UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No.1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25726
SEPRAGEN CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0073366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30689 Huntwood Avenue , Hayward, California 94544
(Address of principal executive offices)
(Issuer's telephone number (including area code): (510) 476-0650
(Former name, former address and former fiscal year if changed since
last report:
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes X No
State the number of shares outstanding of each of the registrant's
classes of Common equity, as of the latest practicable date:
August 11, 1996
Class A Common Stock 2,070,000
Class B Common Stock 786,431
Class E Common Stock 1,209,894
THIS REPORT INCLUDES A TOTAL OF 9 PAGES. THERE ARE NO EXHIBITS.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SEPRAGEN CORPORATION
CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
(unaudited
Current Assets:
Cash and cash equivalents .. $ 1,321,924 $ 23,364
Marketable securities ....... 257,442 3,586,145
Accounts receivable, less allowance
for doubtful accounts of $18,782 and
$30,459 as of June 30, 1996 and
December 31, 1995, respectively.... 444,254 278,688
Inventories ............ 619,862 777,620
Prepaid expenses and other ... 14,470 57,130
Total current assets ..... 2,657,952 4,722,947
Furniture and equipment, net ..... 438,048 252,150
Intangible assets ......... 111,709 111,709
$3,207,709 $5,086,806
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........... $210,938 $230,799
Accrued liabilities .......... 28,960 174,395
Accrued payroll and benefits ...... 89,465 80,633
Interest payable .............. -- 4,285
Total current liabilities ..... 329,363 490,112
Class E common stock, no par value - 1,600,000
shares authorized; 1,209,894 shares issued
and outstanding at June 30, 1996 and December
31, 1995; redeemable at $.01 per share ...... -- --
Shareholders' equity:
Preferred stock, no par value - 5,000,000
shares authorized; none issued or outstanding
at June 30, 1996 and December 31, 1995 .... -- --
Class A common stock, no par value - 20,000,000
shares authorized; 2,070,000 shares issued
and outstanding at June 30, 1996 and
December 31, 1995 ................. 8,353,737 8,353,737
Class B common stock, no par value -
2,600,000 shares authorized; 786,431
shares issued and outstanding at June
30, 1996 and December 31, 1995.......4,559,956 4,559,956
Unrealized loss on
available-for-sale securities..........(73,553) (14,462)
Accumulated deficit...................(9,961,794) (8,302,537)
Total shareholders' equity ............2,878,346 4,596,694
$3,207,709 $5,086,806
The accompanying notes are an integral part of these condensed
financial statements.
<PAGE>
SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Revenues:
Net Sales $230,119 $332,812 $862,781 $797,932
Costs and expenses:
Cost of goods sold 186,292 184,802 637,930 408,223
Selling, general and
administrative 587,499 538,323 1,225,350 869,604
Research and
development 366,472 306,285 729,310 460,406
Total costs and expenses 1,140,263 1,029,410 2,592,590 1,738,233
Loss from operations (910,144) (696,598) (1,729,809) (940,301)
Interest income
(expense), net 29,635 82,310 70,551 (59,511)
Net loss $(880,509) $(614,288) $(1,659,258) $(999,812)
Net loss per common and
common equivalent share $(.31) $(.23) $(.58) $(.55)
Weighted average shares
outstanding 2,856,431 2,728,352 2,856,431 1,811,473
The accompanying notes are an integral part of these condensed
financial statements.
