-----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, ND83fxiiheY4BmElP7LOPF5ll/CszwjNXqTa7LTTzu2d6nudPK8jpHBKnFrsnVWo 2slBFxTEyW4LGpfEZ1tPfw== 0001019056-01-500111.txt : 20010514 0001019056-01-500111.hdr.sgml : 20010514 ACCESSION NUMBER: 0001019056-01-500111 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010511 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: 1631226 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 file001.txt FORM 10-QSB 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: MARCH 31, 2001 [ ] 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 Identification No.) incorporation or organization) 14500 Doolittle Drive, San Leandro, California 94577 ---------------------------------------------------- (Address of principal executive offices) (Issuer's telephone number (including area code): (510) 667-1004 (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 10, 2001 ------------ CLASS A COMMON STOCK 7,795,731 CLASS B COMMON STOCK 701,177 THIS REPORT INCLUDES A TOTAL OF 9 PAGES PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS
SEPRAGEN CORPORATION CONDENSED BALANCE SHEET (UNAUDITED) ASSETS March 31 2001 ------------- Current Assets: Cash and cash equivalents ....................................... $ 50,438 Accounts receivable, less allowance for doubtful accounts of $40,000 .................................................... 303,505 Inventories ..................................................... 231,328 Prepaid expenses and other ...................................... 47,285 ------------ Total current assets .......................................... 632,556 Furniture and equipment, net .................................... 75,548 Intangible assets ............................................... 38,986 ------------ 747,090 ------------ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable ................................................ $ 414,382 Notes Payable from shareholders ................................. 155,000 Accrued payroll and benefits .................................... 165,282 Accrued liabilities ............................................. 61,001 Customer deposit ................................................ 52,846 Interest payable ................................................ 39,317 ------------ Total current liabilities ..................................... 887,828 ------------ Redeemable Preferred stock, no par value - 5,000,000 shares authorized; and 175,439 convertible, preferred issued and outstanding .................................................. 500,000 Class A common stock, no par value - 20,000,000 shares ........ 12,782,582 Authorized; 7,795,731 shares issued and outstanding Class B common stock, no par value - 2,600,000 shares authorized; 701,177 shares issued and outstanding ......................... 4,065,618 Accumulated deficit ............................................. (17,488,938) ------------ Shareholders' equity (deficit) ................................. (140,738) ------------ $ 747,090 ------------ The accompanying notes are an integral part of this condensed financial statement.
Page 2 of 9 SEPRAGEN CORPORATION CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31, ---------------------------- 2001 2000 ----------- ----------- Revenues: Net Sales .............................. $ 353,951 $ 278,260 Costs and expenses: Cost of goods sold ..................... 194,639 159,539 Selling, general and administrative .... 315,055 259,177 Research and development ............... 122,811 145,301 ----------- ----------- Total costs and expenses ............... 632,505 564,017 ----------- ----------- Loss from operations ................... (278,554) (285,757) ----------- ----------- Other income ........................... -- Interest income, (expense) net ................. -- (9,375) ----------- ----------- Net loss ............................... (278,554) (295,132) =========== =========== Net loss per common share, basic and diluted ... $ (.03) $ (.05) =========== =========== Weighted average shares outstanding ............ 8,496,908 6,186,951 The accompanying notes are an integral part of this condensed financial statement. Page 3 of 9 SEPRAGEN CORPORATION CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, --------- 2001 2000 ---- ---- Cash flows from operating activities: Net Loss ............................................ $ (278,554) $ (295,132) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation ..................................... 17,385 29,002 Amortization ..................................... 6,245 0 Changes in assets and liabilities: Accounts receivable ........................... 149,113 1,567 Inventories ................................... 34,051 (97,257) Prepaid expenses and other .................... 1,201 (4,378) Accounts payable .............................. (23,174) (199,249) Accrued liabilities ........................... (30,869) 56,364 Accrued payroll and benefits .................. 40,795 (4,500) Interest payable .............................. 