UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25726
SEPRAGEN CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0073366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30689 Huntwood Avenue, Hayward, California 94544
(Address of principal executive offices)
(Issuer's telephone number (including area code): (510) 476-0650)
(Former name, former address and former fiscal year if changed since
last report:
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
State the number of shares outstanding of each of the registrant's
classes of Common equity, as of the latest practicable date:
May 15,1998
Class A Common Stock 2,155,254
Class B Common Stock 701,177
Class E Common Stock 1,209,894
THIS REPORT INCLUDES A TOTAL OF 9 PAGES. THERE ARE NO EXHIBITS.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
SEPRAGEN CORPORATION
CONDENSED BALANCE SHEETS
ASSETS
March 31, 1998
Current Assets:
Cash and cash equivalents $ 22,779
Accounts receivable, less
allowance for doubtful accounts
of $12,000 as of December 31,
1997 and March 31, 1998 539,490
Inventories 199,404
Prepaid expenses and other 62,484
Total current assets 824,157
Furniture and equipment, net 248,432
Intangible assets 113,921
1,186,510
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable 851,619
Bridge Loans, net of unamortized
discounts of $5,700 534,300
Customer deposits 68,054
Notes Payable, including $175,000 283,000
from shareholders
Accrued payroll and benefits 182,127
Accrued liabilities 76,060
Interest payable 44,132
Total current liabilities 2,039,292
Class E common stock, no par value -
1,600,000 shares authorized;
1,209,894 shares issued and
outstanding at March 31, 1998
redeemable at $.01 per share -
Shareholders' equity (deficit):
Preferred stock, no par value -
5,000,000 shares authorized; none
issued or outstanding at March
31, 1998 -
Class A common stock, no par value -
20,000,000 shares authorized;
2,155,254 shares issued and
outstanding at March 31, 1998 8,848,075
Class B common stock, no par value -
2,600,000 shares authorized;
701,177 shares issued and
outstanding at March 31, 1998 4,065,618
Additional paid in capital 110,700
Accumulated deficit (13,877,175)
Total shareholders' equity (deficit) (852,782)
1,186,510
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three Months
Ended March 31
1998 1997
Revenues:
Net Sales $ 632,333 $ 330,909
Costs and expenses:
Cost of goods sold 383,086 125,473
Selling, general and administrative 293,946 486,045
Research and development 213,094 251,946
Total costs and expenses 890,126 863,464
Loss from operations (257,793) (532,555)
Other income -- 40,000
Interest income, (expense) net (89,282) 187
Net loss (347,075) (492,368)
Net loss per common share,
basic and diluted $(.12) $(.17)
Weighted average shares outstanding 2,856,431 2,856,431
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net Loss $(347,075) $(492,368)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and Amortization 104,023 28,417
Changes in assets and liabilities:
Accounts receivable 31,378 5,046
Inventories 119,456 (17,556)
Prepaid expenses and other 2 2
Accounts payable 215,365 292,564
Accrued liabilities (16,660) 7,073
Accrued payroll and benefits 36,988 21,924
Interest payable 19,283 --
Customer deposits (242,429) --
Net cash used in operating activities (79,669) (154,898)
Cash flows from financing activities:
Proceeds from issuance of notes
payable to shareholders 50,000 --
Proceeds from issuance of notes
payable 8,000 --
Net cash provided by financing
activities 58,000 --
Net increase (decrease) in cash (21,669) (154,898)
Cash and cash equivalents at the
beginning of the period 44,448 217,057
Cash and cash equivalents at the end of
the period $ 22,779 $ 62,159
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
SEPRAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1998
Note 1 - Basis of Presentation
These condensed financial statements have been presented on a going
concern basis. Sepragen, ("the Company") has incurred recurring losses
and cash flow deficiencies from operations that raise substantial doubt
about its ability to continue as a going concern. As of March 31, 1998,
the Company had an accumulated deficit of $13,877,175.
The Company, while continuing its existing operations of selling
equipment and instruments for its biopharmaceutical business, is also
pursuing licensing of its Sepralac and SepraDebitt processes which are
expected to generate additional revenues from equipment sales, licensing
fees and royalty income. The Company is expected to achieve profitability
only after the next several quarters, when such deals are expected to be
consummated and the anticipated revenue stream realized. There can be no
assurance that such deals will be consummated.
