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, 2001

[ ]      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 1-14068

                              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.)

              14500 Doolittle Drive, San Leandro, California 94577
              ----------------------------------------------------
               (Address of principal executive offices, zip code)

                    Issuer's telephone number: (510) 667-1004

      Securities registered pursuant to Section 12(b) of the Exchange Act:

                       CLASS A COMMON STOCK, no par value;
                       -----------------------------------
                                (Title of Class)

   Securities registered pursuant to Section 12(g) of the Exchange 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 in this form, 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: $1,153,953.

         The aggregate market value of Class A Common Stock (voting stock) held
by non-affiliates on March 29, 2002 was $2,334,000 (based on the average of the
last bid and ask price of a share of Class A Common Stock on that date as
reported in Over The Counter trading). In addition, non-affiliates held 67,413
shares of Class B Common Stock as of March 22, 2002, which are convertible into
Class A Common Stock, but are not registered under the Securities Exchange of
1934, as amended.

         The number of shares outstanding of each of the registrant's classes of
Common Stock at March 29, 2002 was:

                  Class A Common Stock              10,972,398

                  Class B Common Stock                 701,177

In addition, the Company has 175,439 shares outstanding of convertible preferred
stock convertible into Class A Common Stock. Class E Common Stock became subject
to mandatory redemption as of March 31, 2000 and a notice of redemption
designated the effective date of June 15, 2000. The Company's Class A and Class
B Warrants expired on March 23, 2000.

         Transitional Small Business Disclosure Format [ ] Yes;  [X] No

                                     Page 1
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                                     PART I
                                     ------

Item 1.  Description of Business
------   -----------------------

Company Overview

         Sepragen, incorporated in 1985, is a provider of innovative high
throughput equipment, systems and materials for the scale-up and purification of
proteins, biopharmaceuticals and nutraceuticals.

         In the biopharmaceutical industry, with the elucidation of the human
genome in the last 24 months and the advent of high throughput discovery and
screening tools, the industry can rapidly transition from identifying a gene
responsible for a disease state to the protein based drug candidate or
associated target molecules and lead therapeutic drug compounds. The number of
such targets and drug candidate leads are increasing rapidly and we believe that
the demand for our technology adapted to producing quantitative amounts of these
products for preclinical or clinical studies is increasing. We have responded to
this growing need with the QuantaSep product line, which automates many routine
chromatographic purification tasks. The automated QuantaSep improves process
development time and speeds preparation time for clinical trials.. In addition,
our patented Radial Flow Chromatography (RFC) technology enables purification of
greater quantities of product more efficiently than conventional chromatography
methods and provides a measurable economic advantage.

         Sepragen's products are currently being used at leading
biotech/pharmaceutical companies such as Amgen, Bayer, Chiron, Baxter, Human
Genome Sciences, and Schering-Plough to produce FDA approved drugs in commercial
scale quantities and for other drugs that are in clinical development. We are
building on these early successes and are supplying premier scalable
chromatography tools, processes, and technologies for the scale-up of
biopharmaceutical products from the laboratory to commercial production volume
levels.

         During the past five years, the Company has also developed specific
applications of separations technology for the nutraceautical 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 consumption or for animal feed. The Company licenses
the process for isolation of proteins in the whey for utilization in infant
formula and other products for their nutritional, functional and, in some cases,
pharmaceutical value. 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 $400 per kilogram. Sepragen has signed commercialization
agreements with two leading dairy ingredient suppliers - Anchor Products of New
Zealand and Carbery Milk Products of Ireland. Both companies have paid licensing
fees and are obligated to purchase equipment and consumables from Sepragen and
pay us a royalty on sales as they increase their commercial efforts.

         While the Company has commercial activities in both the
biopharmaceutical and nutraceutical markets, its current resources are primarily
focused on direct marketing and support activities in the biopharmaceutical
sector. The Company is secondarily pursuing alliances and other financing
activities as a means of expanding its primary market and commercializing its
technology portfolio in the nutraceutical industry.

         Our ability to successfully commercialize and derive value from these
opportunities will depend on our ability to secure additional funding to expand
our sales, marketing, support and manufacturing infrastructure and to convince
risk-averse personnel in a regulated, pharmaceutical environment to adopt our
products. In the nutraceutical industry it may require us to enter into more
alliances such as the ones that the Company has with Anchor Products and Carbery
Milk Products. No assurance can be provided that the Company or its current or
future alliance partners will be successful at each of these endeavors.

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<PAGE>

Biopharmaceutical Market

         The biotech industry's revenues have topped $28 billion and growth is
accelerating with 300 products presently in late stage clinical development and
1,200 more in early stage clinical or pre-clinical testing. Additionally, with
the sequencing of the human genome coupled with improvements in proteomics, the
drug discovery process has become efficient and productive. More and more lead
compounds are being generated. We believe that this increase in drug leads is
necessitating an expansion of development, scale-up and manufacturing capacity
to clinically test and develop promising drug product candidates. The current
discovery and commercialization process in comprised of the following basic
steps: 1) genomics gene analysis 2) proteomics 3) screening protein and
modulators for activity, 4) preparation of small quantities for proof concept 5)
pre-clinical development tests, 6) Phase I, II and III clinical trials 7) FDA
approval and 8) commercialization and post approval monitoring. Sepragen's
products provide for the rapid purification of biopharmaceuticals from the proof
of concept stage up through commercial scale manufacturing.

