FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO 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
(Name of small business issuer 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, zip code)
Issuer's telephone number: (510) 476-0650
Securities registered pursuant to Section 12(b) of the Act:
Units, each consisting of one unit of Class A Common Stock, no par
value,
one Redeemable Class A Warrant and one Redeemable Class B Warrant;
Class A Common Stock, no par value;
Redeemable Class A Warrants, each Redeemable Class A Warrant, entitling
the holder to purchase one share of Class A Common Stock and one Redeem
able Class B Warrant;
Redeemable Class B Warrants, each Redeemable Class B Warrant entitling
the holder to purchase one share of Class A Common Stock
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None.
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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were: $1,619,623.
The aggregate market value of Class A Common Stock (voting stock)
held by non-affiliates on March 31, 1998 was $3,233,881 (computed on the
basis of the last sale price of a share of Class A Common Stock on that
date as reported in Over The Counter trading). In addition, non-affili
ates held 302,267 shares Class B and Class E Common Stock (voting stock)
which are convertible into Class A Common Stock, but are not registered
under the Securities Exchange Act of 1934, as amended, as of March 31,
1998.
The number of shares outstanding of each of the registrant's classes
of Common Stock at March 31, 1998, was:
Class A Common Stock 2,155,254
Class B Common Stock 701,177
Class E Common Stock 1,209,894
Transitional Small Business Disclosure Format Yes; X No
THIS REPORT INCLUDES A TOTAL OF 56 PAGES.
EXHIBIT INDEX BEGINS ON PAGE 51.
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PART I
Item 1. Description of Business
Company History
The Company was incorporated as a California corporation in 1985.
Since 1986, it has operated as the developer, manufacturer, assembler
and distributor of products employing radial flow chromatography ("RFC")
technology.
The Company currently develops, assembles and markets liquid
chromatography columns and computer-controlled liquid chromatography
process systems for use in the separation and purification of
biopharmaceuticals and food and beverage products. The Company's
columns utilize RFC technology which the Company believes enables the
purification of greater quantities of molecules more efficiently than
with conventional axial flow chromatography. The Company believes this
feature gives RFC a measurable economic advantage over axial flow
chromatography. The Company believes its experience in developing and
refining RFC technology and delivering RFC products to customers and its
existing and pending patent rights relating to RFC technology give it a
competitive advantage over others who may employ RFC technology in
competition with the Company.
Within the past three years, the Company has developed specific
applications of its separations technology for the food and beverage
industry. The Sepralac(TM) process isolates high value proteins from
relatively low-value whey, a liquid byproduct of cheese production.
Whey currently sells for approximately 50 cents a kilogram and is
typically dried and processed into saleable products for human consump
tion or for animal feed. Management believes isolated proteins in the
whey can be utilized in infant formula and other products for their
nutritional, functional and, in some cases, pharmaceutical value. The
Company believes these proteins can be used to manufacture a human
infant formula that more closely resembles the protein composition of
mothers' milk and protein-based fat or egg white substitute. Individual
components within the whey are valued at over $600 per kilogram. The
Company has engaged in evaluation studies with three large dairy product
companies to evaluate the Sepralac(TM) process.
The Company has successfully demonstrated in the lab a process
called Sepradebitt(TM) to debitter citrus juice. The Company has begun
to introduce the concept to juice processors for their evaluation.
Other food applications at an early stage of development are the removal
of certain flavors from beverages such as wine and sake, improved sugar
refining, the recovery of flavor extracts from natural products and the
isolation of nutritional products from eggs and soy.
In addition to biopharmaceutical applications and food and dairy
applications, the Company is exploring the use of its RFC technology in
the environmental management industry. The Company is attempting to
develop a process for the removal of heavy metals from liquid waste.
The Company believes that rather than shipping tankers full of waste-
water, a small Sepragen cartridge of concentrated toxic metals could be
transported to the recycling facility.
The Company's ability to develop and market its Sepralac(TM)
process for whey separation and other potential food and environmental
products and processes will be substantially dependent upon its ability
to negotiate partnerships, joint ventures or alliances with established
companies in each market. In particular, the Company will be reliant on
such joint venture partners or allied companies for both market intro
duction, operational assistance and financial assistance. The Company
believes that development, manufacturing and market introduction of
products in these industries, will cost millions of dollars and require
operational capabilities in excess of those currently available to the
Company. No assurance can be given, however, that the terms of any such
alliance will be successfully negotiated or that any such alliance will
be successful.
Chromatography Overview
The two principal methods for separation of components from liquids
are filtration and chromatography. Filtration is a physical separations
technique which principally utilizes microporous membranes to remove
specifically-sized particles. Microporous membranes are thin, film-like
materials with millions of uniform microscopic holes. Filtration occurs
because molecules smaller than the pores pass through the membrane while
larger molecules are restrained. Filtration's specificity is based on
the size of the molecule and is therefore less exacting since many
different types of molecules may be small enough to pass through the
pores resulting in an impure product.
In contrast, chromatography is a chemical separations technology
which results in higher purity separation than physical separation
technologies such as filtration. Chromatography is performed in tubular
columns containing chemically coated porous beads (separations media).
A liquid mixture containing the target molecules is pumped through the
separations media to a collection channel at the bottom of the column.
As the mixture flows through the column, only the target molecules bind
to the surface of the separations media. Because the binding is chemi
cal and not based on size, the resulting purity of the end product is
high.
Conventional axial flow chromatography is a process where the
liquid mixture is pumped vertically through the column. As axial flow
chromatography processes are increased in scale from laboratory quanti
ties to clinical and commercial production quantities, the capacity of
the chromatography column must be increased. The capacity can be
increased in one of three ways: (i) the height of the column can be
increased, which increases the back pressure required to pump the fluid
through the column and lowers the productivity; (ii) the diameter of the
column can be increased which results in inefficient separation; or
(iii) the number of columns can be increased which increases the capital
and operating costs.
The Company developed its RFC technology as a means of solving the
scale-up problems associated with axial flow chromatography. In RFC,
the flow of the liquid is perpendicular rather than parallel to the axis
of the column. The Company believes radial flow technology offers
higher volumetric productivity and several other technical, economic and
safety-related advantages over axial flow chromatography. RFC permits
the production volume to be increased without any significant impairment
to the quality of purification and without the use of high hydrostatic
pressure. Typically, axial flow chromatography on a large scale is run
at flow rates of between 5 to 15 column volumes per hour. The flow
rates typically decrease as the column volume increases. RFC is rou
tinely run at between 20 to 75 column volumes per hour depending on the
application. As a result, greater quantities of purified molecules can
be produced more efficiently than with axial flow chromatography, and
the process makes more efficient use of the separations media. The
Company believes this feature gives RFC a measurable economic advantage
over axial flow chromatography. While still significant at lower
volumes, the importance of these advantages increases as the volume of
the molecules to be processed increases (or "scaled up") to metric ton
or kiloliter quantities and as the per unit cost of processing such
molecules grows relative to the selling price of the compounds.
Strategy
The Company has undertaken to reposition itself strategically in
the two years since its 1995 initial public offering. Its original
strategy was to sell RFC equipment and instrumentation primarily to the
"scale-up end" of the rapidly growing biopharmaceutical marketplace
while researching applications in the food and dairy markets. The
Company and its competitors discovered that while there has been tremen
dous growth in the biotechnology industry, most of it has been at the
research and development levels and has not made a sizable impact on the
manufacturing end of the business. Accordingly, sales of commercial
scale equipment by the Company have been significantly less than the
Company anticipated. The Company believes that while long-term growth
prospects in this market are good, it has made short-term reductions in
cost in this area. In the past two years, the Company has developed
Sepralac(TM) and Sepradebitt(TM) processes. The Company continues to
seek development of separation solutions for large volume markets that
do not have long FDA approval hurdles. The business model that the
Company expects to negotiate for these proprietary processes would
include royalties. The Company has signed letters of intent and is
currently in negotiations with Anchor Products of New Zealand and
California Gold of the United States to commercialize the Company's
Sepralac(TM) process. However, as of this date no agreements have been
reached with any producers and no assurance can be given that the
commercialization of the Sepralac(TM) or Sepradebitt(TM) processes will
provide significant revenues to the Company.
Biopharmaceutical Industry
The biopharmaceutical market encompasses biological drugs derived
from natural sources such as human plasma, plant and tissue extracts to
those derived from genetically engineered microorganisms. Chromatogra
phy, because of its ability to specifically isolate the desired mole
cules, is used extensively in the biopharmaceutical industry to purify
and isolate biological drugs.
Before a biopharmaceutical product can be sold commercially, it
must be approved by the Food and Drug Administration (the "FDA") which
can take approximately seven to ten years. The FDA approval process
requires a number of well-defined phases. At each phase, more of the
biopharmaceutical product is required to be produced. In the discovery
state of the process, scientists isolate and identify a candidate
biomolecule with potential therapeutic applications. Also, it is
necessary to develop an effective means of isolating small quantities of
the target molecule for testing from cell culture fluid in which geneti
cally engineered cells are grown.
After the therapeutic potential of a biomolecule has been estab
lished, clinical trials are conducted to evaluate the safety and effi
cacy of the biopharmaceutical in humans. A manufacturing process is
developed to produce increasing amounts of the pure biopharmaceutical as
the product passes through each phase of clinical testing and after FDA
approval into commercial manufacture.
As the biopharmaceutical product moves through the FDA approval
process, it becomes increasingly less likely that the manufacturer will
change either the manufacturing equipment or process. This is because
the onus is on the manufacturer to prove that the changes have not
effected the process or the product. This can often be a time consuming
and expensive diversion. Accordingly, it is critical that the Company
sell its products to manufacturers for use in both laboratory-scale and
pilot-scale development of biopharmaceutical products so that its radial
flow columns and systems are part of a newly approved drug manufacturing
process.
Food and Beverage Industry
The Company believes its RFC technology can be used to develop a
broad range of high volume processes in the food and beverage industry.
RFC allows the production of substantially pure compositions of mole
cules that have nutritional or other value and the removal of substances
from various foods and beverages that have been identified as harmful or
that adversely affect flavor or other qualities. In many cases, pro
cesses for separating and purifying or removing these molecules are
either not currently available or require relatively high levels of
capital investment and ongoing operating expenses.
Separating the Components of Whey.
The Company has developed a process called Sepralac(TM) for sepa
rating and purifying the components of whey, a by-product of cheese
production. The whey is the liquid part of the milk remaining after the
curds used for the cheese have formed and been separated. A substantial
portion of the liquid whey is dried and processed into salable products
for human consumption or as animal feed. The remainder of the whey is
disposed of as waste.
Whey is comprised of several different components which in their
pure form have nutritional, functional and, in some cases, pharmaceuti
cal value. Whey sells for approximately $0.50 a kilogram, but individ
ual components within the whey are valued at over $600 per kilogram.
Conventional processing technologies do not allow for economic separa
tion and purification of each of the components of the whey. As a
result, whey is used currently in dry form in whey protein concentrate
("WPC") and whey protein isolate ("WPI"). WPI is a recent product
introduction indicating an industry trend towards higher value, higher
purity and higher protein content products. WPC and WPI are used in
infant formula, foods, soups, beverages and confectionery and bakery
products for their nutritional and functional properties including
emulsification, foaming and gelling. These properties can be improved
if certain protein components are either isolated in a pure form or
removed, depending on certain factors. For example, fat contained in
WPC reduces foamability which is a desired property in ice creams,
shakes and bakery products.
Using Sepragen's Sepralac(TM) process, the Company believes indi
vidual whey components can be separated more economically. The Company
believes the isolated components can be used in a variety of applica
tions to produce improved end products or entirely new products. There
can be no assurance that commercial applications for whey proteins
isolated using the Company's Sepralac(TM) process can be found, or that
such proteins can be sold at prices in excess of the costs of develop
ment.
Humanized Infant Formula. Commercial infant formula is made from
WPC and WPI which is fortified with vitamins and minerals. Compared to
human milk, the protein composition of this formula contains certain
undesirable components while other desirable components are present in
very small quantities. The Company believes that having access to
certain protein components that can be separated using the Sepralac(TM)
process will give the infant formula manufacturer the ability to produce
infant formula that more closely resembles the protein composition of
human milk.
Other Whey Applications. Having the ability to separate the
individual proteins in the whey potentially creates additional applica
tions for those proteins. Certain protein components could be added to
sports drinks to improve nutritional value without "curdling" or "pre
cipitating." Certain protein components could replace egg whites since
they provide better whippability and gelation characteristics. Addi
tional applications for protein components include geriatric products
where a specialized nutritional profile is desired, meat products where
enhanced binding is required and ice creams and shakes where increased
whippability is desired.
Debittering Citrus Juice.
The Company has successfully demonstrated in the lab a process
called Sepradebitt(TM) to debitter citrus juice. A patent was applied
for in December 1996 and the Company has received a notice of allowance
from the U.S. Patent and Trademark Office which indicates that the
patent is being processed for issuance. The Company has only recently
begun to introduce the process to juice processors for their evaluation
and no revenues have been generated from sales of such processes to
date. Orange processing in both California and Florida results in
unsqueezed juice that is too bitter to use. If processors could use all
of the juice in the orange, not just that obtained in the first squeeze,
their economics would improve. Additionally, oranges grown in Califor
nia go through a period of months when they are too bitter to be pro
cessed into juice. Similarly, the bitterness of grapefruit juice
prevents its use as an ingredient in mixed juice production. Debitter-
ing grapefruit juice may extend its usage to new applications. The
Company has only recently begun to introduce the process to juice
processors for their evaluation and no revenues have been generated from
the sale or license of this process to date.
Other Food Applications.
Other food applications at an early stage of development are the
removal of certain flavors from beverages such as wine and sake, im
proved sugar refining, the recovery of flavor extracts from natural
products and the isolation of nutritional proteins from eggs and soy.
Environmental Industry
Major industrial companies, such as computer chip manufacturers and
chemical companies, pay recyclers to transport wastewater in tankers
from the manufacturing site to the reclamation facility. Since the
waste stream is dilute, the manufacturer is paying mostly to transport
the water.