<PAGE>
SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1996 1995
Cash flows from operating activities:
Net Loss ............. $(1,659,258)$ (999,812)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation ............. 41,813 10,952
Changes in assets and liabilities:
Accounts receivable ...... (165,566) (156,319)
Inventories .......... 157,758 (315,415)
Prepaid expenses and other ... 42,660 81,809
Accounts payable ....... (19,861) (211,595)
Accrued liabilities ...... (145,435) (128,971)
Accrued payroll and benefits .. 8,832 (23,750)
Interest payable ........ (4,285) (18,667)
Customer deposits .......... -- 20,580
Net cash used in operating activities (1,743,342) (1,741,188)
Cash flows from investing activities:
Acquisition of furniture
and equipment ........... (227,711) (31,846)
Acquisitions of marketable
securities ............. (140,000) --
Proceeds from sale of marketable
securities ............ 3,409,613 --
Net cash provided by (used in)
investing activities ...... 3,041,902 (31,846)
Cash flows from financing activities:
Proceeds from issuance of common stock ... -- 8,832,231
Repayment of bridge notes payable ..... -- (1,550,000)
Repayment of notes payable ......... -- (25,000)
Repayment of convertible note
payable to shareholder .......... -- (25,000)
Repayment of convertible note ....... --
(65,000)
Net cash provided by financing activities ... -- 7,167,231
Net increase in cash ......... 1,298,560 5,394,197
Cash and cash equivalents at the
beginning of the period ........ 23,364 240,472
Cash and cash equivalents at the
end of the period ......... $1,321,924 $5,634,669
Supplemental disclosure of non-cash financing activities:
Conversion of note payable to
shareholder and related interest
to common stock ............. -- $794,909
Deferred costs of securities
registration offset against proceeds
from issuance of common stock ...... -- $478,494
The accompanying notes are an integral part of these condensed
financial statements.
<PAGE>
SEPRAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED JUNE 30, 1996
(Unaudited)
Note 1 - Interim Financial Reporting.
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-QSB. Accordingly, certain information and footnotes required by
generally accepted accounting principles have been condensed or
omitted. These interim statements should be read in conjunction with
the financial statements and the notes thereto, included in the
Sepragen Corporation's (the "Company's") Annual Report on Form 10-KSB
for the year ended December 31, 1995.
The December 31, 1995 balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The unaudited interim
condensed financial statements have been prepared on the same basis as
the audited annual financial statements, and in the opinion of manage-
ment, contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting
principles. The Company's quarterly results may be subject to fluctu-
ations. As a result, the Company believes its results of operations
for the interim period are not necessarily indicative of the results
expected for any future period.
The Company will be required to conduct significant research,
development and testing activities which, together with expenses to be
incurred for manufacturing, the establishment of a large marketing and
distribution presence and other general and administrative expenses,
are expected to result in operating losses for the next few years.
Accordingly, there can be no assurance that the Company will ever
achieve profitable operations. The Company expects to have sufficient
working capital to support its operating needs for up to an twelve
month period from June 30, 1996. There is no assurance, however, that
sufficient revenues will be generated in this and future periods to
fund the Company's operations, which would result in the Company
needing to raise additional financing in the near future.
Note 2 - Initial Public Offering.
The Company's initial public offering was declared effective by the
Securities and Exchange Commission on March 23, 1995. The offering of
1,800,000 Units, each consisting of one share of Class A common stock,
one redeemable five year Class A warrant and one redeemable five year
Class B warrant, provided net proceeds of $7,242,351 to the Company.
On the effective date of the offering, the Company issued 57,224
shares of Class B common stock and 88,039 shares of Class E common
stock in exchange for the cancellation of a note payable to a share-
holder of $727,000 and related accrued interest of $67,909. In May,
1995 the underwriter exercised its overallotment option for 270,000
Units, generating an additional $1,181,386 of net proceeds to the
Company.
<PAGE>
SEPRAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED JUNE 30, 1996
(Unaudited)
Note 3 - Net Loss Per Share.
Net loss per common and common equivalent share is computed using
the weighted average number of common shares and common equivalent
shares outstanding during each period. Restricted shares issued as
Class E common shares and contingent options are considered contin-
gently issuable and, accordingly, are excluded from the weighted
average number of common and common equivalent shares outstanding.
For the periods ended June 30, 1996 and 1995 common equivalent shares
relating to options have been excluded as they are anti-dilutive.
Note 4 - Inventory.
Inventories consist of the following:
6/30/96 12/31/95
Raw Materials $367,582 $459,474
Finished Goods 252,280 318,146
$619,862 $777,620
Note 5 - Stock Option Plan
Effective June 28, 1996, the Company adopted a new 1996 Stock
Option Plan which reserves an additional 250,000 shares of Class A
common stock for future grant. The terms of this plan are similar to
the 1994 Stock Option Plan.