         The existing infrastructure in the biopharmaceutical industry, we
believe, is insufficient and bottlenecks will appear in process development,
scale-up and manufacturing. According to a recent J.P. Morgan research note -
"The State of Biologics Manufacturing" - clinical and commercial manufacturing
capacity demand is expected to outstrip available capacity by a ratio of
four-to-one. The manufacturing bottleneck issue is endemic to the industry,
which has focused more on research and clinical applications then on commercial
manufacturing. The seriousness has been highlighted recently by Immunex's
reported inability to satisfy market needs for Enbrel, their billion-dollar
flagship product, due to a major shortfall in capacity. A single new facility is
expected to take four years for installation and validation at a cost of up to
$400 million.

         Management believes that the elucidation of the human genome has
resulted in a new growth and market opportunity for research lab to pilot scale
preparation of pharmaceutical proteins and drugs necessary for proof of concept
and early clinical trials. As drug discovery and gene analysis at the R&D level
has increased greatly in sophistication and efficiency over the last decade,
there is an increasing number of newly discovered drug candidates and proteins
that need to be rapidly and reproducibly purified. Sepragen has addressed this
growing segment of the biopharmaceutical market with the QuantaSep series of
automated chromatography instruments that facilitate the efficient and
reproducible chromatographic purifications from laboratory scale through pilot
scale and continuing up to commercial scale.

         Helping our existing `fast-track' customers process their lead drug
compounds efficiently and enable faster time to market is our focus. We are
establishing our own direct sales and service capabilities and are expanding and
adding more technological depth and breadth to the QuantaSep and consumable
product lines. This will require additional capital and reliance on a few key
people. No assurance can be given that the funds will be raised nor that this
initiative will be successful.

         While no assurances can be provided that the industry will "scale-up"
with our technology, the opportunity exists that, given adequate resources and
the continued capacity crunch, Sepragen can play a role in providing the
industry with enabling products and technology for its infrastructure needs in
development, scale-up and manufacturing.

Product Overview

         Sepragen has an array of technologies and products that address the
production of protein and gene-based biological drugs. Sepragen's patents cover
composition of matter and process claims related to its equipment and consumable
resins used in separations. Core to these proprietary technologies is Sepragen's
patented Radial Flow Chromatography and consumable monolith and rigid consumable
resins, all high throughput bio-purification products that enable cost effective
volume processing in its target markets. The QuantaSep Automated Purification
System which provides robust instrumentation with user-friendly software for
control and documentation of chromatography processes, is the standard `anchor'
workstation that is the base of our technology portfolio.

                                     Page 3
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Chromatography Technologies
---------------------------

Radial Flow Chromatography Columns

         Chromatography is the principal method used for bio-purification in the
Biopharmaceutical and Nutraceutical industries. Chromatography separates
selected molecules in pure form from an impure mixture, based upon selective
extraction and release of the product in a `column' chamber packed with a
special adsorbent. Thus, the desired molecules are separated from raw materials,
which are then processed and packaged into marketable products.

         The liquid volume and product amount processed in a certain time per
volume of adsorbent represents the measure of productivity. Conventional
chromatography or `Axial Chromatography' uses a long vertical flow path through
the column that results in reduction in flow as the height of the column, or
scale, is increased. Sepragen's patented Radial Flow Chromatography (RFC)
technology enables horizontal flow across the radius of the column. The
resulting RFC productivity performance is several-fold higher than conventional
axial means and, in fact, RFC gains in productivity as the scale is increased.
In one instance, over 40,000 liters of human plasma is being treated every 6
hours on 2,800 liters of Sepragen columns to produce kilograms of an FDA
approved injectable protein drug per batch.

         We believe this unique capability for high productivity performance
will continue to rise in demand as the biopharmaceutical and nutraceutical
industries mature into high volume production looking for the lowest-cost, most
efficient and scalable manufacturing methods.

         Sepragen's products allow trained process development chromatography
scientists and engineers to optimally design the most scalable, economic and
reliable process and enable rapid time to market. In Radial Flow Chromatography,
liquid flows from a perimeter sleeve surrounding the columnar resin bed and
horizontally across the permeable resin into a small hollow cylinder exit port
at the center. Flow rates through the RFC column are higher than with axial
chromatography , allowing economical processing of large volumes of material. In
the processing of liquid foods or beverage products, the result can be economic
separation of specific substances that have higher nutritional economic or
product quality value. Additionally, large-scale RFC facilitates economical
removal of unwanted substances that adversely affect flavor or other product
qualities. In the biopharmaceutical industry, Radial Flow Chromatography is
being used to manufacture twelve FDA approved drugs, including Baxter's IVIG,
Amgen's Nupogen and Bayer's Kogenate. Radial Flow Chromatography also received
the prestigious IR100 Award as one of the most innovative products of the year
in 1989. In the nutraceutical industry, Sepragen's RFC system is being used by
Anchor products and Carbery Milk Products to isolate several proteins from dairy
whey for use in infant formula and nutritional supplement products.