The Company's RFC process might be used to concentrate the toxic
metals contained in the wastewater at the manufacturer's site. The
Company believes that instead of shipping tankers full of wastewater, a
small Sepragen cartridge of concentrated toxic metals could be lifted
out of the Company's columns and transported to the recycling facility.
The ability of the Company's columns to concentrate toxic metals found
in wastewater has been beta-site tested at major manufacturers. In
order to commercialize this process, among other things, the Company
needs to obtain regulatory permits and have access to a recycling
facility. No assurance can be given that the Company will be able to
obtain the necessary permits or access to any recycling facility on
terms that allow for profitable development of the Company's technology
for the environmental industry.
Necessity of Alliances and Partnerships
The Company's ability to develop and market its Sepralac(TM)
process for whey separation and other potential food and environmental
products and processes will be substantially dependent upon its ability
to negotiate partnerships, joint ventures or strategic alliances with
established companies in each market. The Company will be reliant on
such joint venture partners or allied companies for both market intro
duction, 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. While the Company continues to have discussions with a number
of different companies, particularly those interested in its Sepralac-
(TM) process, it has not established any partnerships, joint ventures or
strategic alliances in any industry group and there can be no assurance
that the Company will be able to do so in the future or that any such
partnership, joint venture or strategic alliance will be successful.
Products and Systems
The Company is attempting to develop complete processes for the
food and environmental markets. However, for the biopharmaceutical
market, its current product offering includes the "tools" needed to
develop a process: workstations for control automation and monitoring
the separation processes; resins and other chromatography media; and
processes using RFC technology. The Company currently markets its line
of Superflo(R) RFC columns and its QuantaSep(R) computer controlled
system.
Superflo RFC Columns. The Company began marketing laboratory-scale
RFC columns in 1987. Superflo(R) columns are now available in labora
tory-scale, pilot-scale and commercial-scale configurations, from 50
milliliters to 350 liters in volume. The Company believes the linear
scalability of Superflo(R) columns from laboratory-scale research and
development work through commercial-scale processing and manufacture
operations is particularly important to pharmaceutical and biotechnology
companies seeking to minimize the expense and time required for commer
cializing newly discovered drugs. Of equal importance is the ability of
Superflo(R) columns to be run in commercial-scale settings at relatively
high fluid flow rates and relatively low hydrostatic pressures. In
addition, Superflo(R) columns can be used with many different types of
separations media currently available for liquid chromatography applica
tions, such as ion exchange, affinity, hydrophobic, reverse phase and
other types of absorption/desorption reactions. Superflo(R) columns
can be run manually, on the Company's QuantaSep(R) system (discussed
below) or on other chromatography systems.
Superflo(R) columns are available in both stainless steel and
high-grade plastic and are designed to comply with the FDA's standards
for Good Laboratory Practices ("GLP") and Good Manufacturing Practice
("GMP") for the manufacture of pharmaceuticals and therapeutic drugs.
The prices of Superflo(R) columns vary according to material type and
size. Prices range from $500 for laboratory models to more than $100,-
000 for larger models.
QuantaSep Computer-Controlled Liquid Chromatography Systems. The
Company commenced commercial shipments of its QuantaSep(R) 1000 com
puter-controlled chromatography workstation during 1992. The system
consists of hardware and electronics, software, pumps, tubing, fittings,
sensors, detectors and related equipment. This system is capable of
controlling the flow of multiple liquid inputs through an array of up to
three chromatography columns and several process monitoring instruments.
The QuantaSep(R) system allows the benefit of computer controlled
chemical process design and processing to be applied to liquid chroma
tography.
Process development, particularly in the biopharmaceutical indus
try, has traditionally required long periods to test alternative separa
tion and purification processes. In addition, the problems of convert
ing laboratory-scale processes to operate at a commercial scale require
continual revision to the processes. The QuantaSep(R) enables a user to
automatically perform these tasks. The QuantaSep's benchtop liquid
chromatography system is designed to work with the high flow rates
provided by radial flow columns as well as with the precision needed by
new higher performance chromatography media.
The QuantaSep 1000 can be used with pilot-scale columns providing
flow rates of up to one liter per minute. The current version of the
QuantaSep system is designed to facilitate the development, optimization
and scale-up of multi-step chromatography protocols for many different
types of target biomolecules and to operate under the FDA's GLP and GMP
drug development and manufacturing environments. The Company intends to
further develop its QuantaSep technology for application to commer
cial-scale processing operations.
The QuantaSep system is available in several configurations and can
be used with axial flow as well as radial flow columns. The price of
the current QuantaSep 1000 version of the QuantaSep system ranges from
$65,000 to $200,000, depending on the various features, sizes and
options ordered.
Large Scale QuantaSep. In 1996, the Company developed a large
scale QuantaSep capable of delivering flow rates of up to 5 liters/-
minute. This machine can be used to automate and control manufacturing
processes in the biopharmaceutical industry or for pilot scale evalua
tions in food applications. It brings all the process features of
flexibility, ease of use and precision fluid handling contained in the
QuantaSep(R) to large scale use.
Version 2.0 Software. In 1996, the Company developed a new soft
ware package for the QuantaSep system to address evolving needs for the
use of RFC technology in larger manufacturing processes in
biopharmaceutical and food applications. This "Windows" based software
allows a user to run a process, collect data, analyze data and continu
ously monitor the process. It operates with a highly interactive
graphics process diagram "dashboard."
Separations Media. Based in part upon the technology acquired in
its purchase in June 1994 of certain assets of BPS Separations, a U.K.
company that went into receivership, the Company has commenced develop-
ment of consumable resin or media products for chromatography columns.
The novel media named SepraSorb(TM) is based on a "sponge" as opposed to
a "bead" configuration. This configuration has several significant
advantages over conventional resins for "front-end" (pre-chromatography)
separations of crude biological material. In a typical chromatographic
separation process, cell debris or aggregates are removed from the raw
material or feed stream prior to chromatography so as not to foul the
chromatography media. This step increases the cost of the operation and
reduces yield because of product loss associated with this step. The
Company believes that the unique ability of the SepraSorb(TM) media to
handle "dirty streams" without clogging will eliminate various
pre-chromatography steps and increase overall yield and productivity of
many purification processes. Tests show that SepraSorb(TM) media in
radial flow columns combine the advantages of RFC and sponge media
technologies and increase overall productivity of the process. The
Company has only recently commercially introduced SepraSorb(TM) car
tridges to the biopharmaceutical market and there have been no sales of
this product to date.
Customers, Sales and Marketing
The Company is currently marketing its products to the biotech
industry through three direct salespeople domestically, coupled with
distributors overseas that are supported by the Company's staff located
in Europe and Asia. The Company currently has no written distribution
contracts with any U.S. distributors. The Company may also seek to
enter into strategic alliances or contractual arrangements such as joint
venture, licensing or similar collaborative agreements with other
companies having preestablished marketing and distribution networks. If
the Company enters into contractual arrangements, the Company may lose
some control over part or all of the marketing and distribution of the
Company's products. There can be no assurance that the Company will be
able to enter into any such arrangements on terms acceptable to the
Company, or at all.
In 1997 approximately 45% of sales revenues were from sales to
customers in the United States and 55% to customers outside the United
States. Of the Company's 1997 sales revenues, 48% was attributable to
production-scale chromatography column products, less than 8% to labora
tory-scale and pilot-scale chromatography column products and the
balance to QuantaSep systems. Approximately 92% of the sales were to
biopharmaceutical or pharmaceutical companies, and 8% of sales were to
companies engaged in evaluation studies for food and dairy separations
applications of the Company's technology.
The Company's future growth and profitability will depend, in large
part, on the success of its personnel and others in fostering acceptance
among the various markets of the use of the Company's products as an
alternative to existing products (e.g., the use of Superflo(R) columns
as an alternative to the prevailing use of axial flow chromatography
columns) and in negotiating joint ventures and alliances in the dairy,
food, beverage and environmental industries. The Company's success in
marketing its products will be substantially dependent on educating its
targeted markets as to the distinctive characteristics and perceived
benefits of the Company's products. There can be no assurance that the
Company's efforts or the efforts of others will be successful, that any
of the Company's proposed products will be favorably accepted among the
targeted markets, or that the Company's products will ever achieve the
level of sales necessary for the Company to operate profitably.
Research and Development
The Company spent approximately $1,487,000 and $861,000 on research
and development for the years ended December 31, 1996 and 1997, respec
tively. Substantially all of the Company's research and development
expenditures to date have related to its RFC columns, QuantaSep systems
and Sepralac(TM) process, including related purification technology.
The Company maintains an on-going research and development program
that covers the following areas:
(i) improvements and extensions of existing products which exploit
the Company's patents to address specific customer needs;
(ii) continued development of separation media; and
(iii) continued development of commercial-scale liquid chromatogra
phy processes based on RFC technology for food, dairy and
environmental applications.
Patents, Trademarks and Intellectual Property
The Company considers patent protection of its processes to be
important to its business prospects. The Company currently holds twelve
patents and three patent applications in the United States relating to
its technologies. In addition, the Company holds seven patents and four
patent applications in various foreign countries.
The first of the Company's patents was issued in 1986 for its
radial flow processes and method relating to purification columns.
Since then, the Company has successfully obtained patents for various
other technologies. The Company's patents are issued for the following
inventions and have the expiration dates indicated (assuming all re
quired maintenance fees are paid):
U.S. Patent Reg. Nos. 4,627,918 (11/4/05); 4,676,898 (11/4/-
05); 4,840,730 (11/4/05) and 4,865,729 (11/4/05) cover differ
ent horizontal or radial flow chromatography methods and
apparatuses.
U.S. Patent Reg. No. 5,462,659 (6/15/13) covering axial flow
chromatography columns.
U.S. Patent Reg. No. 4,708,782 (9/15/06) covers a combination
horizontal or radial flow chromatography column and electro
phoresis apparatus.
U.S. Patent Reg. Nos. 4,740,298 (11/4/05) and 4,867,947
(9/19/06) cover interface apparatuses for directing the output
of a chromatography column to a point of use/detection and/or
identification such as mass spectrometry device.
U.S. Patent Reg. No. 4,705,616 (9/15/06) covers a combination
electrophoresis/ mass spectrometry probe for performing the
two processes of electrophoretic separation of a sample fol
lowed by introduction of the separated sample to a mass spec
trometry apparatus.
U.S. Patent Reg. No. 4,833,083 (11/04/05) covers a packed bed
bioreactor for anchorage or nonanchorage dependent cells, or
for immobilized enzymes, that is capable of achieving high
cell densities or concentrations of reaction products.
U.S. Patent Reg. No. 5,492,723 (2/20/13) covers a method of
producing a cross-linked flexible sponge adsorbent medium.
U.S. Patent Reg. No. 5,597,489 (3/02/15) covers a method for
removing contaminants from water.
The Company also has three patent applications pending before the
U.S. Patent and Trademark Office. The first relates to a method for the
sequential separation of whey proteins; the second relates to a method
of producing a cross-linked cellular sponge to an absorbent medium; and
the third relates to high throughput debittering.
The Company has received a notice of allowance for its patent
related to sequential separation of whey proteins which indicates that
the U.S. Patent and Trademark Office is processing the patent for
issuance.
The Company intends to continue to pursue patent protection for the
various technologies it develops. There can be no assurance that any of
the Company's issued patents will afford protection against a competi
tor, that any patents issued or licensed to the Company could not be
designed around or invalidated or that the Company's pending patent
applications will result in issued patents. In addition, there can also
be no assurance that any application of the Company's technology will
not infringe patents or proprietary rights of others or that licenses
that might be required for the Company's processes or products would be
available on reasonable terms. Furthermore, there can be no assurance
that challenges will not be instituted against the validity or enforce-
ability of any patent owned by the Company or, if instituted, that such
challenges will not be successful. The cost of litigation to uphold the
validity and prevent infringement can be substantial.
The Company believes that patents in certain foreign countries are
more difficult and expensive than obtaining domestic patents because of
differences in patent laws, and recognizes that its patent position
therefore may be stronger in the United States than abroad. In addi
tion, the protection provided by foreign patents, once they are ob
tained, may be weaker than that provided by domestic patents, with the
attendant risks of infringement of the Company's patents and loss of
market share to infringing competition.
The Company also relies upon unpatented proprietary technology, and
in the future may determine in some cases that its interest would be
better served by reliance on trade secrets or confidentiality agreements
rather than patents. No assurance can be given that others will not
independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to such proprietary technology
or disclose such technology or that the Company can meaningfully protect
its rights in such unpatented proprietary technology. To the extent
that consultants or other third parties apply technological information
independently developed by them or by others to Company projects,
disputes may arise as to the proprietary rights to such information
which may not be resolved in favor of the Company.
The Company's name, helix logo, Superflo and QuantaSep trademarks
are registered on the Principal Register of Trademarks maintained by the
U.S. Patent and Trademark Office, and applications to register the mark
SepraSorb, Sepragen, "S" and Design and Sepralac are pending.
Competition
The Company faces significant competition in three principal areas
of its business. With respect to the Company's liquid chromatography
equipment, resins and systems, competition comes from companies that
make liquid chromatography equipment and systems and companies that make
separation and purification equipment and systems that compete with
liquid chromatography. In the market for liquid chromatography equip
ment and systems, the Company's major competitors are Pharmacia Biotech,
Inc., Amicon (a division of Millipore Corporation), BioSepra Inc.,
PerSeptive Biosystems, Inc. and a number of smaller companies. In
particular, the Company can expect intense competition from the fast
flow resins and scaled-up process systems and workstations being devel
oped by Pharmacia, BioSepra and PerSeptive Biosystems. The Company
intends to compete through the introduction of innovative liquid RFC
products and systems that enable cost effective and large-scale separa
tion and purification systems.