Meanwhile the Company will have to obtain additional financing to
support its operating needs beyond May 31, 1998. The Company is currently
pursuing alternative funding sources to meet its cash flow needs, including
private debt and equity financing. Management intends to use such funding
to further its marketing efforts and expand sales. It is uncertain, however,
whether the Company will be successful in such pursuits. No adjustments
have been made to the accompanying condensed financial statements for
this uncertainty.
Note 2 - Interim Financial Reporting
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-
QSB. Accordingly, certain information and footnotes required by
generally accepted accounting principles have been condensed or omitted.
These interim statements should be read in conjunction with the
financial statements and the notes thereto, included in the Sepragen
Corporation's (the "Company's") Annual Report on Form 10-KSB for the
year ended December 31, 1997.
Note 3 - Net Loss Per Share.
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, Earning per Share for all periods presented. The
adoption of SFAS No. 128 had no impact on previously reported loss per
share for the three months ended March 31, 1997. In accordance with
SFAS No. 128, primary earnings (loss) per share has been replaced with
basic earnings (loss) per share, and fully diluted earnings (loss) per
share has been replaced with diluted earnings (loss) per share which
includes potentially dilutive securities such as outstanding options and
convertible securities, using the treasury stock method. The assumed
exercise of options and warrants and assumed conversion of convertible
securities have not been included in the calculation of diluted loss per
share as the effect would be anti-dilutive.
Note 4 - Inventory.
Inventories consist of the following at March 31, 1998:
Raw Materials $143,874
Finished Goods 55,530
$199,404
<PAGE>
SEPRAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1998
Note 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 was 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
December 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.
In March 1998, the Company borrowed $50,000 from a shareholder of
the Company, payable with interest at 9.5% per annum and is due May 31,
1998.
In March 1998, the Company borrowed $8,000 from an unrelated party,
payable with interest of 9.5% per annum and is due May 31, 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.
Note 6 - Bridge Notes Payable
In November 1997, the Company completed its private placement of
bridge 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 March
31, 1998. The bridge notes are payable 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 March 31,
1998, $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 aggregated 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
additional interest expense over the term of the notes. For the three
months ended March 31, 1998 the Company amortized $70,000 of issuance
cost to operations.
<PAGE>
Item 2 . Management's Discussion and Analysis.
First quarter of 1998 compared to first quarter of 1997
Net sales increased by $301,000 or 91% from $331,000 the first
quarter of 1997 to $632,000 in the first quarter of 1998. The increase
in sales is primarily due to the increase of sales of its core products,
Radial Flow Chromatography (RFC) equipment and a small contribution from
of revenues from Sepralac evaluation license fees. Over the balance of
the year the Company expects the contribution of revenues from the
Sepralac process to grow .
Gross Margin increased by $44,000 or 21% from the first quarter of
the prior year, and as percent of sales, decreased by 23%. The Changes
in gross margin is primarily due to product mix.
Selling, general and administrative expenses decreased by $192,000
from $486,000 in the first quarter of 1997 to $294,000 in the first
quarter of 1998. The decrease was primarily due to belt tightening
measures adopted in mid 1997 in administrative expenses coupled with a
reduction in head count in sales and marketing, scaling back of
advertising and promotion and travel expenses.
Research and development expenses decreased by $39,000 from
$252,000 in the first quarter of 1997 to $213,000 in the first quarter
of 1998. The decrease was mainly due to the reduction in the cost of
software development for the QuantaSep product.
Interest expense increased by $89,000 in the first quarter of 1998
compared to the first quarter of 1997 due to amortization of $70,000 of
issuance cost and $19,000 interest expense related to the bridge loans
and notes payable.
Inflation.
The Company believes that the impact of inflation on its operations
since its inception has not been material.
Liquidity and Capital Resources:
The Company used cash in operations of $79,700 and $154,000 during
the first quarter ended March 31, 1998 and 1997, respectively. Cash used
in operation in the first quarter of 1998 was the result of net loss
incurred for the first quarter of $347,000, offset by net non-cash
expense of $104,000, and the net change in operating assets and
liabilities resulting in source of cash of $163,400. Cash used in the
first quarter of 1997 was the result of the net operating assets and
liabilities resulting in a source of cash of $309,100.
Financing activities provided cash of $58,000 during the first
quarter ended March 31, 1998. The cash provided resulted from the
issuance of $58,000 in notes payable.
