants are not expected to generate meaningful royalty income until in the year 2000. In the meanwhile, the Company's major revenue source will continue to be from sales to its biotechnology customers. Net sales increased by $40,000 or 5% from $844,000 in the first half of 1998 to $884,000 for the comparable period in 1999. The increase in net sales is primarily in the QuantaSep product line. The sales increase is attributable to the second quarter of 1999. Despite the increase in net sales, the Company continues to be hampered by cash shortage that has adversely affected the manufacture and shipment of goods. Management is working on securing external financing (see Liquidity and Capital Resources ). Gross Margin increased by $27,000 or 8% from $334,000 in the first half of 1998 to $361,000 in the first half of 1999. As a percentage of sales, gross margin improved by 1% from 40% in the first half of 1998 to 41% for the comparable period in 1999. The slight improvement was essentially due to product mix. Selling, general and administrative expenses decreased by $177,000 from $606,000 in the first half of 1998 to $429,000 in the first half 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 and the continuing measures undertaken by the Company to conserve cash. Research and development expenses decreased by $117,000 from $405,000 in the first half of 1998 to $288,000 in the first half of 1999. The decrease was due to reduction in some overhead associated with Research and development department and the completion of certain research projects. Interest expense decreased by $91,000 in the first half of 1999 compared to the first half of 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 more than half from $785,000 in the first half of 1998 to $373,000 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 be profitable is dependent for now upon the biotech sector, which is being hampered by cash shortage which limits procurement of goods for sale. Management is currently pursuing several alternatives to raise additional capital and restructured debt which the Company hopes will materialize in the near future. Second quarter 1999 compared to second quarter 1998. Net sales increased by $118,800 or 56% from $211,400 in the second quarter of 1998 to $330,200 for the second quarter of 1999. The increase was primarily in the QuantaSep product line. Gross margin increased by $63,400 from $84,700 in the second quarter of 1998 to $148,100 for the comparable period in 1999. As a percentage of sales gross margin increased by 5% from 40% to 45%. The increase in gross margin was primarily due to product mix. Selling, general and administrative expenses decreased by $113,600 mainly due to the Company's choice to sell its products through distributors as opposed to making direct sales and the continuing belt tightening measures undertaken by the Company. Research and development expenses decreased by $59,500 or 31% from $191,400 in the second quarter of 1998 to $131,900. The decrease was primarily due to completion of some research programs and the reduction in overhead associated with research and development expenses. 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 $284,800 and $89,500 for operations during the first half of 1999 and 1998, respectively. Cash used in operations in the first half of 1999 was the result of net loss incurred for the six months of $373,500, offset by net non-cash expense of $59,100, the net change in operating assets and liabilities resulting in cash provided of $29,600. Cash used in operation in the first half of 1998 was the result of net loss incurred for the first half of $785,300, offset by net non-cash expenses of $138,000, the net change in operating assets and liabilities resulting in source of cash of $557,800. Investing activities used cash of $6,300 in the acquisition of fixed assets. Financing activities provided cash of $304,600 and $58,000 during the first half of 1999 and 1998, respectively. The cash provided in the first half of 1999 was due to conversion of $339,600 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 June 30, 1999 the Company had cash and cash equivalents of $54,600 as compared with $41,100 on December 31, 1998. At June 30, 1999, the Company had working capital deficit of $811,500, as compared to working capital deficit of $490,800 at December 31, 1998. The increase in cash in the first half of 1999 is a result of the aforementioned increase or decrease in cash from operating , investing and financing activities noted above. The decrease in working capital for the first half of the year 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 September 30, 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 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 one 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, of which, $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 to the financial statements), 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. Other Events: Dr. Kris Venkat resigned from the Board of Directors of Sepragen Corporation, no replacement has been elected. 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 September 30, 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 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 8, 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 DECEMBER 31, 1998 AND FOR JUNE 30, 1999 AS FILED ON FORMS 10KSB AND 10QSB WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JUN-30-1999 54,673 0 449,640 20,000 229,606 745,930 138,947 0 967,575 1,557,445 0 0 500,000 13,817,844 (15,089,714) 967,575 883,867 883,867 522,448 522,448 716,913 0 18,000 (373,494) (373,494) (373,494) 0 0 0 (373,494) (.08) (.08)
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