0 9,375 Customer deposits ............................. 27,040 40,000 ----------- ----------- Net cash used in operating activities ...... (56,767) (464,208) ----------- ----------- Cash flows from investing activities: Acquisition of fixed assets ...................... (59,958) (11,065) ----------- ----------- Net cash used by investing ................. (59,958) (11,065) Cash flows from financing activities: Proceeds from issuance of common stock .............. 0 1,369,482 Proceeds from exercise of warrants .................. 0 15,000 Proceeds from issuance of notes payable ............. 85,000 Payment of notes payable ............................ 0 (50,000) ----------- ----------- Net cash provided by financing activities .. 85,000 1,334.484 ----------- Net increase (decrease) in cash ............ (31,725) 859,211 Cash and cash equivalents at the beginning of the period 82,166 358,233 ----------- ----------- Cash and cash equivalents at the end of the period ..... $ 50,441 $ 1,217,444 =========== =========== Supplemental disclosures of cash information: Conversion of liabilities into Common Stock: ........ $ 175,565
The accompanying notes are an integral part of these condensed financial statements. Page 4 of 9 SEPRAGEN CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS THREE MONTH PERIOD ENDED MARCH 31, 2001 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, 2001, the Company had an accumulated deficit of $17,488,940. 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 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 June 30, 2001. 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 uncertainly. 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 in the United States of America have been condensed or omitted. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. NOTE 3 - NOTES PAYABLE: Between January and March 2001, the Company received proceeds from convertible notes payable of $85,000 from shareholders. NOTE 4 - SEGMENT REPORTING: The Company has two operating segments based on the nature of the customer`s industry, the biotech and food (dairy) and beverage segments. The chief operating decision-maker is the Company's Chief Executive Officer who regularly reviews segment performance. There was no revenue in the three months ended March 31 2001 from the food and beverage segment. Selling, general and administrative expenses are not allocated to individual segments. There are no significant assets that are identifiable to a segment. NOTE 5 - LOSS PER SHARE Basic loss per share is calculated using the weighted average number of common shares outstanding in the period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using the "treasury stock" method and convertible securities using the "if converted" method. the assumed exercise of 1,468,361 options and assumed conversion of 175,439 convertible securities have not been included in the calculation of diluted loss at March 31, 2001 per share as the effect would be anti-dilutive. Page 5 of 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. FIRST THREE MONTHS OF 2001 COMPARED TO FIRST THREE MONTHS OF 2000. Our net sales increased by $76,000 or 27% from $278,000 in the first three months of 2000 to $354,000 for the comparable period in 2001. The increase in sales was mostly in the QuantaSep product line. Our gross profit increased by $40,000 or 34% from $119,000 in the first three months of 2000 to $159,000 for the comparable period in 2001. The increase in gross profit was due to higher sales. As a percentage of sales gross profit improved by 2% from 43% in the first quarter of 2000 to 45% in the first quarter of 2001.The improvement in gross margin was mainly due to higher volume resulting in lower unit fixed cost . Our selling, general and administrative expenses increased by $56,000 from $259,000 in the first three months of 2000 to $315,000 for the comparable period in 2001. The increase in expenses was primarily due to moving expenses related to the Company relocation from its facility in Hayward to San Leandro. Our research and development expenses decreased by $22,000 from $145,000 in the first three months of 2000 to $123,000 in the first three months of 2001.The decrease was due to the completion of some projects related to the QuantaSep product line. Our net loss decreased by $16,000 or 5% from $295,000 in the first three months of 2000 to $279,000 for the comparable period in 2001. The decrease in net loss was due to higher revenue and lower interest expense. Inflation. The Company believes that the impact of inflation on its operations since its inception has not been material. Page 6 of 9 LIQUIDITY AND CAPITAL RESOURCES: We used cash of $57,000 and $464,000 for operations during the first three months of 2001 and 2000, respectively. Cash used in operations in the first three months of 2001 was the result of net loss incurred for the three months of $279,000 offset by net non-cash expense of $24,000, the net change in operating assets