<PAGE>
Item 2. Management's Discussion and Analysis.
First six months of 1996 compared to first six months of 1995
Net sales increased by $65,000 or 8% from the first half of 1995.
This increase in sales is due primarily to the shipment of two large
QuantaSeps, a computer controlled liquid chromatography system.
Gross Margin decreased by $165,000 or 42% from the first half of
the prior year, and as a percent of sales, decreased by 23% from 49%
to 26%. This decrease was attributable to higher material cost and
development of software for the large QuantaSeps, and booking of a
reserve for obsolescence and slow moving inventory.
Selling, general and administrative expenses increased by $352,-
000 from $870,000 in the first half of 1995 to $1,222,000 in the first
half of 1996. The increase was primarily due to: the hiring of
additional personnel in sales and marketing, corporate development and
administration; and additional expenses related to training, advertis-
ing and promotion, public relations, product evaluation and demonstra-
tion.
Research and development expenses increased by $269,000 or 58%
from $460,000 in the first half of 1995 to $729,000 in the first half
of 1996. The increase was attributable to expenditures related to the
development of a process for dairy whey fractionation, expenditures
related to the development of a special absorbent media and further
development of QuantaSep products and other related products.
Interest income, net for the first half of 1996 reflects interest
income earned on the proceeds of the initial public offering; and
interest expense, net for the first half of 1995 mainly reflects
interest expense relating to bridge financing preceding the initial
public offering.
Second quarter 1996 compared to second quarter 1995.
Net sales decreased by $103,000 or 31% from the second
quarter of 1995. The decrease in sales was due to decreased orders
of the Quanta-Sep System.
Gross margin decreased by $104,000 or 70% from the second
quarter of 1995, and as a percent of sales, decreased by 25% from
44% to 19% . Gross Margin decreased due to product mix and booking
of a reserve for obsolescence and slow moving inventory.
Selling, general and administrative increased by $49,000 from
$538,000 in the second quarter of 1995 to $587,000. The increase was
mainly due to the preparation of the proxy statement and the annual
report to shareholders for the shareholders meeting which was held on
June 28, 1996.
Inflation
The Company believes that the impact of inflation on its opera-
tions since its inception has not been material.
Volatility of Sales
In the last several years, the Company has experienced a relative
increase in customer equipment orders in the third and fourth quarters
and a relative decrease in orders in the first and second quarters.
The Company believes this fluctuation relates to capital appropria-
tions and spending cycles in the biopharmaceutical business.
Liquidity and Capital Resources.
The Company had working capital of $2,329,000 on June 30, 1996
and $4,233,000 on December 31, 1995. The decrease in the working
capital of $1,904,000 reflects the use of net cash in operating
activities and leasehold improvements.
Since the IPO, the Company has funded its working capital re-
quirements substantially from the net cash proceeds from the IPO.
Prior to the IPO, the Company had funded its activities primarily
through sales of its SuperfloR columns and QuantaSepR systems, loans
from its principal shareholders, and private placements of securities.
The IPO generated net proceeds of $7,242,000 and the exercise by the
underwriter of its over-allotment option generated additional net
proceeds of $1,111,000.
From its inception in 1985 until the IPO, the Company's expendi-
tures have exceeded its revenues. Prior to the IPO, the Company
financed its operations primarily through private equity placements in
an aggregate amount of approximately $3,971,000, a substantial portion
of which was purchased by H. Michael Schneider, the secretary and a
director of the Company until October 1, 1995, and his affiliates,
including Romic Environmental Technologies Corporation ("Romic"), an
entity controlled by Mr. Schneider. In addition, the Company has
historically relied on customers to provide purchase price advances
for development and scale-up of its radial flow chromatography col-
umns. As of June 30, 1996, the Company had shareholders' equity of
approximately $2,878,000.