With respect to the Company's liquid chromatography processes under
development for application in the food and dairy industries, the
Company will face competition from existing producers of whey and other
food ingredients who are attempting to develop existing separation
technology for fractionating dairy ingredients. Such competitors
include overseas companies Danmark Protein, New Zealand Dairy Board and
Immucell Corporation and Davisco International Incorporated in the
United States. In addition, the Company may face competition from
companies in the chromatography equipment industry such as BioSepra,
PerSeptive Biosystems and Pharmacia to the extent the dairy and food
industries begin using chromatography separation processes in the future
and from companies providing competing technologies, such as membrane
filtration and ion exchange, including APV Pasilac AS, Calgon Carbon
Corporation, Ionics, Incorporated and Osmonics, Inc., which are cur
rently used in food separation processes.
With respect to the Company's liquid chromatography processes under
development for application in the environmental management industry,
the Company will face competition from providers of competing technolo
gies currently utilized in the waste disposal industry, including carbon
absorption, membrane filtration, ion exchange and precipitation. Such
competitors will include large established companies in the environmen
tal industry such as Ionics, United States Filter Corporation/Whittier,
Inc. and Osmonics and many smaller manufacturers. There can be no
assurance that the Company will be able to compete successfully in any
of its target markets.
Manufacturing and Supplies
The hardware for the Company's RFC columns and the software and
certain components for the QuantaSep system are produced by third party
contract manufacturers. The Company assembles the products and performs
quality control. The Company intends to continue to enter into addi
tional arrangements with third parties to manufacture the components of
its products according to specifications provided by the Company. For
example, in 1996, the Company signed an agreement with Thermax Ltd., a
supplier of ion-exchange resins headquartered in India, to manufacture
certain of its resins. The Company continues to monitor production at
these manufacturing facilities to assure compliance with product speci
fications. There can be no assurance that the Company will be able to
enter into future arrangements, on acceptable terms or at all, for the
manufacture of its products by others or that any manufacturer will be
able to meet any demand for such products on a timely or cost effective
basis.
The Company currently relies and intends to continue to rely on
certain suppliers to provide substantially all of the materials required
to produce its products, including, but not limited to, fabricated
steel, plastics, wiring, circuitry and computer hardware. The Company
has been and expects to continue to be able to obtain all materials
needed for these purposes without any significant interruption or sudden
price increase, although there can be no assurance thereof. The raw
materials utilized in the manufacture and assembly of the Company's
products are readily available from a wide variety of industry sources.
The Company does not believe its production depends on any single group
of suppliers or third party contract manufacturers.
In the future, the Company may decide to manufacture directly
certain of its existing or proposed products. Manufacture of the
Company's products will require expensive equipment and experienced
personnel. Although certain of the Company's officers have had manufac
turing experience with other companies, the Company has limited manufac
turing experience and capabilities. There can be no assurance that the
Company will be able to obtain the requisite financing, attract or
retain experienced personnel or be able to establish a suitable manufac
turing facility.
Employees
As of March 31, 1998, the Company employed a staff consisting of 21
full-time employees and one part-time employee. In order to maximize
the efficiency of this small staff, most employees serve in various
functions as different needs arise. The Company has not experienced any
strikes or work stoppages and considers its relationship with its
employees to be satisfactory. The Company's employees are not covered
by any collective bargaining agreement.
The Company intends to add additional employees on an as needed
basis in the areas of research, production, development, marketing,
sales and administration, including a Vice President of Manufacturing
and a Chief Financial Officer in the foreseeable future. The Company's
future success is substantially dependent on its ability to attract and
retain highly competent technical and administrative personnel.
Item 2. Description of Property
The Company leases approximately 23,000 square feet of assembly,
laboratory and office space in Hayward California for annual rent of
$83,893 in 1997. Of this space, approximately 13,700 square feet are
allocated to manufacturing, approximately 1,700 square feet to the
Company's laboratories, and approximately 7,600 square feet to the
Company's executive and administrative offices. The term of the lease
expires on September 30, 2000.
Item 3. Legal Proceedings
Neither the Company nor its officers or directors are parties to
any pending legal proceedings involving a matter the outcome of which is
expected to have a material adverse effect on the Company's financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market Information.
The Company's IPO Units, Class A Common Stock, Class A Warrants and
Class B Warrants were quoted on Nasdaq Small Cap Market from March 23,
1995 until August 15, 1997 and are now quoted on the OTC Bulletin Board
(under the symbols SPGNU, SPGNA, SPGNW and SPGNZ). The Company's
securities were delisted from the Nasdaq Small Cap Market because the
Company failed to meet total asset and minimum share price requirements
for continued listing. The high and low bid prices for the IPO Units,
Class A Common Stock, Class A Warrants and Class B Warrants as reported
by Nasdaq are indicated below. Such prices are interdealer prices
without markups, markdowns or commissions, and may not necessarily
represent actual transactions. Prior to March 23, 1995, the Company was
privately held and its securities were not publicly traded. The Com
pany's securities were first listed on the Pacific Stock Exchange (Tier
II) on November 22, 1995 (under the symbols SPN U TT, SPN TT, SPN WS A
TT and SPN WS B TT). The Pacific Stock Exchange has informed the
Company that its securities will be delisted in May 1998.
Class A Class A Class B
IPO Units Common Stock Warrants Warrants
Low High Low High Low High Low High
1996
First Quarter $3.50 $4.88 $1.50 $3.50 $ .81 $1.50 n/a n/a
Second Quarter 3.50 6.03 2.63 3.88 .94 1.25 $ .75 $ .88
Third Quarter 3.38 5.00 2.13 2.88 .75 1.00 .81 .81
Fourth Quarter 1.88 4.30 .88 2.38 .63 .88 .56 .81
1997
First Quarter $1.88 $3.88 $ .88 $1.13 $ .75 $ .94 $ .56 $ .75
Second Quarter 1.06 1.75 .63 1.38 .44 .69 .16 .50
Third Quarter 1.00 1.81 .38 1.44 .38 .75 .13 .16
Fourth Quarter 1.38 2.00 1.06 2.00 .13 .44 .06 .13
As of March 31, 1998, the last sale price as reported on the OTC
Bulletin Board for the Class A Common Stock was $1.50; the closest last
sale price for IPO Units was as of March 30, 1998 and was $1.69, and the
closest last sale prices for the Class A and Class B Warrants were as
of March 27, 1998 and were $0.19 and $0.06, respectively.
Prior to March 23, 1995, the Class A Common Stock, Class A War
rants, Class B Warrants and IPO Units were not publicly traded. There
is no public market for Class B or Class E Common Stock and Class E
common is not transferrable.
(b) Holders. As of March 31, 1998, there were 36 record holders of
Class A Common Stock, 49 record holders of Class B Common Stock and 17
record holders of Class E Common Stock. The majority of the outstanding
shares of Class A Common Stock are held of record by nominee holders on
behalf of a number of ultimate beneficial owners which the Company has
been informed exceeds 500.
(c) Dividends. The Company has never paid any cash dividends on
its Common Stock and does not anticipate that it will do so in the
foreseeable future.
On November 3, 1997, the Company completed a private placement of
54 bridge units. No underwriter was used in the bridge unit offering,
however, Dakin Securities Corporation acted as placement agent, and was
paid $43,200 of which $35,000 was a commission and $8,200 was credited
as a retainer for future services. Each unit consists of a bridge note
in the face amount of $10,000 which bears interest at an annual rate of
10% (the "Bridge Notes") and warrants to purchase 5,000 shares of Class
A Common Stock at $1.25 per share. The Bridge Notes became due six
months from issuance and are now due and payable. As of the date of
this report, the Company has been unable to make any payment on the
Bridge Notes. The Class C Warrants have certain registration rights and
may be redeemed for $.05 by the Company if the Target Price for the
Company's Class A Common Stock exceeds $4.00 per share for 30 consecu
tive business days. The number and price of Class A Common Shares
subject to the Class C Warrants are subject to adjustment if the under
lying shares are recapitalized, otherwise adjusted or if there are
subsequent issuances of securities by the Company. The Warrants expire
on December 31, 2002. As of December 31, 1997, the Company had sold
$540,000 of Bridge Notes from which it received $505,000 in net pro
ceeds. The offering was made pursuant to SEC Regulation D and was
limited to accredited investors as defined by Regulation D. Debt
issuance costs related to these notes of $35,000, plus the fair value of
the Class C warrants issued of $110,700 have been netted against the
liability and are being amortized as additional interest expense over
the term of the notes.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following table sets forth selected financial information with
respect to the Company for each of the years in the five year period
ended December 31, 1997 which have been derived from the audited finan
cial statements of the Company. The reports of Grant Thornton LLP,
independent certified public accountants, for the year ended December
31, 1997 and Coopers & Lybrand, LLP, independent certified public
accountants, for the year ended December 31, 1996, are included else
where herein and include an explanatory paragraph regarding the Com
pany's ability to continue as a going concern. The selected financial
data set forth below should be read in conjunction with the financial
statements of the Company and related notes thereto, included elsewhere
herein.
Selected Financial Data
Year Ended December 31
1997 1996 1995 1994 1993
Statements of Operations
Revenues $1,619,623 $1,002,562 $1,046,256 $1,787,418 $1,314,790
Net Loss $(1,648,514) $(3,579,049) $(2,912,857) $(862,289) $(1,095,051)
Net Loss
Per Share $(0.58) $(1.25) $(1.25) $(1.17) $(1.49)
Weighted Average
number of shares
outstanding 2,856,431 2,856,431 2,332,283 735,528 734,052
Balance Sheets
(December 31) 1997 1996 1995 1994 1993
Total
Assets $1,393,036 $1,407,425 $5,086,806 $1,544,152 $631,934
Total
Liabilities $1,898,743 $375,318 $490,012 $3,196,117 $1,487,281
Shareholders'
Equity
(Deficit) $(505,707) $1,032,107 $4,596,694 $(1,651,965) $(855,347)
The following table is included as an aid to understanding the
Company's operating results. The table sets forth the percentages which
each item bears to revenues and the percentage change in dollar amounts
from year to year.
Percentage Year to Year Percentage
Relationship to Revenues Increase (Decrease)
Percent of Percent of Year Year
Revenues Revenues Ended Ended
Account Name 1997 1996 1997 1996
Revenues 100% 100% 62% (4)%
Cost and Expenses
Cost of goods sold 55% 84% 6% (23)%
Selling, general and
administrative 93% 234% (36)% 3%
Research and
development 53% 148% (42)% 38%
Total costs and
expenses 201% 466% (30)% 16%
Loss from operations (101)% (366)% (55)% 22%
Interest income
and other, net (1)% 9% (34)% 59%
Net loss (102)% (357)% (56)% 23%
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
In 1997, net sales increased by $617,000 or 62% from $1,003,000 in
1996 to $1,620,000 in 1997. The increase is due to the increase of
sales of its core product, Radial Flow Chromatography (RFC) equipment.
This increase is due to two factors: 1) increasing demand for production
and scale-up equipment; and 2) small contribution of revenues from
Sepralac evaluation license fees.
The decision to buy RFC products has more to do with where a drug
is in the FDA process than with the desirable features of the RFC
products. Since the RFC's advantages appear only at large scale, when
a drug is in the pre-clinical and early clinical stages where small
volumes of drug are sufficient, RFC products do not offer significant
advantage. Thus, as more drugs move through the FDA approval process
into Phase three clinical trials and commercial production, (i.e., to
large scale production), the competitive advantages of RFC with regards
to linear productivity become significant. The Company believes the
increase in sales reflects this acceptance of RFC products as the drugs
move to Phase III clinical trials and commercial production. The
increase in sales of production-scale chromatography columns from 23%
of total sales in 1996 to 48% of total sales in 1997 reflects this
trend.
In the year ended December 31, 1997, sales to one customer ac
counted for 21% of net sales. In the year ended December 31, 1996,
sales to two customers accounted for 34% and 11% of net sales, respec
tively. Historically, the Company has concentrated its sales with a few
customers who took delivery for the Company's largest columns and who do
not make regular large purchases from the Company in succeeding years.
Gross margin increased by $565,000 or 349% from 1996. As a per
centage of sales, gross margin increased by 29% from 16% to 45% in 1997
compared to 1996. The increase in gross margin is primarily due to
product mix. To a lesser extent, the higher margin is attributable to
customizing software for large QuantaSep products shipped in late 1996
without incurring corresponding costs in 1997. In addition, there was a
relatively larger increase in the inventory reserve for slow moving and
obsolete inventory in 1996.
Selling, general and administrative expenses decreased by $840,000
from $2,344,000 in 1996 to $1,504,000 in 1997. The decrease was primar
ily due to reduction in head count in sales and marketing as well as the
scaling back of advertising and promotion, travel and other administra
tive expenses, and a decision to focus for the short term on customers
currently scaling up their processes.
Research and development expenses decreased by $626,000 from
$1,487,000 in 1996 to $861,000 in 1997. The decrease was mainly due to
reduction in the cost of software development for the QuantaSep product,
product development and reduction in head count in research personnel.
Net loss for 1997 was $1,649,000 compared to a net loss of $3,579,-
000 for 1996. The decrease in net loss was due to higher sales and
trimming expenses, while focusing the available resources on immediate
higher margin biotech prospects.
For the years ended December 31, 1997 and 1996, sales of the
Company's products to foreign markets accounted for approximately 55%
and 38%, respectively, of the Company's sales. Foreign sales expose the
Company to certain risks, including the difficulty and expense of
maintaining foreign sales distribution channels, barriers to trade,
potential fluctuations in foreign currency exchange rates, political and
economic instability, availability of suitable export financing, ac
counts receivable collections, tariff regulations, foreign taxes, export
licensing requirements and other United States and foreign regulations
that may apply to the export of its products. In addition, the Company
may experience difficulties in providing prompt and cost-effective
service of its products in foreign countries. The Company does not
carry insurance against such risks. The occurrence of any one or more
of these events may individually or in the aggregate have a material
adverse effect upon the Company's business, operations and financial
condition. The Company attempts to mitigate risks applicable to foreign
sales by effecting foreign sales through established independent dis
tributors with greater experience and resources for dealing with foreign
customers and foreign trade issues, and by denominating all sales
contracts in U.S. dollars, thereby minimizing risks from foreign cur
rency exchange fluctuations.