         Sepragen's patented Superflo(TM) radial flow columns allow high
throughput at low pressures and range in size from 50 ml to 350 liter
columns.Our columns allow easy downscaling or upscaling. Our Versaflo(TM)
traditional axial flow columns expand the usage of Sepragen's product line to
lower volume quantities during the final purification process.

         Sepragen's RFC columns are available with accessories in acrylic and
stainless steel construction. Average gross margins on columns are about 50% and
prices range from $1,000 for laboratory scale experimental units to over
$150,000 for larger production units.

QuantaSep Chromatography Instrumentation

         QuantaSep Chromatography Systems - For Lab, Pilot and Production Stages

         The QuantaSep(TM) product line enables customers to automate and
speed-up routine tasks in chromatographic purification of lead ing product
candidates, improve product consistency, and provide better data for regulatory
purposes leading to faster time to market and lower clinical development and
production costs. The QuantaSep(TM) instrument series achieves higher production
rates within less than 50% of the footprint of competing systems.

         These compact systems, driven by of Sepragen's proprietary software,
sensors and fluid delivery modules, are workhorses that are currently being used
by leading companies such as IDEC, Human Genome Sciences, Berlex and Schering
Plough to develop, process and produce clinical grade products. The
QuantaSep(TM) Systems are available in Models QuantaSep(TM) 100, QuantaSep(TM)

                                     Page 4
<PAGE>

1000, QuantaSep(TM) LX, and QuantaSep(TM) 1800, that provide flow ranges between
100 mls per minute and 1.8 liters per minute. Those flow ranges allow the
Company to offer products for all stages of drug development and production.
Fully installed prices range from $65,000 to approximately $150,000. There are
over 50 installations of these systems currently in use.

         QuantaSep 5000

         We have previously developed a custom large scale QuantaSep capable of
delivering flow rates of up to 40 liters/minute. This technology is now being
standardized in a QuantaSep 5000 product capable of delivering 5 liters/minute.
The QuantaSep 5000 is designed to provide our customers with a scalable path
using the same software, sensors and design parameters used in their lab
experiments to transition to the pilot plant and prepare GMP production lots for
clinical trials. This machine can be used to automate and control manufacturing
processes in the biopharmaceutical industry or for pilot scale evaluations in
food applications. It brings all the process features of the QuantaSep 100 to
1800 series to pilot-scale and large-scale use and brings the QuantaSep
advantages to manufacturing.

Chromatography, and Sepragen's High Throughput Resins

         Resins are used with our equipment and need to be replaced several
times per year, depending on the application and volume. Sepragen has developed
high throughput consumable resin products for several applications and are
expected to be a source of recurring revenue in our razor and razor-blade
business model. A novel monolith resin technology capable of rapid upfront
capture of selected product molecules from dilute solutions has been developed
and patented. High throughput durable rigid bead technology has also been
developed.

         SepraPrep(R)

         For high volume biotech applications, the Company has developed a
beaded, high-strength, high-flow, hydrophilic, ion-exchange media
"SepraPrep(R)." The material is currently in use in Sepragen's Sepralac(TM)
Process to isolate and produce whey proteins on a commercial scale. Once data is
developed for a variety of biotech applications, this media can also be marketed
to the biotech customer base.

         SepraSorb(R) Media

         The SepraSorb(R) Media is based in part upon technology acquired in the
purchase in June 1994 of certain assets of BPS Separations, a U.K. company. The
SepraSorb(R) media is based on a "sponge" as opposed to a "bead" configuration.
The unique ability of the SepraSorb(R) media to handle "dirty streams" without
clogging will eliminate various pre-clearing chromatography steps and increase
overall yield and productivity of many purification processes. SepraSorb(R)
cartridges are being sold to the biopharmaceutical market for research and lab
evaluation use. While the technology and market opportunity has promise, both
these product lines will require additional development, applications support
and marketing resources prior to serious commercial launch. No assurance can be
provided that we will be successful in securing the funds or that the products
will be accepted across the board by the industry.

Customers

         Sepragen's products or tools are currently in use for commercial scale
manufacture of over twelve FDA approved drugs including Kogenate(R),
Alphanate(R), Neupogen(R), and GammaGrand(R). The Company's QuantaSep series of
instruments are also in use with a multitude of other drugs currently in
preclinical and clinical trials.

          Sepragen's customers range from manufacturers of recombinant proteins
and peptides, pharmaceutical drugs and derivatives, vaccine manufacturers,

                                     Page 5
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genetic therapy vectors, monoclonal antibody producers for diagnostic and
therapeutic use and enzyme producers. The Company's international list of
customers in the U.S., Europe, and Asia includes:

<TABLE>
<CAPTION>
<S>                                   <C>                            <C>
         Amgen                        Chiron Corp                    Human Genome Sciences,
                                                                     Inc.

         Alpha Therapeutics           Chugal                         IDEC Pharmaceuticals

         Asahi Glass                  CSL                            Merck & Co

         Aventis S.A.,                Dade Behring                   Roche Molecular Systems

         Avigen                       Eli Lilly                      Schering Plough

         Bayer                        Glaxo SmithKline               Yoshitomi

         Baxter International Inc.    Genencor International Inc.

         Berlex                       Hoffman La Roche
</TABLE>


         In 2001 approximately 70% of sales revenues were from sales to
customers in the United States and 30% to customers outside the United States.
All of our 2001 sales revenues were attributable to biotech sector sales.

