CONFORMED COPY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-14068
SEPRAGEN CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0073366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30689 Huntwood Avenue, Hayward, California 94544
(Address of principal executive offices)
(Issuer's telephone number, including area code): (510) 476-0650
(Former name, former address and former fiscal year if changed
since last report)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the registrant's
classes of Common equity, as of the latest practicable date:
November 10, 1999
Class A Common Stock 4,347,883
Class B Common Stock 701,177
Class E Common Stock 1,209,894
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
SEPRAGEN CORPORATION
CONDENSED BALANCE SHEET
ASSETS
September 30, 1999
Current Assets:
Cash and cash equivalents $41,870
Accounts receivable, less allowance for
doubtful accounts of $20,000 as of
September 30, 1999 519,099
Inventories 182,808
Prepaid expenses and other 24,510
Total current assets 768,287
Furniture and equipment, net 116,187
Intangible assets 76,454
960,928
LIABILITIES AND DEFICIT IN SHAREHOLDERS' (DEFICIT)
Current Liabilities:
Accounts payable 547,930
Customer deposits 32,194
Notes Payable, including $395,000 from
shareholders 460,000
Accrued payroll and benefits 314,722
Accrued liabilities 90,270
Interest payable 69,045
Total current liabilities 1,514,161
Preferred stock, no par value - 5,000,000
shares authorized; and 210,404 convertible,
preferred issued and outstanding 600,000
Commitments:
Class E common stock, no par value -
1,600,000 shares authorized; 1,209,894
shares issued and outstanding at
September 30, 1999, redeemable at $.01
per share -
Deficit in Shareholders' equity:
Class A common stock, no par value -
20,000,000 shares authorized; 4,347,883
shares issued and outstanding 9,970,226
Class B common stock, no par value -
2,600,000 shares authorized; 701,177
shares issued and outstanding 4,065,618
Additional paid in capital 202,220
Accumulated deficit (15,391,297)
Total deficit in shareholders' equity (1,153,233)
960,928
The accompanying notes are an integral part of these condensed
financial statements.
SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenues:
Net Sales $364,753 $ 356,395 $1,251,320 $1,200,199
Costs of goods
sold 212,762 139,564 735,210 649,391
Selling, general
and 281,893 352,014 710,672 957,530
administrative
Research and
development 146,161 172,759 434,295 577,283
Total costs and
expenses 640,816 664,337 1,880,177 2,184,204
Loss from
operations (276,063) (307,942) (628,857) (984,005)
Interest income,
(expense) net (8,000) (68,669) (26,000) (177,951)
Net loss (284,063) (376,611) (654,857) (1,161,956)
Net loss per
common share,
basic and
diluted $(0.06) $(0.13) $(0.14) $(0.41)
Weighted average
shares
outstanding 4,855,282 2,856,431 4,790,689 2,856,431
The accompanying notes are an integral part of these condensed
financial statements.
SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1999 1998
Cash flows from operating
activities:
Net Loss $ (654,857) $ (1,161,956)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
Amortization 88,113 177,057
Changes in assets and
liabilities:
Accounts receivable 8,746 390,069
Inventories 262,584 87,505
Prepaid expenses
and other 7,501 (22,975)
Accounts payable 66,682 191,641
Accrued liabilities (6,353) (26,233)
Accrued payroll 158,659 (22,856)
and benefits
Interest payable 26,001 (16,522)
Customer deposits (8,603) (234,681)
Net cash used in operating
activities (51,577) (638,951)
Cash flows from investing
activities:
Acquisition of fixed assets (6,309) 0
Net cash used by investing (6,309) 0
Cash flows from financing
activities:
Proceeds from issuance of 218,000 0
common stock
Proceeds from issuance of
preferred stock 0 500,000
Proceeds from issuance of
notes payable to
shareholders 260,000 155,000
Payment of notes payable (419,430) 0
Net proceeds from bridge
notes payable 0 115,000
Proceeds from issuance of
convertible secured
promissory note 0 540,000
Retirement of bridge debt 0 (510,000)
Net cash provided by
financing activities 58,570 800,700
Net increase (decrease) in cash 734 161,749
Cash and cash equivalents at
the beginning of the period 41,136 44,448
Cash and cash equivalents at
the end of the period 41,870 206,197
Supplemental disclosure of cash
information:
Conversion of notes payable 100,000 0
Conversion of accounts
payable to notes payable 484,430 0
The accompanying notes are an integral part of these condensed
financial statements.
SEPRAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
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 September 30, 1999, the Company had an accumulated
deficit of $15,391,297.
The Company will be required to conduct significant research,
development and testing activities which, together with expenses to
be incurred for manufacturing, the establishment of a large
marketing and distribution presence and other general and
administrative expenses, are expected to result in operating losses
for the foreseeable future. Accordingly, there can be no assurance
that the Company will ever achieve profitable operations. The
Company will have to obtain additional financing to support its
operating needs beyond December 31, 1999. The Company is currently
pursuing alternative funding sources to meet its cash flow needs,
including private debt and equity financing. Management intends to
use such funding to further its marketing efforts and expand sales.
It is uncertain, however, whether the Company will be successful
in such pursuits. No adjustments have been made to the
accompanying condensed financial statements for this uncertainty.
Note 2 - Interim Financial Reporting
The accompanying unaudited interim financial statements have
been prepared pursuant to the rules and regulations for reporting
on Form 10-QSB. Accordingly, certain information and footnotes
required by generally accepted accounting principles have been
condensed or omitted. In the opinion of management, all
adjustments consisting of normal recurring accruals considered
necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. These interim statements should
be read in conjunction with the financial statements and the notes
thereto, included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998.
Note 3 - The "Year 2000 Problem," dates following December 31, 1999
and beyond:
Many existing computer systems and applications, and other
devices, use only two digits to identify a year in the date field,
without considering the impact of the upcoming change in the
century. Such systems and applications could fail or create
erroneous results unless corrected. The Company believes it will be
"Year 2000" compliant by December 31, 1999. The Company relies on
its internal financial systems and external systems of business
enterprises such as customers, suppliers, creditors, and financial
organizations both domestically and globally, directly and
indirectly for accurate exchange of data. The Company has
evaluated such systems and believes the cost of addressing the
"Year 2000 Problem" will not have a material adverse affect on the
result of operations of financial position of the Company. However,
even though the internal systems of the Company will not materially
be affected by the Year 2000 Problem, the Company could be affected
through disruption in the operation of the enterprises with which
the Company interacts.
Note 4 - Notes Payable
Between May 1997 and August 1998, the Company borrowed an
aggregate of $400,000, payable with interest at 9.5% per annum, of
which $300,000 was from shareholders of the Company and $100,000
was from an unrelated party. In January 1999, $35,000 was paid to
the unrelated party with the remaining balance of $65,000 due on
March 1, 1999. In December, 1998, the Company converted $165,000
of the shareholder debt including accrued interest of $11,657 into
368,035 shares of Class A Common Stock. with a balance of
$135,000 due to shareholders. The outstanding note payable of
$200,000 are now past due. Terms for repayment and extension are
being negotiated. On January 22, 1999, the Company converted
$484,430 due to Monterey Mechanical Co. from accounts payable to
notes payable. The balance as of September 14 1999 was $345,813. On
September 14, 1999, the Company paid $245,813 and the remaining
$100,000 was converted to Preferred Stock (See note 6). The UCC
security agreement granting the Note holder a first priority
interest in the assets of the Company was removed. On August 18,
1999, the Company received proceeds from a convertible note payable
from a shareholder of $260,000 with interest at 9.5% per annum.
Note 5 - Bridge Notes Payable
On August 19, 1998, the Company completed a debt-refinancing
transaction whereby the Company borrowed $550,000 from Mr. K.