Inflation
The Company believes that the impact of inflation on its operations
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 appropriations and
spending cycles in the biopharmaceutical business.
Liquidity and Capital Resources
The Company used cash in operations of $922,400 and $3,145,100
during the years ended December 31, 1997 and 1996, respectively. Cash
used in operations in 1997 was the result of the net loss incurred for
the year of $1,648,500, offset by net non-cash expenses of $207,800, and
the net change in operating assets and liabilities resulting in source
of cash of $518,300. Cash used in operations in 1996 was the result of
the net loss incurred for the year of $3,579,000, offset by non cash
expenses of $156,400, and the change in operating assets and liabilities
resulting in a source of cash of $277,500.
Investing activities used cash of $15,200 in 1997 and provided cash
of $3,338,800 in 1996. The source of cash in 1996 resulted from the net
redemption of marketable securities of $3,600,500 offset by fixed and
intangible asset acquisitions of $261,700. Investing activities used
cash in 1997 for capitalized patent costs.
Financing activities provided cash of $765,000 during the year
ended December 31, 1997. The cash provided in 1997 resulted from the
issuance of $225,000 in notes payable and the issuance of the convert
ible bridge debt of $540,000.
At December 31, 1997 the Company had cash and cash equivalents of
$44,400 as compared to $217,000 at December 31, 1996. At December 31,
1997, the Company had working capital deficit of $902,000, as compared
to working capital of $513,000 at December 31, 1996. The decrease in
cash in 1997 is a result of the aforementioned increase or decrease in
cash from operating, investing and financing activities noted above. The
decrease in working capital in 1997 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
the level of manufacturing and marketing required to meet any growth in
demand for its products from the dairy, food and beverage, pharmaceuti
cal and biotechnology industries during the next two years. Moreover,
the Company requires additional funds to extend the use of its technol
ogy 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.
Since the IPO, the Company has funded its working capital require
ments substantially from the net cash proceeds from the IPO. Prior to
the IPO, the Company had funded its activities primarily through sales
of its Superflo(R) columns and QuantaSep(R) 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, the Company's expenditures have exceeded its
revenues. Prior to the IPO, the Company financed its operations primar
ily through private equity placements in an aggregate amount of approxi
mately $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. Schnei
der. In addition, the Company has historically relied on customers to
provide purchase price advances for development and scale-up of its
radial flow chromatography columns.
The increase of $387,000 in accounts receivable from December 31,
1996 to December 31, 1997 was due primarily to relatively large ship
ments in the fourth quarter of 1997.
On November 3, 1997, the Company completed a private placement of
54 bridge units. Each unit consists of a bridge note in the face
amount of $10,000 which bears interest at an annual rate of 10% and
immediately exercisable warrants to purchase 5,000 shares of Class A
Common Stock at $1.25 per share ("Class C Warrants"). The Class C
Warrants have certain registration rights and may be redeemed for $.05
by the Company if the Target Price for the Company's Class A Common
Stock exceeds $4.00 per share for 30 consecutive business days. The
number and price of Class A Common Shares subject to the Class C War
rants are subject to adjustment. The Bridge Notes became due six months
from issuance and are now due and payable. As of the date of this
report, the Company has been unable to make any payment on the Bridge
Notes. As of December 31, 1997, the Company had sold $540,000 of
Bridge Notes from which it received $505,000 in net proceeds. Debt
issuance costs related to these notes of $35,000, plus the fair value of
the Class C Warrants issued of $110,700 have been netted against the
liability and are being amortized over the term of the notes.
The Company's 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, compet
itive 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 it will only be able to fund the Company's operations
through May 31, 1998. Accordingly, the Company will have to obtain
additional financing to support its operations. The Company is cur
rently attempting to secure additional financing through either the sale
of additional equity securities of the Company or some form of debt
financing. There can be no assurance that the Company will be able to
secure financing on reasonable terms or at all.
The IPO Units, Class A Common Stock and Class A and Class B war
rants were delisted from the Nasdaq SmallCap Market on August 15, 1997.
The Company's financial statements indicate it did not meet the asset
requirements for continued listing of securities on Nasdaq SmallCap
Market as of December 31, 1996 or the net asset and capital surplus
requirements for continued listing as of June 30, 1997. The continued
listing criteria for Nasdaq SmallCap Market generally include a minimum
of $2,000,000 in total assets, $1,000,000 in capital surplus, a minimum
bid price of $1.00 per share of common stock and 100,000 shares in the
public float. In addition, the common stock must have at least two
registered and active market makers and must be held by at least 300
holders and the market value of its public float must be at least
$200,000. On August 15, 1997, Sepragen received a notification of
delisting from Nasdaq, effective the same day. Since August 16, 1997,
the IPO Units, Class A Common Stock and the warrants have been trading
in the over-the-counter market. As a result, an investor will likely
find it more difficult to dispose of or to obtain accurate quotations as
to the value of the company's securities. It is also likely the Com
pany's securities will also be less liquid with a resulting negative
effect on the value of such securities and the ability of the Company to
raise additional capital.
The Company has received notice that the IPO Units, Class A Common
Stock and the Class A and Class B warrants will be delisted from the
Pacific Exchange ("PSE") Tier II in May, 1998. The Company does not
meet the criteria for continued listing of securities on the PSE. The
continued listing criteria for PSE generally include a minimum of
$500,000 in net tangible assets, at least $2,000,000 in net worth, a
minimum bid price of $1.00 per share of common stock, 300,000 shares in
the public float and at least 250 public beneficial holders.
The Company currently has no credit facility with a bank or other
financial institution. Historically, the Company and certain of its
customers have jointly borne a substantial portion of developmental
expenses on projects with such customers through purchase price advances
or joint development projects with each party sharing some of the costs
of development. There can be no assurance that such sharing of expenses
will continue. The Company continues its efforts to increase sales of
its existing products and to complete development and initiate marketing
of its products and processes now under development.
The Company is seeking to enter into strategic alliances with
corporate partners in the industries comprising its primary target
markets (biopharmaceutical, food, dairy and environmental management).
The Company's ability to develop and market its Sepralac process for
whey separation and other potential food and environmental products and
processes will be substantially dependent upon its ability to negotiate
partnerships, joint ventures or alliances with established companies in
each market. In particular, the Company will be reliant on such joint
venture partners or allied companies for both market introduction,
operational assistance and financial assistance. The Company believes
that development, manufacturing and market introduction of products in
these industries, will cost millions of dollars and require operational
capabilities in excess of those currently available to the Company. No
assurance can be given, however, that the terms of any such alliance
will be successfully negotiated or that any such alliance will be
successful. The Company hopes to enter into alliances that will provide
funding to the Company for the development of new applications of its
Radial Flow Chromatography (RFC) technology in return for agreements to
purchase its equipment and royalty bearing licenses to the developed
applications.
Charge to Income in the Event of Conversion of Class E Common Stock
The shares of Class E Common Stock and all shares issuable upon the
exercise of options to purchase Class E Common Stock will be automati
cally converted into Class B Common Stock if and only if: (a) the
Company's net income before provision for income taxes and exclusive of
any extraordinary earnings or charges which would result from the
conversion of the Class E Common Stock (as derived from the Company's
financial statements audited by the Company's independent accountants)
meets certain thresholds of $5.6 million for the fiscal year ending
December 31, 1998 and increasing to $8.1 million for the fiscal year
ending December 31, 1999; or (b) the Bid Price of the Company's Class A
Common Stock for 30 consecutive trading days shall average in excess of
certain prices (ranging from $16.50 to $20.00 per share) during speci
fied periods following March 23, 1995. There can be no assurance that
such earnings and market price levels will be attained or that any or
all of the Class E Shares will be converted into Class B Common Stock.
In the event any shares of Class E Common Stock are converted to
Class B Common Stock and such shares are held by officers, directors or
employees of, or consultants to, the Company, compensation expense will
be recorded for financial reporting purposes as required by generally
accepted accounting principles ("GAAP"). Therefore, in the event the
Company attains any of the earnings thresholds or the Company's Class A
Common Stock meets certain minimum prices required for the conversion of
the Class E Common Stock, such conversion will be deemed additional
compensation expense of the Company. Accordingly, the Company may, in
the event of the conversion of Class E Common Stock, recognize during
the periods in which the earnings thresholds are met or are probable of
being met or such minimum bid prices are attained, a substantial earn
ings charge equal to the fair market value of the Class E Common Stock
converted, which charge will have the effect of substantially increasing
the Company's loss or reducing or eliminating earnings, if any, at such
time. The conversion of Class E Common Stock would have a dilutive
effect on earnings (loss) per share as a result of the increase in the
number of outstanding shares. Although the amount of compensation
expense recognized by the Company will not affect the Company's total
shareholders' equity or its working capital, it will increase the
accumulated deficit and may have a depressive effect on the market price
of the Company's securities. See Note 10 of the Notes to Financial
Statements.
A total of 1,209,894 shares of Common Stock held by the 64 share
holders who owned shares of the Company prior to the IPO have been
designated as Class E Common Stock. The Class E Common Stock was
created in September 1994 to fund a restricted stock dividend with
respect to the outstanding shares of Class B Common Stock. The shares
of Class E Common Stock are entitled to five votes per share on all
matters to be voted on by shareholders; provided, that in a election of
directors, each shareholder is entitled to cumulative voting. Shares of
Class E Common Stock have no right to share in dividends or other
distributions and are redeemable by the Company at $.01 per share in the
event certain earning thresholds or the price of the Company's Class A
Common Stock does not attain certain targets over the next five years.
If such earning thresholds or price targets are attained on or before
December 31, 1999, the Class E Common Stock will be automatically
converted into shares of Class B Common Stock.
One-half of the then outstanding shares of Class E Common Stock and
one-half of shares issuable upon the exercise of options to purchase
Class E Common Stock will be automatically converted into Class B Common
Stock if and only if:
(a) The Company's net income before provision for income taxes and
exclusive of any extraordinary earnings or charges which would
result from the conversion of the Class E Shares (as derived from
the Company's financial statements audited by the Company's inde
pendent accountants) ("Minimum Pretax Income") amounts to at least
$5.6 million for the fiscal year ending December 31, 1998, provided
that if additional shares are issued, earnings must increase in
accordance with the formula set forth below; or
(b) The Minimum Pretax Income amounts to at least $8.1 million for
the fiscal year ending December 31, 1999, provided that if addi
tional shares are issued, earnings must increase in accordance with
the formula set forth below; or
(c) The "Bid Price" (as defined herein) of the Company's Class A
Common Stock for any 30 consecutive trading days shall average in
excess of $16.50 during the period commencing with the October 23,
1996 and ending March 23, 1998 (subject to adjustment in the event
of any reverse stock splits or similar events).
For this purpose, the Bid Price is the closing bid price of the
Class A Common Stock in the over-the-counter market, as reported by
Nasdaq, or the closing sale price if listed on the Nasdaq National
Market System or a national stock exchange.
All shares of Class E Common Stock will be converted into Class B
Common Stock if:
(a) The Minimum Pretax Income amounts to at least $6.8 million for
the fiscal year ending December 31, 1998, provided that if addi
tional shares are issued, earnings must increase in accordance with
the formula set forth below; or
(b) The Minimum Pretax Income amounts to at least $9.7 million for
the fiscal year ending December 31, 1999, provided that if addi
tional shares are issued, earnings must increase in accordance with
the formula set forth below; or
(c) The Bid Price of the Company's Class A Common Stock for any 30
consecutive business days shall average in excess of $20.00 during
the period commencing with October 23, 1996 and ending March 23,
1998.
The "Minimum Pretax Income" amounts set forth above will be ad
justed by multiplying the amount shown for each fiscal year by a frac
tion, (i) the numerator of which is the weighted average number of
shares of all classes of common stock of the Company outstanding during
the fiscal year for which the determination is being made (including
Class E Common Stock, but excluding any shares of common stock issued
upon exercise of options subject to the Company's 1994 Stock Option Plan
adopted August 30, 1994, as amended), and (ii) the denominator of which
is the sum of: (a) the number of shares of all classes of Common Stock
outstanding as of March 23, 1995 and (b) the number of shares of Class A
Common Stock sold pursuant to the IPO. Minimum Pretax Income will be
calculated exclusive of any extraordinary earnings or extraordinary
charges, including but not limited to any charge to income resulting
from the conversion of Class E Common Stock to Class B Common Stock or
any charge to income resulting from the issuance of equity securities
(restricted or otherwise) to the Company's directors, employees or
consultants.
In the event the foregoing earnings or market price levels set
forth above are not met by December 31, 1999, all shares of Class E
Common Stock will be immediately redeemed by the Company at $.01 per
share after March 31, 2000. The earnings levels and the share prices
set forth above were determined by negotiation between the Company and
its Underwriter and should not be construed to imply or predict any
future earnings by the Company or any increase in the market price of
its securities. There can be no assurance that such earnings and market
price levels will be attained or that any or all of the Class E Shares
will be converted into Class B Common Stock.
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 state
ment, 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," "expect," "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 May 31, 1998.
Although the Company is attempting to secure such financing, there can
be no assurance that such financing will be available to Company on
reasonable terms or at all. The Company has not meet the net asset and
capital and surplus levels required for continued listing of its securi
ties on the Nasdaq SmallCap Market and the Pacific Exchange Tier II and
has been delisted from Nasdaq and will be delisted from the PSE in May
1998. See Item 6 "Management's Discussion and Analysis or Plan of
Operation-Liquidity and Capital Resources."
Competition. In both its biopharmaceutical industry market and in
the market for its process systems for food, beverage, dairy and envi
ronmental industries, the Company faces intense competition from better
capitalized competitors. See Item 1 "Business-Competition."
Dependence on Joint Ventures and Strategic Partnerships. The
Company's entry into the food, dairy and beverage market for its process
systems will be substantially dependent upon its ability to enter into
strategic partnerships, joint ventures or similar collaborative alliance
with established companies in each market. As of the date of this
report, no such alliances have been finalized and there can be no
assurance that the terms of any such alliance will produce profits for
the Company. See Item 1 "Business-Necessity of Alliances and Partner
ships".