         Our future growth and profitability in the biopharmaceutical sector
will depend, in large part, on the rate of scale-up activities in this market
and in fostering acceptance of the use of our products, namely Superflo(R)
columns, QuantaSep systems and SepraSorb resins. Negotiating joint ventures and
alliances in the dairy, food, and beverage industries is expected to drive our
growth in those segments. Our success in marketing our products will be
substantially dependent on educating our targeted markets as to the distinctive
characteristics and benefits of our products and technology. There can be no
assurance that our efforts or the efforts of others with whom we ally ourselves
will be successful, or that our products will ever achieve the level of sales
necessary for us to operate profitably.

Food and Beverage Industry

         We believe our 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 molecules 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, processes 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.

         We have developed a process called Sepralac(TM) for separating 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, pharmaceutical value. Whey
sells for approximately 50 cents a kilogram, but individual components within
the whey are valued at over $400 per kilogram. Conventional processing
technologies do not allow for economic separation 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, we believe individual whey
components can be separated more economically. The Company believes the isolated
components can be used in a variety of applications 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 development.

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         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. We believe that having access
to certain protein components that can be separated using the Sepralac(TM)
process will give infant formula manufacturers 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 applications for those proteins. Certain protein
components could be added to sports drinks to improve nutritional value without
"curdling" or "precipitating." Certain protein components could replace egg
whites since they provide better whippability and gelation characteristics.
Additional 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.

         We have successfully demonstrated a process called Sepradebitt(TM) to
debitter and deacidify citrus juice. A patent was issued in 1998. In 1999, we
began to introduce the process to juice processors for their evaluation. 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 California go through a period of months when
they are too bitter to be processed into juice. Similarly, the bitterness of
grapefruit juice prevents its use as an ingredient in mixed juice production.
Debittering grapefruit juice may extend its usage to new applications. We have
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.

         Soy Isoflavone Isolation

         Our Company has developed a proprietary RFC based process to purify
isoflavones from a soy-based raw material. We have named this process
"Sepraflavone" and we believe that soy isoflavones are desirable as health
enhancing dietary supplements. Our research indicates that our process will
enable a manufacturer to make purer product with consistent quality. However, no
assurance can be given that we will be successful in commercially developing the
Sepraflavone process.

         Nutraceutical Business Model and Alliances

         Our intended business model in the nutraceutical industry for these
proprietary processes is to include royalties and licensing fees, in addition to
equipment and resin revenues. We have licensed the Sepralac(TM) process to
Anchor Products of New Zealand and Carbery Milk Products of Ballineen, Ireland.
While there are on-going discussions for alliances with potential partners for
the Sepralac (TM) , SepraDebitt (TM) and other projects, no assurance can be
given that these will materialize or be commercial successes.

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Manufacturing and Supplies

         Third party contract manufacturers produce the components for our
products. We assemble the products and perform quality control. We intend to
continue to enter into additional arrangements with third parties to manufacture
the components of our products according to specifications provided by us. For
example, we have an agreement with a supplier headquartered in India to
manufacture certain of our ion-exchange resins. We continue to monitor
production at these manufacturing facilities to assure compliance with product
specifications. In January 1999, we also entered into an exclusive five-year
agreement with a vendor to supply certain column parts and accessories. While
these agreements allow us to command more attention from our critical vendors,
they also create a "single source" risk if the vendors are unable to meet the
quality or delivery needs of our customers. There can be no assurance that we
will be able to enter into future arrangements, on acceptable terms or at all,
for the manufacture of our products by others or that any manufacturer will be
able to meet any demand for such products on a timely or cost effective basis.

         We are currently relying and intend to continue to rely on certain
suppliers to provide substantially all of the materials required to produce our
products, including, but not limited to, fabricated steel, plastics, wiring,
circuitry and computer hardware. We have been and expect 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 our
products are readily available from a wide variety of industry sources.

         In the future, we may decide to manufacture directly certain of our
existing or proposed products. Manufacture of these products will require
expensive equipment and experienced personnel. Although certain of our officers
have had manufacturing experience with other companies, we have limited
manufacturing experience and capabilities. There can be no assurance that we
will be able to obtain the requisite financing, attract or retain experienced
personnel or be able to establish a suitable manufacturing facility.

Research and Development

         We spent approximately $547,000 and $673,000 on research and
development for the years ended December 31, 2001 and 2000, respectively.
Substantially all of our research and development expenditures to date have been
related to our QuantaSep systems and Sepralac(TM) and Seprabitt processes.

         We maintain an on-going research and development program that targets:

         (i)      improvements and extensions of existing products which exploit
                  our patents to address specific customer needs;

         (ii)     continued development of separation media; and

         (iii)    continued development of commercial-scale liquid
                  chromatography processes based on RFC technology for food and
                  dairy applications.

Patents, Trademarks and Intellectual Property

         We consider patent protection of our processes to be important to our
business prospects. We currently hold fifteen patents and one allowed patent
application in the United States relating to our technologies. In addition, we
hold nine patents in various foreign countries.