Charles Janac pursuant to a Convertible Secured Promissory Note
issued by the Company (the "Note") in the principal amount of
$550,000 and bearing interest at the rate of 9.75% per annum. The
Note was convertible into shares of Class A Common Stock at the
option of Mr. Janac at any time before December 15, 1998 by
converting the principal balance and any unpaid interest due under
the Note into Class A Common Stock at the rate of $0.46875 per
share. In addition, as further consideration for the loan of funds
to the Company, the Company issued to Mr. Janac a warrant,
exercisable at any time on or before August 18, 2003, to purchase
up to 234,667 shares of Class A Common Stock at $.46875 per share.
The Company used the funds loaned by Mr. Janac to retire $532,242
of existing debt and accrued interest incurred by the Company in
connection with a certain bridge financing undertaken by the
Company in October 1997, to pay legal fees and costs of the
transaction, and approximately $7,000 was utilized for working
capital.
On December 8, 1998, the Company paid $200,000 to Mr. Janac as
a partial payment of the Note. Mr. Janac also agreed to convert the
remaining balance of $366,308 of the Note in principal and accrued
interest into Class A Common Stock. In addition, the Company
converted an additional $10,000 of Bridge Debt principal and $1,186
in accrued interest from a shareholder into 23,304 shares of Class
A Common Stock.
Note 6 - Convertible Preferred Stock
On September 1, 1998, the Company sold 175,439 Shares of
Series A Preferred Stock to Anchor Products Limited of Hamilton,
New Zealand ("Anchor"). The acquisition of Series A Preferred Stock
by Anchor was consummated in connection with the execution of a
Commercial License Agreement between the Company and Anchor,
whereby the Company licensed Anchor a technology that isolates
proteins from whey, a low value cheese by-product. The shares of
Series A Preferred Stock were sold for cash in the aggregate amount
of $500,000 ($2.86 per share). There were no underwriting discounts
or commissions paid in connection with the transaction.
On September 15, 1999, the Company issued 34,965 Shares of
Series A Preferred Stock to Monterey Mechanical Co. of Oakland,
California upon the conversion of $100,000 of notes payable to
Preferred Stock at $2.86 per share. The terms and conditions of the
Preferred Stock held by Monterey Mechanical are the same as those
for Anchor Products except Anchor may require the Company to
immediately redeem the preferred shares in the event of a breach of
the license agreement between Anchor and the Company. There is no
corresponding provision between Monterey Mechanical Co. and the
Company.
The Company's Series A Preferred Stock provides for both a 7%
dividend and liquidation preferences. The dividend is payable from
time to time at the election of the Board of Directors of the
Company subject to the Company retaining sufficient earnings and
profits. The Preferred Stock is also convertible on or before
September 30, 2000 into Class A Common Stock, at the conversion
rate of $2.86 per share. On any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the holders
of series A Preferred Shares shall receive, out of the assets of
the Company, the sum of $2.86 per Series A Preferred Share, plus
an amount equal to any dividends accrued and unpaid on those Series
A Preferred Shares, before any payment shall be made or any assets
distributed to the holders of Common Stock. The Series A Preferred
Shares shall be redeemable at the option of the holders of the
Series A Preferred Shares commencing September 30, 2003 and
expiring December 31, 2008, at the cash price of $2.86 per share,
plus any accrued and unpaid dividends on the Series A Preferred
Shares which are redeemed. In addition, each share of Series A
Preferred Stock shall be automatically converted into one (1) share
of Class A Common Stock, if not previously redeemed, on January 1,
2009, or at any time the closing bid price per share of the
Company's Class A Common Stock shall average at least $3.86 per
share over ninety (90) consecutive trading days prior to January 1,
2004. The conversion ratio for the Series A Preferred Stock shall
be adjusted in the event of recapitalization, stock dividend, or
any similar event effecting the Class A Common Stock.