Dates following December 31, 1999 and beyond (the "Year 2000 Problem").
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 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 or financial posi
tion 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.
Item 7. Financial Statements
(a) Financial Statements. The financial statements of the Company
as of December 31, 1997 and for the year then ended have been audited by
Grant Thornton LLP, independent accountants, as indicated in their
report thereon. The 1996 Financial Statements were audited by Coopers &
Lybrand L.L.P., independent accountants, as indicated in their report
thereon. The financial statements included in this section are as
follows:
Page
Report of Independent Certified Public Accountants,
Grant Thornton LLP 22
Report of Independent Accountants, Coopers & Lybrand, L.L.P. 23
Balance Sheet as of December 31, 1997 24
Statements of Operations for the years ended December 31, 1997
and 1996 25
Statement of Shareholders' Equity (Deficit) for the years
ended December 31, 1997 and 1996 26
Statements of Cash Flows for the years ended December 31, 1997
and 1996 27
Notes to Financial Statements 28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Sepragen Corporation:
We have audited the accompanying balance sheet of Sepragen Corpora
tion (the "Company") as of December 31, 1997, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the
year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examin
ing, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the account
ing principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sepragen
Corporation as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As more fully discussed
in Note 2 to the financial statements, the Company has incurred recur
ring losses and cash flow deficiencies from operations that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note
2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GRANT THORNTON LLP
/s/ Grant Thornton LLP
San Jose, California
April 10, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Sepragen Corporation:
We have audited the accompanying statements of operations, share
holders' equity (deficit), and cash flows of Sepragen Corporation (the
"Company") for the year ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examin
ing, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the account
ing principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash
flows of Sepragen Corporation for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that Sepragen Corporation will continue as a going concern. As more
fully discussed in Note 2 to the financial statements, 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. Management's plans in regard to these matters are also de
scribed in Note 2. The financial statements do not include any adjust
ments that might result from the outcome of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 28, 1997
<PAGE>
SEPRAGEN CORPORATION
BALANCE SHEET
December 31, 1997
ASSETS
Current assets:
Cash $ 44,448
Accounts receivable, less allowance for
doubtful accounts of $12,000 570,868
Inventories 318,860
Prepaid expenses and other 62,484
Total current assets 996,660
Furniture and equipment, net 276,211
Intangible assets, net 120,165
$ 1,393,036
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 636,254
Bridge Loans, net of unamortized discounts
of $75,700 464,300
Customer deposit 310,481
Notes payable, including $125,000 from shareholders 225,000
Accrued payroll and benefits 145,139
Accrued liabilities 92,720
Interest payable 24,849
Total current liabilities 1,898,743
Commitments (Note 9):
Class E common stock, no par value--1,600,000
shares authorized; 1,209,894 shares issued and
outstanding; redeemable at $.01 per share (Note 10) --
Shareholders' deficit:
Preferred stock, no par value--5,000,000 shares
authorized; none issued and outstanding --
Class A common stock, no par value--20,000,000
shares authorized; 2,155,254 shares issued and
outstanding 8,848,075
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 110,700
Accumulated deficit (13,530,100)
Total shareholders' deficit (505,707)
$ 1,393,036
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPRAGEN CORPORATION
STATEMENTS OF OPERATIONS
For the Years
Ended December 31,
1997 1996
Revenues:
Net sales $ 1,619,623 $ 1,002,562
Costs and expenses:
Cost of goods sold 892,225 840,593
Selling, general, and administrative 1,504,481 2,344,273
Research and development 861,455 1,487,231
Total costs and expenses 3,258,161 4,672,097
Loss from operations (1,638,538) (3,669,535)
Interest expense (93,703) --
Interest income and other, net 83,727 90,486
Net loss $ (1,648,514) $(3,579,049)
Loss per common share, basic and diluted $ (0.58) (1.25)
Weighted average shares outstanding (Note 1) 2,856,431 2,856,431
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SEPRAGEN CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1997 and 1996
Net
unrlzd
loss on
Common Stock avlble Add'l
Class A Com Stk Class B Com Stk Class E Com Stk 4-sale Pd in Accumd
Shs Amt Shs Amt Shs Amt sects Captl Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996
2,070,000 8,353,737 786,431 4,559,956 1,209,894 $-- (14,462) -- (8,302,537) 4,596,694
Conversion of Class B common stock
into Class A common stock
79,155 458,964 (79,155) (458,964) --
Net unrealized gain on available-
for-sale securities 14,462 14,462
Net loss (3,579,049) (3,579,049)
Balance at December 31, 1996
2,149,155 $8,812,701 707,276 $4,100,992 1,209,894 $-- $-- $-- $(11,881,586) $1,032,107
Conversion of Class B Common Stock
into Class A Common Stock
6,099 35,374 (6,099) (35,374) --
Issuance of Warrants in
Connection with Bridge Financing
110,700 110,700
Net Loss (1,648,514) (1,648,514)
Balance at December 31, 1997
2,155,254 $8,848,075 701,177 $4,065,618 1,209,894 $-- $-- 110,700 $(13,530,100) $(505,707)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPRAGEN CORPORATION
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
1997 1996
Cash flows from operating activities:
Net loss $(1,648,514) $(3,579,049)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 207,840 104,845
Loss on disposal of fixed assets -- 1,748
Provision for obsolete inventories -- 49,829
Changes in assets and liabilities:
Accounts receivable, net (387,063) 94,883
Inventories 156,032 252,899
Prepaid expenses and other (49,851) 44,497
Accounts payable 439,568 (34,113)
Customer deposit 310,481 --
Accrued liabilities 25,055 (106,730)
Accrued payroll and benefits 34,172 30,334
Interest payable 24,849 (4,285)
Net cash used in
operating activities (887,431) (3,145,142)
Cash flows from investing activities:
Acquisitions of marketable securities -- (2,454,383)
Proceeds from sale of marketable securities -- 6,054,990
Acquisitions of furniture and equipment -- (238,634)
Intangible assets (15,178) (23,138)
Net cash provided by (used in)
investing activities (15,178) 3,338,835
Cash flows from financing activities:
Proceeds from notes payable from shareholders 125,000 --
Proceeds from notes payable from third party 100,000 --
Net proceeds from bridge notes payable 505,000 --
Net cash provided by financing activities 730,000 --
Net increase (decrease) in cash (172,609) 193,693
Cash at beginning of period 217,057 23,364
Cash at end of period $44,448 $217,057
Supplemental disclosure of cash flow information:
Net unrealized gain (loss) on
marketable securities $-- $14,462
Conversion of debt into common stock $-- $27,332
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPRAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies:
Operations:
Sepragen Corporation (the "Company") develops, manufactures and
markets proprietary liquid chromatography columns and computer-
- -controlled liquid chromatography process systems. These products are
used by the biopharmaceutical industry for the separation and purifica
tion of a broad range of molecules.
Summary of Significant Accounting Policies:
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentrations of Credit Risk: The Company performs ongoing credit
evaluations within the context of the industry in which it operates. The
Company maintains reserves for potential credit losses on customer
accounts, when deemed necessary, and such losses have been within
management's expectations.
Approximately 55% and 38% of net sales for the years ended December
31, 1997 and 1996, respectively, were to customers outside the United
States.
For the year ended December 31, 1997, one customer individually
accounted for 21% of sales. For the year ended December 31, 1996, the
Company had two customers who individually accounted for 34%, and 11% of
sales.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost, using the
first-in, first-out method, or market.
Furniture and Equipment: Furniture and equipment are stated at
cost. Depreciation of furniture and equipment is computed using the
straight-line method over the estimated useful lives of the assets which
range from two to five years. Maintenance and repairs are charged to
expense as incurred while major improvements are capitalized. Leasehold
improvements are amortized over their useful lives or lease term,
whichever is shorter.
Costs of assets disposed of and the related amounts of accumulated
depreciation are eliminated from the accounts in the year of disposi
tion, and any resulting gain or loss is included in operations.
Intangible Assets: Intangible assets, consisting of internal and
purchased patent application costs, are recorded at cost. These assets
are being amortized on the straight-line basis over the estimated useful
lives of the patents of approximately seven years.
1. Operations and Summary of Significant Accounting Policies: (Contin
ued)
Income Taxes: The Company uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are estab
lished when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change in deferred tax
assets and liabilities during the period.
SEPRAGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Revenue Recognition: The Company recognizes revenue from product
sales upon shipment and customer acceptance.
Loss Per Common Share The Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share for
all periods presented. The adoption of SFAS No. 128 had no impact on
previously reported loss per share for 1996. 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 convert
ible 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.
Recent Issued Accounting Standards: In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive
Income, which requires that an entity report, by major components and as
a single total, the change in its assets from non-shareholder sources
during the period; and SFAS No. 131, Disclosure About Segments of an
Enterprise and Related information, which establishes annual and interim
reporting standards for an entity's business segments and related
disclosures about its products, services, geographic areas and major
customers. Adoption of these statements will not impact the Company's
financial position, results of operations or cash flows. Both statements
are effective for fiscal years beginning after December 15, 1997, with
earlier application permitted.
2. Going Concern:
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. Accord
ingly, there can be no assurance that the Company will ever achieve
profitable operations. The Company's financial statements have been
prepared assuming that the Company will continue as a going concern.
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. The Company's continued existence is
dependent upon its ability to increase operating revenues and/or raise
additional equity capital sufficient to generate enough cash flows to
finance operations in future periods. Management is currently in the
process of seeking additional equity financing with potential investors.
There can be no assurance that such additional financing will be ob
tained. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
3. Inventories:
Inventories consist of the following at December 31, 1997:
Raw materials $ 296,766
Finished goods 22,094
$ 318,860
4. Furniture and Equipment:
Furniture and equipment consist of the following at December 31,
1997:
Office equipment $ 79,675
Machinery 77,130
Furniture and fixtures 5,813
Lab equipment 114,033
Leasehold improvements 283,691
560,342
Less accumulated
depreciation and
amortization (284,131)
$ 276,211
5. Notes Payable:
In May 1997, the Company borrowed $100,000 from a shareholder of
the Company, payable with interest at 9.5% per annum and is due April
10, 1998.
In June 1997, the Company borrowed $25,000 from a shareholder of
the Company, payable with interest at 9.5% per annum and was due Decem
ber 18, 1997.
In June 1997, the Company issued a note payable of $100,000 to an
unrelated party. The note bears interest of 9.5% per annum and is due
June 18, 1998.
The notes payable originally due on April 10, 1998 and December
18, 1997 are now past due and subject to collection and additional
costs. Terms for repayment and extension are being negotiated.
6. Bridge Notes Payable:
In November 1997, the Company completed its private placement of
54 bridge units. Each unit consists of a bridge note in the face amount
of $10,000 which bears interest at an annual rate of 10% and warrants to
purchase 5,000 shares of Class A Common Stock at $1.25 per share. The
warrants are immediately exercisable and expire five years from the date
of issuance. No warrants have been exercised as of December 31, 1997.
The bridge notes are repayable upon the earlier of six months from
issuance or completion of any subsequent offering of equity securities
with at least $1,000,000 in gross proceeds. As of December 31, 1997,
$540,000 of offering proceeds were received from the bridge financing,
including $55,000 from related parties. Direct debt issuance costs
related to these notes totaled $35,000. The aggregate fair value of the
warrants issued in connection with the financing was $110,700 and is
being amortized, along with the issuance costs, to operations as addi
tional interest expense over the term of the notes.
7. Stock Options:
The Company has issued non-qualified stock options to purchase
shares of the Company's common stock to certain employees, consultants,
and directors. The options vest over a period of two to ten years and
expire through 1999. Shares sold under the existing stock option agree
ments are subject to various restrictions as to resale and right of
repurchase by the Company. Generally, the exercise price is not less
than the fair value of the common stock at the date of grant.
In August 1994 and June 1996, the Board of Directors of the
Company adopted the 1994 and 1996 Sepragen Corporation Stock Option
Plans (the "Stock Option Plans"). The Stock Option Plans provide for the
issuance of options covering up to 400,000 and 250,000 shares of Class A
common stock (subject to adjustments in the event of stock splits, stock
dividends and similar dilutive events), respectively. Options may be
granted under the Stock Option Plans to employees, officers or directors
of, and consultants and advisors to, the Company. Options will be
granted under the Stock Option Plans within the sole discretion of the
Board of Directors.
Options granted to employees may either be incentive stock
options (as defined in the Internal Revenue Code of 1986, as amended) or
nonqualified stock options. The purchase price of Class A common stock
subject to an option shall be determined by the Board of Directors at
the time of grant, provided that the purchase price of incentive stock
options is not less than the fair market value of the Company's Class A
common stock on the date of grant. Subject to the foregoing, the terms
of each option and the increments in which it is exercisable are deter
mined by the Board of Directors, provided that no option may be exer
cised before one year or after ten years from the date of grant. To the
extent that the aggregate fair market value, as of the date of grant, of
the shares for which incentive stock options become exercisable for the
first time by an optionee during any calendar year exceeds $100,000, the
portion of such option which is in excess of the $100,000 limitation
will be treated as a nonqualified stock option. In addition, if an
optionee owns more than 10% of the total voting power of all classes of
the Company's stock at the time the individual is granted an incentive
stock option, the purchase price per share cannot be less than 110% of
the fair market value on the date of grant and the term of the incentive
stock option cannot exceed five years from the date of grant.