and liabilities resulting in source of cash of $198,000. Cash used in operation in the first three months of 2000 was the result of net loss incurred for the three months of 2000 of $295,000, offset by net non-cash expenses of $29,000, the net change in operating assets and liabilities resulting in use of cash of $198,000. Investing activities used cash of $60,000 in the first three months of 2001 and $11,000 in the first three months of 2000 in the acquisition of fixed assets. Financing activities provided cash of $85,000 and $1,334,000 during the first three months of 2001 and 2000, respectively. The cash provided in the first three months of 2001 was due to proceeds from issuance of common convertible notes payable. The cash provided in the first three months of 2000 was due to proceeds of common stock of $1,384,000 partially offset by $50,000 repayment of notes payable. At March 31, 2001, we had cash and cash equivalent of $50,000 as compared with $82,000 on December 31, 2000. At March 31, 2001, the Company had a working capital deficit of $243,000, as compared to working capital of $60,000 at December 31, 2000. The decrease in cash in the first three months of 2001 was a result of the aforementioned increases and decreases in cash from operating, investing and financing activities noted above. Our working capital must increase significantly to fund the level of manufacturing and marketing required to meet any growth in demand for our products from the dairy, food and beverage, pharmaceutical and biotechnology industries during the next two years. Moreover, we require additional funds to extend the use of our technology to new applications within the pharmaceutical and biotechnology industries as well as application within the food and dairy industries and to attract the interest of strategic partners in one or more of these markets. Since our initial public offering ("IPO"), we have funded our working capital requirements substantially from the net cash proceeds from the IPO and private placements of securities. Prior to the IPO, we funded our activities primarily through sales of our Superflo columns and the QuantaSep systems, loans from our principal shareholders, and private placements of securities. Our financing requirements may vary materially from those now planned because of changes in the focus and direction of research and development programs, relationships with strategic partners, competitive advances, technological change, changes in our marketing and other factors, many of which will be beyond our control. Based on our current operating plan, we believe that we will only be able to fund our operations through June 30, 2001. Accordingly, we will have to either turn profitable or obtain additional funds to support our operations. In August 1998, we announced the signing of a license agreement with Anchor products. Under this agreement, Anchor Products will have exclusive manufacturing rights to the Sepralac Process in Australia and New Zealand and non-exclusive world wide marketing rights to products produced by the Sepralac process. In return, we have received $700,000 out of total of about $1 million from Anchor Products, comprised of license fee of $200,000 and an equity investment of $500,000 for the purchase of 175,439 redeemable, cumulative, preferred stock. On October 15, 1998 we announced a licensing agreement for the Sepralac process with Carbery Milk Products of Ballinnen, County Cork, Ireland. Under the agreement, Carbery will have a manufacturing and marketing rights to certain products produced from the Sepralac Process. In return, we have received a license fee of $350,000 of which $200,000 was received in 1998 and the balance over three years at $50,000 per year. Page 7 of 9 We currently have no credit facility with a bank or other financial institution. Further, our stock is traded over-the-counter and as such there is limited liquidity in our stock which makes financing difficult. We are seeking to enter into strategic alliances with corporate partners in the industries comprising our primary target markets (biopharmaceutical, food, dairy and juice). Our ability to further develop and market our Sepralac(R) Process for whey separation and other potential food and juice products and processes will be substantially dependent upon our ability to negotiate partnerships, joint ventures or alliances with established companies in each market. In particular, we will be reliant on such joint venture partners or allied companies for both market introduction, operational assistance and financial assistance. We believe 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 us. 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 us profitable. 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 Page 8 of 9 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEPRAGEN CORPORATION DATE: May 11, 2001 By: /s/ VINIT SAXENA ----------------------- Vinit Saxena Chief Executive Officer Page 9 of 9 -----END PRIVACY-ENHANCED MESSAGE-----