At March 31, 1998 the Company had cash and cash equivalents of
$22,800 and $44,400 on December 31, 1997. At March 31, 1998, the
Company had working capital deficit of $1,215,000, as compared to
working capital deficit of $902,000 at December 31, 1997. The decrease
in cash in the first quarter of 1998 is a result of the aforementioned
increase or decrease in cash from operating and financing activities
noted above. The decrease in working capital for the quarter is
primarily a result of the net loss incurred offset by non-cash charges.
This negative cash out flow from operations must be reversed and
working capital increased significantly in order for the Company to fund
its existing activities and to extend the use of its technology to new
applications in the food and dairy and environmental industries, and to
attract the interest of strategic partners in one or more of these
markets.
Based on the Company's current operating plan, the Company believes
that it will only be able to fund the Company's operations through May
31, 1998. Accordingly, the Company will have to obtain additional
financing to support its operations. The Company is currently
attempting to secure additional financing through either the sale of
additional equity securities of the Company or some form of debt
financing.
Additionally, the Company is pursuing several alliances in the
dairy industry which if consummated successfully could potentially
contribute to increasing the Company's liquidity through licensing,
fees, revenue from product sales and royalty income. Sepragen has
announced the signing of a letter of intent with California Gold for
licensing the Sepralac process and has also previously signed
evaluation agreements with two other companies.
There can be no assurance that a deal will be consummated or 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
warrants 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. 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 Company'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.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Where any such forward-looking statement includes a
statement of the assumptions or bases underlying such forward-looking
statement, the Company cautions that, while such assumptions or bases
are believed to be reasonable and are made in good faith, assumed facts
or bases almost always vary from the actual results, and the differences
between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking
statement, the Company or its management expresses an expectation or
belief as to future results, such expectation or belief is expressed in
good faith and is believed to have a reasonable basis, but there can be
no assurance that the statement of expectation or belief will result or
be achieved or accomplished. The words "believe," "estimate,"
"anticipate," and similar expressions may identify forward-looking
statements.
Taking into account the foregoing, the following are identified as
some but not all of the important factors that could cause actual
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of the Company:
Inability to Secure Additional Capital. The Company has incurred
operating losses each fiscal year since its inception. The Company must
secure additional financing through either the sale of additional
securities or debt financing to continue operations past June 1, 1998.
Although the Company is attempting to secure such financing, there can
be no assurance that such financing will be available to the Company on
reasonable terms. The Company has not met the net asset and capital and
surplus levels required for continued listing of its securities on the
Pacific Exchange Tier II and has been delisted from the Nasdaq SmallCap
Market. See Item 2 "Management's Discussion and Analysis-Liquidity and
Capital Resources."
Competition. In both its biopharmaceutical industry market and in
the market for its process systems for food, beverage, dairy and
environmental industries, the Company faces intense competition from
better capitalized competitors.
Dependence on Joint Ventures and Strategic Partnerships. The
Company's entry into the food, dairy and beverage market for its process
systems will be substantially dependent upon its ability to enter into
strategic partnerships, joint ventures or similar collaborative alliance
with established companies in each market. As of the date of this
report, 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.
<PAGE>
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Reports on Form 8-K
The following Forms 8-K were filed in the first quarter of 1998:
January 13, 1998 Form 8-K, item 4.
February 6, 1998 Form 8-K, item 4.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEPRAGEN CORPORATION
DATE: May 21, 1998 By: /s/ Vinit Saxena
Vinit Saxena
Chief Executive Officer, President and
Principal Financial and Chief Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR MARCH 31, 1998 AS FILED ON FORM 10QSB WITH THE
SECURITIES EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,779
<SECURITIES> 0
<RECEIVABLES> 539,490
<ALLOWANCES> 12,000
<INVENTORY> 199,404
<CURRENT-ASSETS> 824,157
<PP&E> 248,432
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,186,510
<CURRENT-LIABILITIES> 2,039,292
<BONDS> 0
0
0
<COMMON> 12,913,693
<OTHER-SE> (13,766,475)
<TOTAL-LIABILITY-AND-EQUITY> 1,186,510
<SALES> 632,333
<TOTAL-REVENUES> 632,333
<CGS> 383,086
<TOTAL-COSTS> 383,086
<OTHER-EXPENSES> 507,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,282
<INCOME-PRETAX> (347,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> (347,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (347,075)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