The following table summarizes the Company's stock option activ
ity for the years ended December 31:
1997 1996
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding at
beginning of year 712,114 $4.19 575,766 $5.20
Granted 361,750 1.21 231,311 2.12
Forfeited (269,359) 4.49 (94,963) 5.28
Outstanding at end
of year 804,505 $2.58 712,114 $4.19
Options exercisable
at year-end 466,311 423,993
7. Stock Options: (Continued)
The following table summarizes information about the Company's
stock options outstanding at December 31, 1997:
Options Outstanding Optns Exercisable
Wghtd-
Number Avge Wghtd Number Wghtd
Outstding Remng Avg Outstding Avg
at Dec Cntrctl Exer at Dec Exer
Rng of Exer Prices 31, 1997 LifePrice 31, 1997 Price
$0.56 to $0.94 369,650 4.59 $0.86 52,142 $.76
$1.50 to $1.60 58,000 4.96 1.56 37,500 1.50
$2.38 to $5.00 376,855 2.58 4.41 376,669 4.37
Total 804,505 2.99 $2.58 466,311 $3.73
In addition to the shares of Class A Common Stock with respect to
which options may be granted under the Company's Stock Option Plans, the
Board of Directors of the Company has granted nonqualified options to
various investors and current and former directors, employees, and
consultants to the Company to purchase an aggregate of 59,718 shares of
Class B Common Stock and 91,876 shares of Class E Common Stock at a
weighted average exercise price of $5.47 per share, which are now fully
vested.
At December 31, 1997, the Company has a right to repurchase 1,494
shares of Class B common stock and 2,298 shares of Class E common stock,
held by the president of the Company, upon the exercise of stock options
granted to certain employees of the Company, at a repurchase price of
$.033 per share.
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its Stock
Option Plans. Compensation expense is recorded when the exercise price
of options is less than the fair value of the common stock at the
measurement date, or when options previously issued are modified.
The following information is provided in accordance with SFAS No.
123, "Accounting for Stock-based Compensation." If the compensation
cost for these plans had been determined based on the fair value at the
grant dates for awards consistent with the method of SFAS Statement 123,
the pro forma effect on the Company's net loss and net loss per share in
1997 and 1996 would have been:
1997 1996
Net loss as reported $(1,648,514) $(3,579,049)
Pro forma $(1,932,927) $(3,778,976)
Net loss per share,
as reported $(0.58) $(1.25)
Pro forma $(0.68) $(1.32)
7. Stock Options: (Continued)
The weighted average fair value of options granted during 1997 and
1996 was $0.58 and $1.94, respectively. The fair value of each option
granted in 1997 and 1996 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Risk free
interest rate 5.3% to 6.8%
Expected life 2 to 6 years
Volatility 113% - 145%
Dividend yield --
The weighted average expected life was calculated based on the
estimated exercise behavior of the Company's employees, consultants,
and directors.
8. Income Taxes:
Deferred tax assets are comprised of the following at December 31,
1997:
Net operating
loss carryforwards $4,662,000
Intangibles 240,000
Research and development
credit carryforwards 258,100
Compensation related
to stock options 125,100
Other differences
between financial reporting
and tax basis of assets
and liabilities 75,000
5,360,200
Valuation allowance (5,360,200)
Net deferred tax assets $--
Due to the uncertainty of the realization of the net deferred tax
assets, the balance has been fully reserved. The valuation allowance
increased by $675,500 for the year ended December 31, 1997.
The difference between the income tax benefit at the Federal
statutory rate and the Company's effective tax rate is as follows:
For the years ended December 31:
1997 1996
Statutory federal
income tax rate 34% 34%
State income taxes 6 6
Change in valuation allowance (40)% (40)%
-- --
At December 31, 1997, the Company had net operating loss carryfor-
wards available to reduce its future taxable income of approximately
$12,714,000, for federal income tax purposes, and $5,713,000 for Cali
fornia state franchise purposes. These net operating losses expire at
various times through 2011.
For federal and state tax purposes, the Company's net operating
loss and tax credit carryforwards could be subject to certain limita
tions on annual utilization due to changes in ownership, as defined by
federal and state laws.
9. Commitments:
The Company currently rents its office and production facility
under an annual operating lease which expires September 30, 2000.
Rental expense for the years ended December 31, 1997 and 1996 was
$83,893 and $76,900, respectively.
The minimum rental commitment remaining on the leased property is
as follows:
Year Ending December 31:
1998 $86,599
1999 96,071
2000 75,098
$257,768
On August 30, 1994, the Company entered into employment agreements
with Vinit Saxena, its President, and Q. R. Miranda, its Vice President,
Corporate Research. The agreements are for a six year term in the case
of Mr. Saxena (expiring September 2000) and a three-year term in the
case of Dr. Miranda (expiring September 1997). Mr. Saxena and Dr.
Miranda are to receive salaries of $125,000 and $90,000 per annum,
respectively, plus bonuses up to $25,000 and $18,000 per annum, respec
tively. In addition, the agreements include certain other insurance and
severance benefits.
10. Restricted Shares:
The Company has 1,209,894 restricted shares of Class E common stock
issued and outstanding at December 31, 1997. These shares will convert
to Class B common stock upon the Company's attainment of certain prede
termined earnings or market price targets. In the event the Company
attains any of the predetermined earnings or market price targets, the
fair market value of these shares at the time they are converted to
Class B common stock will be deemed additional compensation expense to
the Company to the extent such shares are held by officers, directors,
consultants or other employees of the Company. The Company will, in such
event, recognize a substantial non-cash charge to earnings which could
have the effect of significantly increasing the Company's loss or
reducing or eliminating earnings, if any, at such time. If these prede
termined earnings and market price targets are not met by December 31,
1999, the shares will be redeemed by the Company at $.01 per share.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
(i) Effective January 13, 1998, Coopers & Lybrand LLP, was
dismissed as independent accountants for Sepragen Corporation.
(ii) Commencing with the audit report and the financial
statements for the Company's fiscal year ended December 31, 1996,
Coopers & Lybrand LLP's opinion on the financial condition of the
Company was modified due to recurring losses and cash flow deficiencies
from operations that raised substantial uncertainty as to the Company's
ability to continue as a going concern, as more fully described in Note
1 to the Company's financial statements for such period.
(iii) The decision to change the Company's independent accoun
tants was approved by the Board of Directors of the Company.
(iv) There have been and are no current disagreements with
Coopers & Lybrand LLP on any matter of accounting principles or prac
tices, financial statements disclosure, or auditing scope or procedure.
Effective February 6, 1998, Grant Thornton LLP, was engaged as
principal independent accountant for Sepragen Corporation.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Company's Officers and Directors are elected annually to
serve until the next annual meeting of shareholders and thereafter until
their successors are elected. The number of Directors presently autho
rized by the Bylaws of the Company is five.
Name, Offices and Position First
with the Company or Principal Became a
Occupation and Directorships Age Director
Vinit Saxena 42 1985
President, Chief Executive Officer, Chief Fi
nancial Officer, Chairman of the Board and
Director of the Company since 1985. He is
the inventor of the Company's original radial
flow chromatography technology. His back
ground includes several years as a biochemi
cal engineer, product marketing manager, and
most recently as a product marketing manager
for industrial chromatography with Bio-Rad
Laboratories (from 1980-1984) and a manager
of production and bioengineering for Bio-Res-
ponse (now Baxter Healthcare) (from 1984--
1985). Mr. Saxena has an M.S. in Chemical
Engineering from Syracuse University and an
M.B.A. from the University of California at
Berkeley. Mr. Saxena also serves as a direc-
tor of Scan Incorporated of Mountain View,
California, a privately-held artificial in
telligence medical imaging company.
Armin Ramel* 72 1986
Director of the Company in September
1986 and was elected as Secretary of the
Company on 1995. He has been employed since
July 1993 as Vice President of Product
Development of Scios Nova Inc., a publicly-held
biotechnical company. From November 1982 to June 1993,
Dr. Ramel was employed by Genentech,
his last position there being Senior Director
of the Process Science Division from April 1991 to
June 1993. From 1969 to October 1982, Dr.
Ramel was employed in various positions at
Hoffmann - La Roche, Inc., his last position
there being Director of the Biopolymer Re-
search Department from 1977, to October 1982.
Prior to 1969, he was a professor at the
University of Basel, Switzerland and State
University of New York at Buffalo. Dr. Ramel
holds a Ph.D. in physical chemistry
from the University of Basel.
Became
Occupation and Directorships Age Director
Robert Leach* 54 1995
Director of the Company since
October 1, 1995. Since 1992, Mr. Leach has been
involved in consulting and interim management
responsibilities for four start-up
technology development stage companies in
company which is transition. Since
September 1995, he has been the
Chief Operating Officer of the U.C.S.D.
CONNECT Program in Technology and Enrepreneurship
Prior to the CONNECT position, Mr. Leach's activities
included: (i) Hemagen Pfc/Ltd. of
San Francisco, California, a company
engaged in development of drug delivery and diagnostic
imaging technology, where Mr.
Leach served as President from July of 1992 to
February of 1993; (ii) Exogene Corporation of Monrovia,
California, a company researching metabolic
engineering technology, where
Mr. Leach served as Chief Executive Officer and
Chairman of the Board from February of 1993
to March of 1994; (iii) Synzyme Corporation
of Irvine, California, a company engaged in developing
products for the detoxification
of blood substitutes where Mr. Leach
served as Chief Executive Officer from July of
1994 to December of 1994; and (iv) Chromaxome
Corporation of San Diego, California, a
company developing chemical agents from natural oceanic
sources for application to the drug industry,
where Mr. Leach has been Chairman
of the Board between March of 1995 until
June 1996 when the Company was acquired by Houghton
Pharmaceutical. Mr. Leach was
retained to facilitate a restructuring or
sale of Exogene Corporation. The assets of
Exogene Corporation were acquired by Parnassus,
Inc. in March of 1994 and Mr. Leach
resigned as an officer and director in March of
1994. Subsequent to his resignation,
Parnassus, Inc. filed for protection under
Chapter 7 of the Bankruptcy Code in September 1994
and Exogene Corporation filed for bankruptcy
protection under Chapter 7 of the Bankruptcy
Code in December 1994. From 1990 to
1992, Mr. Leach was President and Chief Executive
Officer of Genencor International of
Rochester, New York, the second largest worldwide
enzyme producer. From 1982 through 1990,
Mr. Leach was President and Chief Executive
Officer of Genencor, Inc. of South San
Francisco, California, a company involved
producing non-drug recombinant DNA products and
the development of protein engineering
techniques. Genencor, Inc. was acquired by
Eastman Kodak Company and Cultor, Ltd. in 1990.
Mr. Leach has a BS degree in Chemistry and
an MBA from Pennsylvania State University and
is a member of the American Chemical Society,
the American Institute of Chemical
Engineers, and is a former chairman of the
California Biotechnology Association. Mr. Leach
also serves on the Board of Directors of
Genomyx Corporation of Foster City, California
since 1988, a company which is engaged in maufacturing
sequencing instrumentation for the
biotechnology industry.
Became
Occupation and Directorships Age Director
Kris Venkat. 51 September 1997
Dr. Venkat has been Chairman and Chief
Executive officer of Phyton, Inc. a
privately held company engaged in
commercializing plant cell culture technology
since 1992. From 1976 through 1990, Dr.
Venkat served in various management positions with
H.J. Heinz Company including corporate director
of science and technology from 1986 to 1990.
Dr. Venkat currently serves on the Board of
Directors of Phyton, Inc., Androx Corporation,
Biotechnology Trading Company, Biotechnology
Consortium of India Limited and Krystos
group. Dr. Venkat also serves on the faculty
of the department of chemical and
biochemical engineering at Rutgers University.
Dr. Venkat has a M.S. degree and Ph.D. in
Biochemical Engineering from Rutgers University.
Henry N. Edmunds. 55 September 1997
Dr. Edmunds served as Vice President of
corporate development and Chief Financial Officer
of SangStat Medical Corporation, a Menlo Park,
California based company, since 1992. from 1985
until 1992, Dr. Edmunds was Director of Business
development and business manager of Genencor, Inc.,
a South San Francisco, California biotechnology
company. Dr. Edmunds received his Ph.D. in
Biotechnology from the University of California,
Berkeley and his M.B.A. from the Stanford
School of Businesss.
Quirin Miranda 58 n/a
Vice President of Corporate Research of the
Company since October 1991. From February
1989 until December 1990, he co-founded
and served as President of Food Services
Corporation, a research company involved in
developing microbiological processes
for removing cholesterol from various
foods. During his association with Food
Services Corporation, Dr. Miranda developed an
enzyme-based technology to remove cholesterol from food
products. Dr. Miranda was elected as a fellow of the
American Academy of Microbiology in 1979.
Dr. Miranda has over 20 years experience in
product development in the pharmaceutical
and diagnostic industries during which time
he was associated with Schering-Plough, Organon
Diagnostics, IDT (a division of Boehringer
Ingelheim), International Immunoassay Laboratories,
and DDI Pharmaceuticals. He has a Ph.D. in
microbiology from the Victoria University
of Manchester in the United Kingdom. Dr.
Miranda is a Fellow of the American Academy
of Microbiology and the American Institute of Chemists.
* Member of the Compensation Committee and Audit Committee.
Werner Nielsen resigned as a director of the Company effective
November 1, 1996 to devote more time to his other business interests.
The Company is currently seeking to employ a Vice President of
Manufacturing and a Chief Financial Officer. Although the Company has
had discussions regarding such employment with certain individuals, no
assurance can be given that the Company will be able to employ any of
these or other individuals for these positions.
All directors hold office until the next annual meeting of share
holders and the election and qualification of their successors. Direc
tors receive compensation for serving on the Board of Directors as
described below. Pursuant to the Underwriting Agreement with Blair, the
Company is required to appoint a nominee of Blair to the Board of
Directors for a period of five years from March 23, 1995. Blair has not
yet selected such a designee. The Company has established audit and
compensation committees, a majority of whose members must be non-em
ployee directors. Dr. Ramel and Mr. Leach serve on the audit and
compensation committees. Officers are elected annually by the Board of
Directors and serve at the discretion of the Board (and in the case of
Mr. Saxena and Dr. Miranda, pursuant to their employment agreements).