As of June 30, 1996, the Company had a working capital balance of
approximately $2,329,000. For the first half of 1996, net cash used
in operating activities was $1,743,000. This negative cash out flow
of working capital from operations must be reversed and working
capital increased significantly in order for the Company to fund the
level of manufacturing and marketing required to meet the anticipated
growth in demand for its products from the pharmaceutical and biotech-
nology industries during the next two years. Moreover, the Company
requires additional funds to extend the use of its technology to new
applications within the pharmaceutical and biotechnology industries as
well as to applications within the food and dairy and environmental
industries and to attract the interest of strategic partners in one or
more of these markets.
The decrease of $158,000 in inventory from December 31, 1995 to
June 30, 1996 was due primarily to the shipment of two large QuantaSep
Systems.
As of June 30, 1996, the Company had no borrowings. During
fiscal year 1996, the Company is committed to pay approximately
$245,000 as compensation for its current executive officers. The
Company expects to hire additional executive officers as the need
arises.
The Company's financing requirements may vary materially from
those now planned because of results and changes in the focus and
direction of research and development programs, relationships with
strategic partners, competitive advances, technological change,
changes in the Company's marketing strategy and other factors, many of
which will be beyond the Company's control. Based on the Company's
current operating plan, the Company believes that the net proceeds of
the 1995 IPO, together with trade credit arrangements and cash flow
generated from operations, will be sufficient to fund the Company's
operations for the twelve month period following June 30, 1996. There
is no assurance, however, that sufficient revenues will be generated
in this and future periods to fund the Company's operations, which
would result in the Company needing to raise additional financing in
the near future. Company's cash requirements may vary materially from
those planned because of factors such as the timing of significant
product orders, commercial acceptance of new products, patent develop-
ments and the introduction of competitive products. The Company
currently has no credit facility with a bank or other financial
institution. Historically, the Company and certain of its customers
have jointly borne a substantial portion of developmental expenses on
projects with such customers. There can be no assurance that such
sharing of expenses will continue. The Company continues its efforts
to increase sales of its existing products and to complete development
and initiate marketing of its products and processes now under devel-
opment.
The Company is seeking to enter into strategic alliances with
corporate partners in the industries comprising its primary target
markets (biopharmaceutical, food, dairy and environmental management).
The Company hopes to enter into alliances that will provide funding to
the Company for the development of new applications of its radial flow
chromatography technology in return for royalty bearing licenses to
the developed applications. No assurance can be given, however, that
the terms of any such alliance will be successfully negotiated or that
any such alliance will be successful.
The Company's Class A Common Stock, Class A Warrants, Class B
Warrants and Units are quoted on the NASDAQ SmallCap Market and are
listed on the Pacific Stock Exchange (Tier II).
The Company entered into a lease for new facilities in Hayward,
California with annual rent of $76,900 and relocated its facilities in
February 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEPRAGEN CORPORATION
Date: September 12, 1996 By: /s/Vinit Saxena
Vinit Saxena
Chief Executive Officer,
President and Principal Financial
and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT ON FORM 10KSB FOR THE YEAR ENDED 12/31/96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 1,321,924 23,364
<SECURITIES> 257,442 3,586,145
<RECEIVABLES> 444,254 278,688
<ALLOWANCES> 18,782 30,459
<INVENTORY> 619,862 777,620
<CURRENT-ASSETS> 2,657,952 4,722,947
<PP&E> 438,048 252,150
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 3,207,709 5,086,806
<CURRENT-LIABILITIES> 329,363 490,112
<BONDS> 0 0
<COMMON> 12,913,693 12,913,693
0 0
0 0
<OTHER-SE> (73,553) (14,462)
<TOTAL-LIABILITY-AND-EQUITY> 3,207,709 4,086,806
<SALES> 862,781 1,046,256
<TOTAL-REVENUES> 862,781 1,046,256
<CGS> 637,930 685,291
<TOTAL-COSTS> 637,930 685,291
<OTHER-EXPENSES> 1,954,660 3,357,472
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (70,551) (83,650)
<INCOME-PRETAX> (1,659,258) (2,912,857)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,659,258) (2,912,857)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,659,258) (2,912,857)
<EPS-PRIMARY> (.58) (1.25)
<EPS-DILUTED> (.58) (1.25)
</TABLE>