Anchor may require the Company to immediately redeem the
preferred shares in the event of certain covenant breaches of the
license agreement by the Company. The Company is currently in
compliance with all such covenants and does not anticipate any
breaches in the future.
Note 7 - Class A Common Stock:
On December 15, 1998, the Company issued to Charles Janac
781,457 shares of Class A Common stock and warrants to purchase
234,667 shares of Class A Common Stock at $0.46875 per share
(expiring August 19, 2003) in exchange for the conversion of
$366,308 of notes and accrued interest held by Mr. Janac. The
shares of Class A Common Stock and warrants were sold pursuant to
exemptions from registration under sections 3(a)(11),4(2) and 4(6)
and regulation D under the Securities Act of 1933, in a transaction
that was publicly offered.
On December 15, 1998, the Company issued to Eliezer Sternheim
520,833 shares of Class A Common stock and warrants to purchase
52,083 shares of Class A Common Stock at $0.48 per share (expiring
December 15, 2003) in exchange for $250,000 cash. The shares of
Class A Common Stock and warrants were sold pursuant to exemption
from registration under sections 3(a)(11), 4(2) and 4(6) under the
Securities Act of 1933, in a transaction that was not publicly
offered.
On December 15, 1998, the Company issued to Armin Ramel, a
director of the Company. 59,946 shares of Class A Common Stock and
Warrants to purchase 5,995 shares of Class A Common Stock at $0.48
per share (expiring December 15, 2003) in exchange for the
conversion of $28,774 of notes and accrued interest held by Mr.
Ramel. The shares of Class A Common Stock and warrants were sold
pursuant to exemption from registration under sections 3(a)(11),
4(2) and 4(6) under the Securities Act of 1933, in a transaction
that was not publicly offered.
On December 15, 1998, the Company issued to Henry Edmunds, a
director of the Company, 127,471 shares of Class A Common stock and
warrants to purchase 12,747 shares of Class A Common Stock at $0.48
per share (expiring December 15, 2003) in exchange for $50,000 cash
and the conversion of $11,186 of notes and accrued interest held by
Mr. Edmunds. The shares of Class A Common stock and warrants were
sold pursuant to exemptions from registration under sections
3(a)(11),4(2) and 4(6) under the Securities Act of 1933, in a
transaction that was not publicly offered.
On December 15, 1998, the Company issued to Marcel Raedts
104,167 shares of Class A Common stock and Warrants to purchase
10,417 shares of Class A Common Stock at $0.48 per share (expiring
December 15, 2003) in exchange for the conversion of $50,000 in
amounts owed to Mr. Raedts for services rendered. The shares of
Class A Common Stock and warrants were sold pursuant to exemptions
from registration under sections 3(a)(11) and 4(2) and under the
Securities Act of 1933, in a transaction that was not publicly
offered.
On December 15, 1998, the Company issued to Michael Schneider,
former principal and director of Romic Technologies Corp., 275,614
shares of Class A Common Stock and Warrants to purchase 27,561
shares of Class A Common Stock at $0.48 per share (expiring
December 15, 2003) in exchange for the conversion of $132,294 of
notes and accrued interest held by Mr. Schneider. The shares of
Class A Common Stock and warrants were sold pursuant to exemptions
from registration under sections 3(a)(11),4(2) and 4(6) under the
Securities Act of 1933, in a transaction that was not publicly
offered.
On December 15, 1998, the Company issued to Robert Leach. a
former director of the Company, 32,475 shares of Class A Common
Stock and warrants to purchase 3,248 shares of Class a Common Stock
at $0.48 per share (expiring December 15, 2003) in exchange for
the conversion of $15,588 of notes and accrued interest held by Mr.
Leach. The shares of Class A Common Stock and warrants were sold
pursuant to exemption from registration under section 3(a)(11),4(2)
and 4(6) under the Securities Act of 1933, in a transaction that
was not publicly offered.