                                     Page 8
<PAGE>

         The first of our patents was issued in 1986 for our radial flow
processes and method relating to purification columns. Since then, we have
successfully obtained patents for various other technologies. Our patents are
issued for the following inventions and have the expiration dates indicated
(assuming all required maintenance fees are paid):

         o        U.S. Patent Reg. Nos. 4,627,918 (11/4/2005); 4,676,898
                  (11/4/2005); 4,840,730 (11/4/2005) and 4,865,729 (11/4/2005)
                  cover different horizontal or radial flow chromatography
                  methods and apparatuses.

         o        U.S. Patent Reg. No. 5,462,659 (6/15/2013) covering axial flow
                  chromatography columns.

         o        U.S. Patent Reg. No. 4,708,782 (9/15/2006) covers a
                  combination horizontal or radial flow chromatography column
                  and electrophoresis apparatus.

         o        U.S. Patent Reg. No. 4,867,947 (9/19/2006) covers interface
                  apparatuses for directing the output of a chromatography
                  column to a point of use/detection and/or identification such
                  as a mass spectrometry device

         o        U.S. Patent Reg. No. 4,705,616 (9/15/2006) covers a
                  combination electrophoresis/ mass spectrometry probe for
                  performing the two processes of electrophoretic separation of
                  a sample followed by introduction of the separated sample to a
                  mass spectrometry apparatus.

         o        U.S. Patent Reg. No. 4,833,083 (11/04/2005) 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.

         o        U.S. Patent Reg. No. 5,492,723 (2/20/2013) covers a method of
                  producing a cross-linked flexible sponge adsorbent medium.

         o        U.S. Patent Reg. No. 5,597,489 (3/02/2015) covers a method for
                  removing contaminants from water.

         o        U.S. Patent Reg. No. 5,690,996 (11/2/2012) covers absorbent
                  medium.

         o        U.S. Patent Reg. No. 5,756,680 (1/5/2014) covers a method for
                  sequential separation of whey proteins and formulations.

         o        U.S. Patent Reg. No. 5,817,354 (8/22/2016) covers a method for
                  removing bitter compounds from citrus juice.

         o        U.S. Patent Reg. No. 6,045,842 (8/22/2016) covers a method for
                  high throughput debittering of Limonin.

         We intend to continue to pursue patent protection for the various
technologies we develop. There can be no assurance that any of our issued
patents will afford protection against a competitor, that any patents issued or
licensed to us could not be designed around or invalidated or that our pending
patent applications will result in issued patents. In addition, there can also
be no assurance that any application of our technology will not infringe patents
or proprietary rights of others or that licenses that might be required for our
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 enforceability of any patent owned by us or, if instituted, that such
challenges will not be successful. The cost of litigation to uphold the validity
and prevent infringement can be substantial.

         We believe that patents in certain foreign countries are more difficult
and expensive than obtaining domestic patents because of differences in patent
laws, and recognizes that our patent position therefore may be stronger in the

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United States than abroad. In addition, the protection provided by foreign
patents, once they are obtained, may be weaker than that provided by domestic
patents, with the attendant risks of infringement of our patents and loss of
market share to infringing competition.

         We also rely upon unpatented proprietary technology, and in the future
may determine in some cases that our 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 we can meaningfully
protect our 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 our projects, disputes may arise as to the
proprietary rights to such information which may not be resolved in our favor.

         Our name, helix logo, "S" and Design, Superflo and QuantaSep trademarks
are registered on the Principal Register of Trademarks maintained by the U.S.
Patent and Trademark Office, and an application to register the mark Sepralac is
pending.

Competition

         We face significant competition in three principal areas of our
business. With respect to our liquid chromatography equipment, resins and
systems, competitors are 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 equipment and systems, our major competitors are Amersham
BioSciences, Millipore, Pall Filtration, Bio-Rad., in-house development by
customers' engineering staff, and a number of smaller companies.

         With respect to our liquid chromatography processes under development
for application in the food and dairy industries, we 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 such as Danmark Protein, and companies
such as Immucell Corporation and Davisco International Incorporated in the
United States. In addition, we may face competition from companies in the
chromatography equipment industry such as Millipore and Amersham 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 Koch filtration Products, Calgon Carbon
Corporation, Ionics and Osmonics, Inc., which are currently used in food
separation processes.

Employees

         As of March 30, 2002, we employed a staff consisting of 16 full-time
and two part-time employees and several contractors and consultants. In order to
maximize the efficiency of this small staff, most employees serve in various
functions as different needs arise. We have not experienced any strikes or work
stoppages and consider our relationship with our employees to be satisfactory.
Our employees are not covered by any collective bargaining agreement.

         We intend to add additional employees on an as needed basis in the
areas of research, production, development, marketing, sales and administration.
Our future success is substantially dependent on our ability to attract and
retain highly competent technical and administrative personnel.

Item 2.  Description of Property
------   -----------------------

         The Company moved from its Hayward facility to San Leandro, California
in January 2001. The San Leandro facility is approximately 19,000 square feet.
Of this space, approximately 12,000 square feet is allocated to manufacturing,
approximately 2,000 square feet to the Company's laboratories, and approximately
5,000 square feet to the Company's executive and administrative offices. The
term of the lease is for five years beginning on January 1, 2001.

                                    Page 10
<PAGE>

Item 3.  Legal Proceedings
------   -----------------

         Neither the Company nor our 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 our 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
Company's fiscal year ended December 31, 2001.