Indemnification
Pursuant to the Company's Articles of Incorporation, as amended,
Bylaws and certain written agreements dated October 27, 1994, officers
and directors of the Company will be indemnified by the Company to the
fullest extent allowed under California law for claims brought against
them in their capacities as officers or directors. The Company has
elected not to obtain directors' and officers' liability insurance at
this time. No assurance can be given that the Company will be able to
obtain such insurance at a price the Board of Directors determines is
reasonable. Indemnification will not be provided if the officer or
director does not act in good faith and in a manner reasonably believed
to be in the best interests of the Company, or, with respect to any
criminal proceedings, if the officer or director had no reasonable cause
to believe his conduct was lawful. Accordingly, indemnification may be
sought for liabilities arising under the Securities Act. The Underwrit
ing Agreement for the Company's IPO contains provisions under which the
Company and Blair have agreed to indemnify each other (including offi
cers and directors) for certain liabilities, including liabilities under
the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted for directors, officers and
controlling persons of the Company pursuant to the foregoing provisions
or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and may, therefore, be
unenforceable.
Compliance with Section 16(a) of the Exchange Act
The following directors and officer have not filed updated reports
pursuant to Section 16(a) of the Exchange Act:
Vinit Saxena Form 5
Armin Ramel Form 5
Quirin Miranda Form 5
Robert Leach Forms 3 and 5
Henry Edmunds Forms 3 and 5
Kris Venkat Forms 3 and 5
Item 10. Executive Compensation
Compensation of Directors
Members of the Board of Directors who are not employees of the
Company will receive an annual cash fee of $3,000 plus $500 for each
meeting of the Board of Directors and any of its committees attended by
such director, and will also be entitled to reimbursement of reasonable
expenses incurred in attending such meetings.
Compensation of Executives
Employment Agreements
On August 30, 1994, the Company entered into employment agreements
with Mr. Vinit Saxena as its President and Chief Executive Officer, and
Dr. Q. R. Miranda, its Vice President of Corporate Research. Mr.
Saxena's agreement is for a six-year term and Dr. Miranda's agreement is
terminable after 30 days written notice. Mr. Saxena and Dr. Miranda are
to receive salaries of $125,000 and $90,000 per annum, respectively,
plus bonuses up to $25,000 and $18,000 per annum, respectively. Such
compensation may be increased and bonuses may be given upon the approval
of the Board of Directors of the Company. Mr. Saxena and Dr. Miranda
have each agreed to devote their full time and efforts to their employ
ment with the Company. Each of them will be entitled to participate in
employee benefit plans.
The Company has the right to terminate either agreement for cause
or as a result of death or permanent disability. Except in the case of
termination for cause, upon early termination of their agreements, Mr.
Saxena and Dr. Miranda will be entitled to receive their salary plus
fringe benefits for a period of 36 months and 12 months, respectively,
from the date of termination and any bonuses prorated through the date
of termination, so long as they do not violate the nondisclosure and
nonsolicitation provisions of their agreements; provided, however, any
salary and benefits to be received after termination will be reduced by
any salary and benefits such persons receive from any successor position
during the post-termination payment periods.
Mr. Saxena and Dr. Miranda have agreed not to disclose to anyone
confidential information of the Company during the term of their employ
ment or thereafter and will not compete with the Company during the term
of their employment. All work, research and results thereof, including,
without limitation, inventions, processes or formulae, conceived or
developed by Mr. Saxena or Dr. Miranda during the term of employment
which are related to the business, research, and development work or
field of operation of the Company, shall be the property of the Company.
Key-Person Life Insurance
The Company has obtained key-person life insurance coverage in the
face amount of $2,000,000 on Mr. Saxena naming the Company as benefi
ciary under such policy. The Company has agreed with Blair to maintain
such policy in force for at least three years from March 23, 1995.
1994 Stock Option Plan
On August 30, 1994, the Board of Directors and the shareholders of
the Company adopted and approved the 1994 Stock Option Plan. The 1994
Stock Option Plan provides for the grant of incentive stock options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified stock options
("NQSOs") to certain employees, officers, directors, consultants and
agents of the Company. The purpose of the 1994 Stock Option Plan is to
attract and retain qualified employees, agents, consultants, officers
and directors.
The total number of shares of Class A Common Stock with respect to
which options may be granted under the 1994 Stock Option Plan is
400,000. The shares subject to, and available under, the 1994 Stock Option
Plan may consist, in whole or in part, of authorized but unissued stock
or treasury stock not reserved for any other purpose. Any shares
subject to an option that terminates, expires or lapses for any reason,
and any shares purchased upon exercise of an option and subsequently
repurchased by the Company pursuant to the terms of the options, become
available for grant under the 1994 Stock Option Plan.
The 1994 Stock Option Plan is administered by the Board of Direc
tors of the Company, which determines, in its discretion, among other
things, the recipients of grants, whether a grant will consist of ISOs
or NQSOs, or a combination thereof, and the number of shares of Class A
Common Stock to be subject to such options. The Board may, in its
discretion, delegate its power, duties and responsibilities under the
1994 Stock Option Plan to a committee consisting of two or more direc
tors who are "non-employee directors" within the meaning of Rule 16b-3
promulgated under the Exchange Act. The exercise price for ISOs must be
at least 100% of the fair market value per share of Class A Common Stock
on the date of grant, as determined by the Board.
Options may be exercisable for a term determined by the Board,
which may not be less than one year or greater than 10 years from the
date of grant. No options may be granted under the 1994 Stock Option
Plan later than 10 years after the 1994 Stock Option Plan's effective
date of August 30, 1994. ISOs are not transferable other than by will
or the laws of descent and distribution. NQSOs may be transferred to
the optionee's spouse or lineal descendants, subject to certain restric
tions. Options may be exercised during the holder's lifetime only by
the holder or his or her guardian or legal representative. Options may
be exercised only while the original optionee has a relationship with
the Company which confers eligibility to be granted options or within 90
days after termination of such relationship with the Company, or up to
six months after death or total and permanent disability. In the event
the Company terminates such relationship between the original optionee
and the Company for cause (as defined in the 1994 Stock Option Plan),
all options granted to the optionee terminate immediately. In the event
of certain basic changes in the Company, including a change in control
of the Company (as defined in the 1994 Stock Option Plan), at the
discretion of the Board, the Board may make certain adjustments to the
outstanding stock options.
The 1994 Stock Option Plan contains certain limitations applicable
only to ISOs granted thereunder to satisfy specific provisions of the
Code. For example, the aggregate fair market value, as of the date of
grant, of the shares to which ISOs become exercisable for the first time
by an optionee during the calendar year may not exceed $100,000. In
addition, if an optionee owns more than 10% of the Company's stock at
the time the individual is granted an ISO, the exercise price per share
cannot be less than 110% of the fair market value per share and the term
of the option cannot exceed five years.
Options may be paid for in cash, by check or, in certain instances,
by delivering an assignment of shares of Class A Common Stock having a
value equal to the option price, or any combination of the foregoing, as
stipulated in the option agreement entered into between the Company and
the optionee. At the discretion of the Board, the Company may loan to
the optionee some or all of the purchase price of the shares acquired
upon exercise of an option granted under the 1994 Stock Option Plan.
The Board may modify, suspend or terminate the 1994 Stock Option
Plan; provided, however, that certain material modifications affecting
the 1994 Stock Option Plan must be approved by the shareholders, and any
change in the 1994 Stock Option Plan that may adversely affect an
options rights under an option previously granted under the 1994 Stock
Option Plan requires the consent of the optionee.
1996 Stock Option Plan
On June 28, 1996, the Board of Directors and the shareholders
of the Company adopted and approved the 1996 Stock Option Plan. The
1996 Stock Option Plan provides for the grant of incentive stock options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified stock options
("NQSOs") to certain employees, officers, directors, consultants and
agents of the Company. The purpose of the Stock Option Plan is to
attract and retain qualified employees, agents, consultants, officers
and directors. The terms of this plan are substantially similar to the
1994 Stock Option Plan.
The total number of shares of Class A Common Stock with respect to
which options may be granted under the 1996 Stock Option Plan is 250,-
000. The shares subject to, and available under, the 1996 Stock Option
Plan may consist, in whole or in part, of authorized but unissued stock
or treasury stock not reserved for any other purpose. Any shares
subject to an option that terminates, expires or lapses for any reason,
and any shares purchased upon exercise of an option and subsequently
repurchased by the Company pursuant to the terms of the options, become
available for grant under the 1996 Stock Option Plan.
Options Granted under 1994 and 1996 Stock Option Plans
As of December 31, 1997, the Company had outstanding 804,505
options to purchase shares of Class A Common Stock to five directors, 16
employees and four consultants prices ranging from $0.56 to $5.00 per
share under the 1994 and 1996 Stock Option Plans. To accommodate the
additional grants of stock options, the Board of Directors is in the
process of establishing a new 1997 Stock Option Plan which will be
subject to shareholder approval and will authorize 650,000 shares of
Class A Commons Stock (of which 250,000 will be issuable to directors
and officers) to be issued under the new stock option plan..
Other Outstanding Stock Options
In addition to the shares of Class A Common Stock with respect to
which options may be granted under the Company's Stock Option Plans, the
Board of Directors of the Company has granted nonqualified options to
various investors and current and former directors, employees, and
consultants to the Company to purchase an aggregate of 59,718 shares of
Class B Common Stock and 91,876 shares of Class E Common Stock at a
weighted average exercise price of $5.47 per share, which are now fully
vested.
401(k) Profit Sharing Plan
In 1995, the Company adopted a 401(k) profit sharing plan under
which employees may defer a portion of their salary. The Plan became
effective in 1996 and employee deferrals and employer contributions of
$73,000 were made in 1996 and $62,000 in 1997.
Summary Compensation Table
The following table sets forth all compensation paid for the past
three fiscal years to the chief executive officer and to executive
officers whose cash compensation exceeded $100,000 during the fiscal
year ended December 31, 1997.
Annual Compensation L-T Compensation
(a) (b) (c) (d) (g)
Securities
underlying
Name&Prinpl Position Yr Sal(1)(2) Bonus Optns/SARs(#)
Vinit Saxena,
President, Chief
Executive Officer 1997 $113,925 $0 40,000
and Chief 1996 $127,051 $0 33,347
Financial Officer 1995 $118,044 $25,000 178,324
Quirin Miranda
Vice President 1997 $84,806 $0 15,000
of Corporate 1996 $95,042 $0 22,642
Research 1995 $88,867 $18,000 16,984
(1) Includes all amounts paid or accrued and includes $500 and $400,
respectively, matching contributions to the Company's 401K Plan.
As of April 1995, Mr. Saxena's base salary increased to $125,000
per year under his new employment agreement. See "Employment
Agreements."
(2) Includes health insurance costs for Mr. Saxena and his family in
the amounts of $5,929, $6,238 and $6,894 during 1995, 1996 and
1997, respectively.
(3) Includes health insurance costs for Mr. Miranda and his family in
the amounts of $6,944, $8,017 and $8,868 during 1995, 1996 and
1997, respectively.
Option/SAR Grants in Last Fiscal Year 1997
Individual Grants
(a) (b) (c) (d) (e)
Percent of Exercise
Total Options or base
Optns SARs granted price in
/SARs to employees fiscal yr Expr
Name Granted ($/Sh) date
Vinit Saxena
President, Chief Executive
Officer, Chief Financial
Officer & Chairman
of the Board(1) 40,000 5.0% $.88 8/21/02
Quirin Miranda
Vice President(1) 10,000 1.2% $.88 8/21/02
5,000 0.6% $1.60 12/19/02
Aggregated Option/SAR Exercises in Last Fiscal Year 1996 and
1997 Fiscal Year-End Option/SAR Values
(a) (b) (c) (d) (e)
No. of Sec Value of
Shares Value Undr Unexd Unexd In-the-Money
Acquired Real- Options/SARs Options/SARs
on ized at FY -End at FY End
Exer#(1) ($) Unexble Exble Unexble Exble
Name
Vinit Saxena
President, Chief
Executive Officer,
Chief Financial
Officer & Chairman
of the Board 0 $0 68,214 183,457 $27,125(1) $6,603(1)
Quirin Miranda
Vice President 0 $0 22,350 32,276 $10,157(1) $1,519(1)
(1) Based on an assumed market value of $1.50 per share of Class A
Common Stock.
In the last three fiscal years, the Company has not paid or
awarded any other stock awards, options, stock appreciation rights, or
other long term incentive plan compensation to the executive officers
named above.
Item 11. Security Ownership of Certain Beneficial Owners and Manage
ment.
The following table sets forth certain information as to the
beneficial ownership of the Company's Common Stock as of March 31,
1998 of: (i) each person who is known by the Company to own benefi
cially more than 5% of the outstanding shares of the Company's Common
Stock, (ii) each director of the Company and (iii) all officers and
directors of the Company as a group.
Name and Address of # of Shares of Percentage of
Beneficial Owner Common Stock Common Stock Percentage of
or Number in Group Bnfly Owned (1) Bnfly Owned (1) Voting Power
Vinit Saxena (2) 1,058,628 21.4% 32.8%
30689 Huntwood Avenue
Hayward, CA 94544
Michael Schneider (3) 1,106,698 22.4% 36.6%
2081 Bay Road
East Palo Alto, CA 94303
Armin Ramel, Ph.D. (4) 108,750 2.2% n/a
4 Sandstone
Portola Valley, CA 94028
Robert Leach (5) 58,000 1.2% n/a
8445 Camino Santa Fe, Ste. 102
San Diego, CA 92121
Kris Venkat (6) 45000 0.9% n/a
95 Brown Road
Ithaca, NY 14850
Henry N. Edmunds (8) 50,000 1.0% n/a
1505 Adams Drive
Menlo Park, CA 94025
Quirin Miranda (9) 67,126 1.4% n/a
30689 Huntwood Avenue
Hayward, CA 94544
All directors and executive officers as
a group (6 in number) 2,494,201 50.5% 69.3%
(1) Except as otherwise indicated, each of the parties listed has
sole voting and investment power with respect to all shares of
Common Stock indicated below. Beneficial ownership is calculated
in accordance with Rule 13d-3(d) under the Securities Exchange
Act of 1934, as amended. The Company has three classes of Common
Stock outstanding, Class A, Class B and Class E Common Stock.