Between August 13, 1999 and September 28, 1999, the Company
received $218,000 for 290,667 shares of Class A Common stock from
four new shareholders as part of its Private Placement to raise
funds. The shares of Class A Common Stock were sold pursuant to
exemption from registration under section 3(a)(11), 4(2) and 4(6)
under the Securities Act of 1933, in a transaction that was not
publicly offered.
Note 8 - Segment Reporting:
The Company currently has one operating segment based on the
markets in which it operates. There are no identifiable assets
attributable to any other operating segment.
Item 2. Management's Discussion and Analysis.
First nine months of 1999 compared to first nine months of 1998.
On August 6, 1999, Sepragen announced the beginning of
commercial production utilizing its patented Sepralac process at
Anchor Products, Ltd. of New Zealand. The commercial facility
commissioned by Anchor Products, Ltd has the capacity to extract
several hundred kilograms of purified proteins from several hundred
thousand liters of cheese whey each day.
On September 21, 1999 the Company announced the production
installation at Carbery Milk Products. The initial focus of the
Carbery installation is to produce alphalactabumin for infant
formula. Both of these installations are strategic milestones and
are expected to contribute to a meaningful royalty income in years
to come. However, no assurances can be given that such income will
be generated profitably.
The Company also signed an evaluation agreement for its
Sepraflavone(TM) process with a major supplier of soy products.
Successful evaluations of this and other opportunities could result
in additional commercial contracts that the Company is aggressively
pursuing. In the meantime, the Company's major revenue source will
continue to be from sales to its biotechnology customers.
Net sales increased by $51,000 or 4% from $1,200,000 in the
first nine months of 1998 to $1,251,000 for the comparable period
in 1999. The increase in net sales is primarily in the QuantaSep
product line. The sales increase is attributable to the second
quarter of 1999. Despite the increase in net sales, the Company
continues to be hampered by cash shortage that has adversely
affected the manufacture and shipment of goods. Management is
working on securing external financing (see Liquidity and Capital
Resources ).
Gross Margin decreased by $35,000 or 7% from $551,000 in the
first nine months of 1998 to $516,000 in the nine months of 1999.
As a percentage of sales gross margin decreased from 46% in the
first nine months of 1998 to 41% for the comparable period in 1999.
The decrease in gross margin was attributable to the Sepralac
license fee received in the third quarter of 1998, which more than
offset the higher volume in 1999.
Selling, general and administrative expenses decreased by
$247,000 from $958,000 in the first nine months of 1998 to
$711,000 for the comparable period in 1999. The decrease was
primarily due to the Company's choosing to sell its biotech
products through external channels as opposed to making direct
sales and the continuing measures undertaken by the Company to
conserve cash.
Research and development expenses decreased by $143,000 from
$577,000 in the first nine months of 1998 to $434,000 in the first
nine months of 1999. The decrease was due to reduction in some
overhead associated with research and development department and
the completion of certain research projects.
Interest expense decreased by $152,000 in the first nine
months of 1999 compared to the first nine months of 1998. In the
first nine months of 1998 the Company booked $70,000 of
amortization of debt issuance costs, $34,000 amortization of the
fair value of warrants issued and $75,000 interest expense related
to the bridge loans and notes payable.
Net loss decreased by 43% from $1,162,000 in the first nine
months of 1998 to $655,000 for the comparable period in 1999. The
Company's plan is to continue to keep expenses down and minimize
losses while building up the revenue and profit contribution from
the dairy/juice business. The ability of the Company to be
profitable is dependent for now from the biotech sector, which is
being hampered by cash shortage to procure goods for sale.
Management is currently pursuing several alternatives to raise
additional capital and restructured debt which the Company hopes
will materialize in the near future.
Third quarter 1999 compared to third quarter 1998.