                                    Page 11
<PAGE>

                                     PART II
                                     -------

Item 5.  Market for Common Equity and Related Stockholder Matters.
------   --------------------------------------------------------

         (a)      Market Information.
                  ------------------

         Our 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. Our Class A Common Stock is now quoted on the OTC Bulletin Board
(under the symbol SPGNE.OB). Our securities were delisted from the NASDAQ Small
Cap Market in 1997 because we failed to meet total asset and minimum share price
requirements for continued listing. The high and low bid prices for the Class A
Common Stock as reported by the OTC Bulletin Board are indicated below. Such
prices are interdealer prices without markups, markdowns or commissions, and may
not necessarily represent actual transactions. On March 23, 2000, the Class A
and Class B Warrants (under symbols SPGNW and SPGNZ) expired.

                                     Class A
                                  Common Stock
                                  ------------

                                           Low            High
                  2001
                  First Quarter           $0.16          $0.50
                  Second Quarter           0.17           0.40
                  Third Quarter            0.20           0.55
                  Fourth Quarter           0.16           0.40

                  2000
                  First Quarter           $0.56          $3.44
                  Second Quarter           0.81           2.00
                  Third Quarter            0.56           0.88
                  Fourth Quarter           0.12           0.44


         As of March 29, 2002, the last sale price as reported on the OTC
Bulletin Board for the Class A Common Stock was $0. 20

         There are no public markets for Class B Common Stock or Series A
Preferred Stock. Beginning on March 31, 2000, Class E Common Stock became
subject to mandatory redemption at $0.01 per share and was no longer outstanding
as of June 15, 2000.

         (b)      Holders. As of March 29, 2002, there were 67 record holders of
Class A Common Stock, and 49 record holders of Class B 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. We have never paid any cash dividends on our Common
Stock and we do not anticipate that we will do so in the foreseeable future.

         On November 3, 1997, we completed a private placement of 54 bridge
units consisting of promissory notes and Class C warrants issued by us. 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 (which was increased in
1998 to 10,000 shares per unit due to our failure to register the Class C
Warrants with the Securities and Exchange Commission in a timely manner). The
Bridge Notes became due six months from issuance and were repaid in 1998. The
Class C Warrant holders have certain rights to require us to register their

                                    Page 12
<PAGE>

Warrants and underlying shares of Class A Common Stock issuable upon exercise of
the Warrants under the Securities Act of 1933, as amended. The Warrants may be
redeemed for $0.05 if the Target Price of $4.00 per share (subject to
adjustment) 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 Warrants are subject to adjustment if the underlying
shares are recapitalized, otherwise adjusted or if there are subsequent
issuances of securities by us. The Warrants expire on December 31, 2002. We sold
$540,000 of Bridge Notes from which we received $505,000 in net proceeds. 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 were
netted against the liability and were amortized as additional interest expense
over the term of the notes.

         On September 1, 1998, we sold 175,439 shares of Series A Preferred
Stock. All of the shares of Series A Preferred Stock were sold 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 us and Anchor, whereby we licensed to
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 ($2.85 per share). There were no underwriting
discounts or commissions paid in connection with the transaction.

         The shares of Series A Preferred Stock were sold pursuant to exemptions
from registration under section 4(2) and Regulation S under the Securities Act
of 1933, in a transaction that was not publicly offered. Anchor is a New Zealand
corporation.

         Our Series A Preferred Stock provides for both a 7.5% 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 dividend 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 our 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
affecting the Class A Common Stock.

         Anchor may require us to immediately redeem the preferred shares in the
event of certain covenant breaches of the license agreement by us. We are
currently in compliance with all such covenants and do not anticipate any future
material breach.

         On December 15, 1998, we 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 not publicly offered.

                                    Page 13
<PAGE>

         On December 15, 1998,we 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
exemptions from registration under sections 4(2) and 4(6) under the Securities
Act of 1933, in a transaction that was not publicly offered.

         On December 15, 1998, we 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
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, we 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, we issued to Marcel Raedts, an employee of the
Company, 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 section 4(2) of the Securities
Act of 1933, in a transaction that was not publicly offered.

         On December 15, 1998, we 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, we 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 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.

         The Company issued 625,000 of its Class A Common Stock at $0.48 per
share, to two individual investors in December, 1998. Net proceeds were
$300,000. In addition to the warrants issued to Mr. Janac in connection with the
debt financing described in Note 6, the Company has issued an additional
warrants to purchase 112,951 shares of Class A Common Stock to other
shareholders and creditors who converted outstanding debt into common stock in
December, 1998. The warrants were issued on substantially the same terms as
those issued to Mr. Janac.

         In September 1999, Sepragen Corporation sold 290,667 shares of Class A
Common Stock at $0.75 per share to four investors in a private transaction
exempt from securities registration under the Securities Act of 1933, as
amended, and raised $218,000.

         In December 1999, the Company sold 922,667 shares of Class A Common
Stock at $0.75 per share to six investors and raised $692,000 in gross proceeds
and $657,499 in net proceeds. It also converted $129,261 of deferred salary and
consulting fees into 142,013 Class A Common Stock. These transactions were
exempt from securities registration under the Securities Act of 1933, as
amended.