(2) Amounts and percentages include (i) 296,281 shares of Class B
Common Stock and 455,826 shares of Class E Common Stock each of
which are convertible into one share of Class A Common Stock
(each share of Class B and E Common Stock has five votes per
share); (ii) options to purchase 196,671 shares of Class A Common
Stock granted under the Company's Stock Option Plans; (iii)
options to purchase 17,866 shares of Class A Common Stock, held
by Renu Saxena, an employee of the Company and the spouse of
Vinit Saxena; and (iv) 14,984 shares owned jointly by Renu Saxena
and Rakesh Chabra (Renu Saxena's brother). The Company has a
right to repurchase shares from Mr. Saxena upon exercise of
certain options. See "Certain Relationships and Related
Transactions--Founder's Stock Repurchase Agreement."
(3) Amounts and percentages include (i) 75,432 shares of Class B
Common Stock and 116,051 shares of Class E Common Stock; (ii)
262,051 shares of Class B Common Stock and 403,164 shares of
Class E Common Stock beneficially owned by Mr. Schneider or by
Romic Environmental Technologies Corporation ("Romic"), of which
Mr. Schneider is Chairman of the Board and a principal share
holder, (iii) 59,010 shares of Class B Common Stock and 90,910
shares of Class E Common Stock issuable under an option held by
Romic, and (iv) 50,000 Class A Warrants. See "Certain Relation
ships and Related Transactions--Relationship with Romic
Environmental Technologies Corporation."
(4) Amounts and percentages include 25,000 Class A Warrants and
options to purchase 58,750 shares of Class A Common Stock granted
under the Company's Stock Option Plans.
(5) Amounts and percentages include options to purchase 58,000 shares
of Class A Common Stock granted under the Company's Stock Option
Plans.
(6) Amounts and percentages include options to purchase 40,000 shares
of Class A Common Stock granted under the Company's Stock Option
Plans; and 5,000 Class C Warrants.
(7) Amounts and percentages include options to purchase 40,000 shares
of Class A Common Stock granted under the Company's Stock Option
Plans; and 10,000 Class C Warrants.
(8) Amounts and percentages include options to purchase 54,626 shares
of Class A Common Stock granted under the Company's Stock Option
Plans; and 12,500 Class C Warrants.
Item 12. Certain Relationships and Related Transactions.
Founder's Stock Repurchase Agreement
In 1986, the Company entered into a Founder's Stock Repurchase
Agreement (the "Founder's Agreement") with Vinit Saxena, the Presi
dent, Chief Financial Officer, Chairman of the Board, and a principal
shareholder of the Company. The purpose of the Founder's Agreement
was to serve as an anti-dilution provision for the benefit of those
investors who purchased shares of Common Stock or acquired stock
options covering shares of Common Stock during the term of the Agree
ment's effectiveness.
By its terms, the Founder's Agreement lapsed on March 10, 1989.
However, pursuant to the terms of a Covenant for the Benefit of
Investors dated March 10, 1986, the Company has a continuing right to
repurchase certain shares of Common Stock held by Mr. Saxena upon the
exercise of stock options granted to certain present and former
employees by the Company during the period that the Founder's Agree
ment was in effect. As of March 31, 1998, the continuing right of the
Company to repurchase such shares covers 314 shares of Class B Common
Stock and 483 shares of Class E Common Stock, for a total of 797
shares, at a repurchase price of $.033 per share.
Relationship with Romic Environmental Technologies Corporation
On March 23, 1995, the Company issued Romic Environmental Tech
nologies Corporation ("Romic") 57,224 shares of Class B Common Stock
and 88,039 shares of Class E Common Stock in exchange for cancellation
of outstanding indebtedness in the principal amount of $727,000 and
accrued interest of $67,909 thereon owed by the Company to Romic. As
additional consideration for the cancellation of such indebtedness and
accrued interest on such indebtedness, on March 23, 1995, the Company
granted Romic an option to purchase 59,090 shares of Class B Common
Stock and 90,910 shares of Class E Common Stock at $5.50 per share.
The option is exercisable at any time and terminates February 15,
2000.
Pursuant to management and consulting agreements with Romic, the
Company and Romic developed certain uses of RFC columns in the envi
ronmental remediation field. On April 11, 1995, Romic assigned all
rights to such technology, including pending patent applications, to
the Company.
Grant of stock options
The following directors and officer were granted stock options:
Grant Expire Option Exercise
Date Date Shares $/share
Robert Leach 6/13/96 6/13/01 5,000 $3.13
Director 12/20/96 12/20/01 3,000 0.88
9/29/97 9/29/02 40,000 0.88
Dr. Quirin Miranda 10/10/96 10/10/01 2,842 $2.38
Vice President 6/13/96 6/13/01 10,000 3.13
12/20/96 12/20/01 3,000 0.88
12/20/96 12/20/01 6,800 0.88
8/21/97 08/21/02 10,000 0.94
12/19/97 12/19/02 5,000 1.60
Armin Ramel 06/13/96 06/13/01 12,000 $3.13
Director 12/20/96 12/20/01 3,000 0.88
06/19/97 06/19/02 3,750 0.56
09/29/97 09/29/02 40,000 0.88
Vinit Saxena 06/13/96 06/13/01 15,000 $3.13
CEO, CFO, 10/10/96 10/10/01 3,947 2.38
Director & 12/20/96 12/20/01 5,000 0.88
Chairman 12/20/96 12/20/01 9,400 0.88
09/29/97 09/29/02 40,000 0.88
Dr. Henry N. Edmunds 09/29/97 09/29/02 40,000 0.88
Director
Kris Venkat 09/29/97 09/29/02 40,000 0.88
Director
Bridge Notes
The following officer and directors purchased Bridge Notes and
related Class C warrants from the Company pursuant to its November 3,
1997 private placement:
Kris Venkat $10,000
Dr. Henry N. Edmunds $20,000
Dr. Quirin Miranda $25,000
Shareholder notes
In May 1997, the Company borrowed $100,000 from a shareholder of
the Company, payable with interest at 9.5% per annum and is due April
10, 1998. In June 1997, the Company borrowed $25,000 from Armin
Ramel, a director and shareholder of the Company, payable with inter
est at 9.5% per annum and was due December 18, 1997. These notes are
now past due and subject to collection and additional costs. Terms
for repayment and extension are being negotiated.
Item 13. Exhibits and Reports on Form 8-K
Each exhibit identified below is filed as part of this report.
Exhibits incorporated by reference to a prior filing are designated by
a numbered footnote. Exhibits designated with a "+" constitute a
management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 13 of Form 10-KSB.
(a) Exhibits.
The following exhibits are filed as part of this Re
port:
1.1(1) Form of Underwriting Agreement
3.1(1) Restated Articles of Incorporation of
the Company, as amended to date
3.2(2) Restated Bylaws, as amended to date.
4.1(1) Form of Warrant Agreement among the
Company, the Underwriter and American
Stock Transfer Company, including Forms
of Class A Warrant Certificates and
Class B Warrant Certificates
4.2(1) Form of Unit Option Agreement between
the Company and the Underwriter
4.3(1) Form of Specimen Class A Common Stock
Certificate
4.4(1) Form of Specimen Class B Common Stock
Certificate
4.5(1) Form of Specimen Class E Common Stock
Certificate
4.6(1) Bridge Warrant Agreement, including
forms of Bridge Warrant Certificate
10.1(2) Lease dated July 3, 1995 between Hay
ward Business Park, Inc. and the Com
pany.
10.2(1)+ Employment Agreement between the Com
pany and Vinit Saxena effective Septem
ber 1, 1994
10.3(1)+ Employment Agreement between the Com
pany and Q. R. Miranda effective Sep
tember 1, 1994
10.4(1) Form of Indemnification Agreement be
tween the Company and each director and
officer of the Company
10.5(1) Convertible Promissory Notes and War
rants
10.6(1)+ 1994 Stock Option Plan
10.7(3) Master Purchasing Agreement with Ther-
max Limited dated April 23, 1996
10.8(4)+ 1996 Stock Option Plan
16.1(5) Letter on Change in Certifying Accoun
tant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Grant Thornton LLP
27 Financial Data Schedule
(1) These exhibits which are incorporated herein by
reference were previously filed by the Company as
exhibits to its Registration Statement on Form
SB-2 and Amendments Nos. 1, 2, 3, 4 and 5 and
Post Effective No. 1 (File No. 33-86888).
(2) These exhibits which are incorporated herein by
reference were previously filed by the Company as
exhibits to its Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1995.
(3) These exhibits which are incorporated herein by
reference were previously filed by the Company as
exhibits to its Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1996.
(4) These exhibits which are incorporated herein by
reference were previously filed by the Company as
exhibits to its Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996.
(5) These exhibits which are incorporated herein by
reference were previously filed by the Company as
exhibits to its Report on Form 8-K dated January
13, 1998.
Exhibits not listed above have been omitted because they are
inapplicable or because the required information is given in the
financial statements or notes thereto.
(b) Reports on Form 8-K.
No Forms 8-K were filed in the fourth quarter of 1996
The following Forms 8-K were filed in 1998:
. January 13, 1998 Form 8-K, item 4.
February 6, 1998 Form 8-K, item 4.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized, on this 1st day
of May, 1998.
SEPRAGEN CORPORATION
By: /s/ Vinit Saxena
Vinit Saxena
Chief Executive Officer and
President
Pursuant on the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons in
the capacities and on the dates indicated.
/s/ Vinit Saxena May 1, 1998
Vinit Saxena
(Principal Executive Officer and Principal
Financial Officer)
Chief Executive Officer, President,
Chief Financial Officer, Chairman of
the Board, and Director
/s/ Armin Ramel May 1, 1998
Armin Ramel
Director and Secretary
/s/ Robert Leach May 1, 1998
Robert Leach
Director
/s/ Kris Venkat May 1, 1998
Kris Venkat
Director
/s/ Henry N. Edmunds May 1, 1998
Henry N. Edmunds
Director
INDEX TO EXHIBITS
Exhibits incorporated by reference to a prior filing are
designated by a numbered footnote. Exhibits designated with a "+"
constitute a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report pursuant to Item 13
of Form 10-KSB.
No. Description
Sequential Page No.
1.1(1) Form of Underwriting Agreement
3.1(1) Restated Articles of Incorporation of the Company,
as amended to date
3.2(2) Restated Bylaws, as amended to date.
4.1(1) Form of Warrant Agreement among the Company,
the Underwriter and American Stock Transfer Company,
including Forms of Class A Warrant Certificates and
Class B
Warrant Certificates
4.2(1) Form of Unit Option Agreement between the Company and
the Underwriter
4.3(1) Form of Specimen Class A Common Stock Certificate
4.4(1) Form of Specimen Class B Common Stock Certificate
4.5(1) Form of Specimen Class E Common Stock Certificate
4.6(1) Bridge Warrant Agreement, including forms of
Bridge Warrant Certificate
10.1(2) Lease dated July 3, 1995 between Hayward
Business Park, Inc. and the Company.
10.2(1)+ Employment Agreement between the Company and Vinit
Saxena effective September 1, 1994
10.3(1)+ Employment Agreement between the Company and Q. R.
Miranda effective September 1, 1994
10.4(1) Form of Indemnification Agreement between the Company
and each director and officer of the Company
10.5(1) Convertible Promissory Notes and Warrants
10.6(1)+ 1994 Stock Option Plan
10.7(3) Master Purchasing Agreement with Thermax Limited
dated April 23, 1996
10.8(4)+ 1996 Stock Option Plan
16.1(5) Letter on Change in Certifying Accountant.
23.1 Consent of Coopers & Lybrand L.L.P. 53
23.2 Consent of Grant Thornton LLP 55
27 Financial Data Schedule 57
(1) These exhibits which are incorporated herein by reference were
previously filed by the Company as exhibits to its Registration
Statement on Form SB-2 and Amendments Nos. 1, 2, 3, 4 and 5 and
Post Effective No. 1 (File No. 33-86888).
(2) These exhibits which are incorporated herein by reference were
previously filed by the Company as exhibits to its Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1995.
(3) These exhibits which are incorporated herein by reference were
previously filed by the Company as exhibits to its Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1996.
(4) These exhibits which are incorporated herein by reference were
previously filed by the Company as exhibits to its Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996.
(5) These exhibits which are incorporated herein by reference were
previously filed by the Company as exhibits to its Report on Form
8-K dated January 13, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR DECEMBER 31, 1997 AS FILED ON FORM 10KSB WITH THE
SECURITIES EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 44,448
<SECURITIES> 0
<RECEIVABLES> 570,868
<ALLOWANCES> 12,000
<INVENTORY> 318,860
<CURRENT-ASSETS> 996,660
<PP&E> 276,211
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,393,036
<CURRENT-LIABILITIES> 1,898,743
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0
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<COMMON> 13,024,393
<OTHER-SE> (13,530,100)
<TOTAL-LIABILITY-AND-EQUITY> 1,393,036
<SALES> 1,619,623
<TOTAL-REVENUES> 1,619,623
<CGS> 892,225
<TOTAL-COSTS> 892,225
<OTHER-EXPENSES> 2,365,936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,976
<INCOME-PRETAX> (1,648,514)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,648,514)
<DISCONTINUED> 0
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<NET-INCOME> (1,648,514)
<EPS-PRIMARY> (.58)
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Sepragen Corporation on Form S-8 (File
Nos. 33-95182 and 333-11903) of our report, which includes an
explanatory paragraph regarding the Company's ability to continue
as a going concern, dated April 10, 1998, on our audit of the
financial statements of Sepragen Corporation as of December 31,
1997, and for the year then ended, which report is included in
the Annual Report on Form 10-KSB.
GRANT THORNTON LLP
/s/ Grant Thornton LLP
San Jose, California
April 10, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Sepragen Corporation on Form S-8 (File
Nos. 33-95182 and 333-11903) of our report, which includes an
explanatory paragraph regarding the Company's ability to continue
as a going concern, dated February 28, 1997, on our audit of the
financial statements of Sepragen Corporation for the year ended
December 31, 1996, which report is included in the Annual Report
on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
April 24, 1998