Net sales increased by $9,000 or 3% from $356,000 in the third
quarter of 1998 to $365,000 for the third quarter of 1999. The
increase was primarily from biotech equipment sales and the
Sepraflavone(TM) evaluation contract.
Gross margin decreased by $65,000 from $217,000 in the third
quarter of 1998 to $152,000 for the comparable period in 1999. As
a percentage of sales gross margin decreased from 61% to 42%. The
decrease in gross margin was due to license fees received in the
third quarter of 1998. No corresponding license fee was received in
the third quarter of 1999.
Selling, general and administrative expenses decreased by
$70,000 mainly due to the Company's choice to sell its products
through distributors as opposed to making direct sales and the
continuing reduction in administrative and over head expenses.
Research and development expenses decreased by $27,000 or 16%
from $173,000 in the third quarter of 1998 to $146,000. The
decrease was primarily due to completion of some research programs
and the reduction in overhead associated with research and
development expenses.
Inflation.
The Company believes that the impact of inflation on its operations
since its inception has not been material.
Liquidity and Capital Resources:
The Company used cash of $536,000 and $639,000 for operations
during the first nine months of 1999 and 1998, respectively. Cash
used in operations in the first nine months of 1999 was the result
of net loss incurred for the nine months of $655,000, offset by
net non-cash expense of $88,000, the net change in operating
assets and liabilities resulting in source of cash of $31,000.
Cash used in operation in the nine months of 1998 was the result of
net loss incurred for the nine months of 1998 of $1,162,000,
offset by net non-cash expenses of $177,000, the net change in
operating assets and liabilities resulting in source of cash of
$346,000.
Investing activities used cash of $6,300 in the acquisition of
fixed assets.
Financing activities provided cash of $543,000 and $800,700
during the first nine months of 1999 and 1998, respectively. The
cash provided in the first nine months of 1999 was due to proceeds
from notes payable of $260,000 partially offset by $35,000
retirement of notes payable, proceeds from issuance of convertible
secured promissory note of $345,813 partially offset by $245,813
retirement of the same note and proceeds from issuance of common
stock of $218,000. The cash provided in the first nine months of
1998 resulted from issuance of preferred stock of $500,000 and
issuance of notes payable of $300,700.
At September 30, 1999 the Company had cash and cash
equivalents of $41,800 as compared with $41,100 on December 31,
1998. At September 30, 1999, the Company had a working capital
deficit of $745,900, as compared to working capital deficit of
$490,800 at December 31, 1998. The decrease in cash in the first
nine months of 1999 is a result of the aforementioned increase or
decrease in cash from operating , investing and financing
activities noted above. The decrease in working capital for the
first nine months of 1999 is primarily a result of the net loss
incurred offset by non-cash charges.
This negative cash out flow from operations must be reversed
and working capital increased significantly in order for the
Company to fund its existing activities and to extend the use of
its technology to new applications in the food and dairy and juice
industries, and to attract the interest of strategic partners in
one or more of these markets.
Based on the Company's current operating plan, the Company
believes that it will only be able to fund the Company's operations
through December 31, 1999. Accordingly, the Company will have to
either turn profitable or obtain additional funds to support its
operations. The Company is currently pursuing several avenues
including increasing revenues and reducing costs in order to turn
profitable, secure funds through equity financing as well as
licensing fee.
Following this strategy, on August 25, 1998, Sepragen
announced the signing of a license agreement with Anchor Products.
Under this agreement, Anchor Products will have exclusive
manufacturing rights to the Sepralac(TM) process in Australia and
New Zealand and non-exclusive worldwide marketing rights to
products produced by the Sepralac(TM) process. In return, Sepragen
has received $700,000 from Anchor Products, comprised of a license
fee of $200,000 and an equity investment of $500,000 for the
purchase of 175,439 redeemable, cumulative, preferred stock at
$2.85 per share. The preferred stock is convertible into common
stock (on share for share basis) at any time within the next two
years and extendible for a further one year at Sepragen's option.