                                    Page 14
<PAGE>

         In March 2000, the Company sold 2,022,334 shares of Class A Common
Stock at $0.75 per shares to ten investors and raised $1,516,750 in gross
proceeds and $1,369,480 in net proceeds. pursuant to a private offering managed
by Crown Point. LLC. The shares were offered on a best efforts basis for a
selling commission of 5% of gross proceeds and warrants to purchase 8% of the
shares sold in the offering at an exercise price of $0.50 per share having an
expiration date of March 31, 2005. The shares of Class A Common Stock were sold
pursuant to exemption from registration under section 4(2) and 4(6) under the
Securities Act of 1933 and Regulation D promulgated under the Securities Act of
1933, in a transaction that was not publicly offered.

         In March 2000, the Company issued 36,000 Class A Common Stock for
$27,000 accrued liability, 199,833 Class A Common Stock for $148,565 for notes
payable and accrued interest and 60,000 shares of Class A Common Stock for
$45,000 for services and accrued liabilities. 30,000 Class A Common shares were
sold for the exercise of warrants at $0.50 per share or $15,000. These
transactions were exempt from securities registration under the Securities Act
of 1933, as amended.

         In September 2001, the Company sold 2,990,000 Class A Common Stock at
$0.25 per share to seven investors and raised $747,500 in gross proceeds and
$703,798 in net proceeds. The Company also received a $50,000 Note receivable
from a director of the Company to purchase 200,000 shares of Class A Common
Stock at $0,25 per share. The shares were offered pursuant to a private offering
managed by Crown Point, LLC on a best efforts basis. The shares of Class A
Common Stock were sold pursuant to exemption from registration under section
4(2) and 4(6) under the Securities Act of 1933 and Regulation D promulgated
under the Securities Act of 1933, in a transaction that was not publicly.

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, 2001 which have been derived from the audited financial statements
of the Company included elsewhere herein. 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

<TABLE>
<CAPTION>
                                                     Year Ended December 31
                             -----------------------------------------------------------------------
  Statements of Operations       2001           2000           1999           1998           1997
                                 ----           ----           ----           ----           ----

<S>                          <C>            <C>            <C>            <C>            <C>
Revenues                     $ 1,153,953    $ 1,495,697    $ 1,689,832    $ 1,987,086    $ 1,619,623

Net Loss                     $(1,359,973)   $(1,496,327)   $  (977,617)   $(1,206,340)   $(1,648,514)

Net Loss Per Share          $     (0.14)   $     (0.18)   $     (0.19)   $     (0.41)   $     (0.58)
                             -----------    -----------    -----------    -----------    -----------



Weighted average number of     9,496,908      8,099,709      5,017,176      2,935,679      2,856,431
shares outstanding
                             -----------    -----------    -----------    -----------    -----------
</TABLE>

                                    Page 15
<PAGE>

<TABLE>
<CAPTION>
                                                               December 31,
                                 -----------------------------------------------------------------------
Balance Sheets                       2001           2000           1999           1998           1997
                                     ----           ----           ----           ----           ----

<S>                              <C>            <C>            <C>            <C>            <C>
Total Assets                     $   895,779    $   926,853    $ 1,205,518    $ 1,320,089    $ 1,393,036

Total Liabilities                $ 1,376,237    $   789,037    $ 1,293,651    $ 1,537,205    $ 1,898,743


Shareholders' Equity (Deficit)   $  (480,458)   $  (362,184)   $  (700,232)   $  (216,707)   $  (505,707)
</TABLE>

         The following table is included as an aid to understanding the
Company's operating results. The table sets forth the percentage which each item
bears to revenues and the percentage change in dollar amounts from year to year.

<TABLE>
<CAPTION>
                                            Percentage Relationship to   Year to Year Percentage
                                                     Revenues              Increase (Decrease)

                                             Percent of   Percent of           Year    Year
                                              Revenues     Revenues           Ended   Ended

Account Name                                    2001         2000              2001    2000
------------                                    ----         ----              ----    ----

<S>                                             <C>          <C>               <C>     <C>
Revenues                                        100%         100%              (23)%   (11)%

Cost and Expenses

  Cost of goods sold                             59%          55%               16%      6%

  Selling, general and administrative           111%         100%               14%    (27)%

 Research and development                        47%          50%               18%    (12)%

 Total costs and expenses                       218%         200%               16%    (13)%

Loss from operations                           (118)%       (100)%               9%    (57)%

Interest income and other, net                   (0)%         (0)%              (0)%   (85)%
                                                            ----                      ----

Net loss                                       (118)%       (100)%               9%    (53)%
                                               ====         ====                      ====
</TABLE>


Results of Operations

         The management has sought to reposition the Company to sell and service
its growing biotech customer base directly. Not withstanding the Company's cash
position and the effect of the incidents of September 11, 2001, losses have been
reduced and the transition has continued which is expected to result in improved
revenues in 2002.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

         Our net loss decreased by $136,000 or 9% from $1,496,000 in 2000 to
$1,360,000 in 2001. The decrease was due to lower expenses partially offset by
lower sales as described below.

         In 2001, net sales decreased by $342,000 or 23% from $1,496,000 in 2000
to $1,154,000 in 2001. The operating results of the Company reflect the
cash-strapped condition that prevailed for most of the year. The decline in

                                    Page 16
<PAGE>

shipment was primarily due to cash shortage that hampered our ability to ship
orders on hand as well as increase the prospect of future sales. There was no
contribution from the dairy sector in 2001.