On October 15, 1998 the Company announced a licensing
agreement for the Sepralac(TM) process with Carbery Milk Products
of Ballineen, County Cork, Ireland. Under the agreement, Carbery
will have manufacturing and marketing rights to certain products
produced from the Sepralac(TM) process. In return the Company will
receive a license fee of $350,000, of which $200,000 was received
in 1998 with the balance over three years at $50,000 per year.
In addition to Mr. Janac's conversion of debt to equity (see
Note 6), in December, 1998 the Company converted $604,151 of its
debt and accrued expenses in to Class A Common stock. It also sold
625,000 shares of Class A Common Stock in a private transactions,
exempt from securities registration under the Securities Act of
1933, as amended, and raised $300,000 of proceeds. In all, a total
of $904,151 (including Mr. Janac's) was either invested or
converted in to stock. In consideration of the above, 1,901,962
shares of Class A Common Stock and 346,718 Warrants to purchase
Common Stock were issued.
Between August 13, 1999 and September 28, 1999, the Company
received $218,000 for 290,667 shares of Class A Common Stock from
new shareholders as a part of its Private Placement of Class A
Common Stock to raise funds.
The Company currently has no credit facility with a bank or
other financial institution. Further, the Company's stock is
traded over-the-counter and as such there is limited liquidity in
the Company's stock which makes financing difficult. The Company is
seeking to enter into strategic alliances with corporate partners
in the industries comprising its primary target markets
(biopharmaceutical, food, dairy and juice). The Company's ability
to further develop and market its Sepralac(TM) process for whey
separation and other potential food and juice products and
processes will be substantially dependent upon its ability to
negotiate partnerships, joint ventures or alliances with
established companies in each market. In particular, the Company
will be reliant on such joint venture partners or allied companies
for both market introduction, operational assistance and financial
assistance. The Company believes that development, manufacturing
and market introduction of products in these industries will cost
millions of dollars and require operational capabilities in excess
of those currently available to the Company. No assurance can be
given, however, that the terms of any additional alliances will be
successfully negotiated or that such alliance will be successful
in generating the revenue required to make the Company profitable.
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
January 1, 2000. Although the Company is attempting to secure such
financing, there can be no assurance that such financing will be
available to the Company on reasonable terms. The Company has been
delisted from the Nasdaq SmallCap Market and the Pacific Stock
Exchange.
Competition. In both its biopharmaceutical industry market
and in the market for its process systems for food, beverage, dairy
and environmental industries, the Company faces intense competition
from better capitalized competitors.
Dependence on Joint Ventures and Strategic Partnerships. The
Company's entry into the food, dairy and beverage market for its
process systems will be substantially dependent upon its ability to
enter into strategic partnerships, joint ventures or similar
collaborative alliance with established companies in each market.
As of the date of this report, two licensing agreements have been
signed but there can be no assurance that the terms of any such
alliance will produce profits for the Company nor can there be
assurance that additional joint ventures or alliances will be
signed.
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEPRAGEN CORPORATION
DATE: November 17, 1999 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 SEPTEMBER 30, 1999 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<RECEIVABLES> 519,099
<ALLOWANCES> 20,000
<INVENTORY> 182,808
<CURRENT-ASSETS> 768,287
<PP&E> 116,187
<DEPRECIATION> 0
<TOTAL-ASSETS> 960,928
<CURRENT-LIABILITIES> 1,514,161
<BONDS> 0
600,000
0
<COMMON> 14,035,844
<OTHER-SE> (15,189,077)
<TOTAL-LIABILITY-AND-EQUITY> 960,928
<SALES> 1,251,320
<TOTAL-REVENUES> 1,251,320
<CGS> 735,210
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<OTHER-EXPENSES> 1,144,967
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<INTEREST-EXPENSE> 26,000
<INCOME-PRETAX> (654,857)
<INCOME-TAX> (654,857)
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<NET-INCOME> (654,857)
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