         Our gross margin decreased by $208,000 or 31% from $676,000 in 2000 to
$468,000 in 2001. As a percentage of sales, gross margin decreased from 45% in
2000 to 41% in 2001. The decrease in gross margin was attributable to the lower
volume resulting in higher fixed cost.

         Selling, general and administrative expense decreased by $216,000 from
$1,496,000 in 2000 to $1,280,000 in 2001. The decrease was primarily due to
lower sales and marketing expenses such as commission, travel and advertising.

         Research and development expenses decreased by $126,000 from $673,000
in 2000 to $547,000 in 2001. The decrease in expenses was due to completion of
some projects and reduction in research and development activities.

         For the years ended December 31, 2001 and 2000, sales of our products
to foreign markets accounted for approximately 30% and 49%, respectively, of our
total sales. Foreign sales expose us 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, accounts
receivable collections, tariff regulations, foreign taxes, export licensing
requirements and other United States and foreign regulations that may apply to
the export of our products. In addition, we may experience difficulties in
providing prompt and cost-effective service of our products in foreign
countries. We do 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 our business, operations and financial condition. We attempt
to mitigate risks applicable to foreign sales by effecting foreign sales through
established independent distributors 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 currency
exchange fluctuations.

Inflation

         We believe that the impact of inflation on our operations since our
inception has not been material.

Volatility of Sales

         In the last several years, we have 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. We believe this fluctuation
relates to capital appropriations and spending cycles in the biopharmaceutical
business.

Liquidity and Capital Resources

         We used cash in operations of $746,000 and $1,460,000 during the years
ended December 31, 2001 and 2000, respectively. Cash used in operations in 2001
was primarily the result of the net loss incurred for the year of $1,360,000,
offset by net depreciation and amortization adjustments to cash of $74,000, and
the net increase in operating assets and liabilities of $540,000. Cash used in
operations in 2000 was the result of the net loss incurred for the year of
$1,496,000 and the net decrease in operating assets and liabilities of $254,000,
offset by depreciation and amortization adjustments to cash of $290,000.

         Investing activities for acquisition of fixed assets used cash of
$96,000 and $21,000 for the years ended December 31, 2001 and 2000,
respectively.

         Financing activities provided cash of $837,000 and $1,205,000 during
the years ended December 31, 2001 and 2000, respectively. The cash provided in
2001 resulted from the proceeds of issuance of common stock of $704,000
partially offset by the redemption of E shares of $12,000 and proceeds of
$145,000 of notes payable. The cash provided in 2000 resulted from the proceeds
of issuance of common stock of $1,384,000 partially offset by $179,000
retirements of notes payable.

                                    Page 17
<PAGE>

         At December 31, 2001 we had cash and cash equivalents of $77,000 as
compared to $82,000 at December 31, 2000. At December 31, 2001 we had a working
capital deficit of $580,000 as compared to working capital of $72,000 at
December 31, 2000. The decrease of the working capital by $652,000 from December
31, 2000 to December 31, 2001 is primarily due to the net loss partially offset
by the proceeds from common stock and notes payable.

         Our working capital must increase significantly in order to fund the
level of manufacturing and marketing required to meet any growth in demand for
our products from the dairy, food and beverage, pharmaceutical and biotechnology
industries during the next few years. Moreover, we require additional funds to
extend the use of our technology to new applications within the pharmaceutical
and biotechnology industries as well as to applications within the food and
dairy industries and to attract the interest of strategic partners in one or
more of these markets.

         Since the IPO, we have funded our working capital requirements
substantially from sales, net cash proceeds from the IPO and private offerings
of securities. Prior to the IPO, we had funded our activities primarily through
sales of our Superflo(R) columns and QuantaSep(R) systems, loans from our
principal shareholders, and private placements of securities.

         From our inception, our expenditures have exceeded our revenues. Prior
to the IPO, we financed our operations primarily through private equity
placements in an aggregate amount of approximately $3,971,000, a substantial
portion of which was purchased by H. Michael Schneider, the secretary and a
director of the Company until October 1, 1995, and his affiliates, including
Romic Environmental Technologies Corporation ("Romic"), an entity that was
controlled by Mr. Schneider. In addition, we have historically relied on
customers to provide purchase price advances for development and scale-up of our
radial flow chromatography columns.

         See additional capital financing described under Item 5.

         Our financing requirements may vary materially from those now planned
because of changes in the focus and direction of research and development
programs, relationships with strategic partners, competitive advances,
technological change, changes in our marketing strategy and other factors, many
of which will be beyond our control. Based on our current operating plan, we
believe that we will be able to fund the Company's operations for the next 6
months. We are currently pursuing several avenues to raise additional capital
including increasing revenues and reducing costs, entering into additional
strategic partnerships and seeking to secure either debt or equity financing.

         In August 1998, we announced the signing of a ten years license
agreement with Anchor Products. Under this agreement, Anchor Products will have
exclusive manufacturing rights to the Sepralac Process in Australia and New
Zealand and non-exclusive world wide marketing rights to products produced by
the Sepralac process. In return, we received $700,000 out of a total of about $1
million from Anchor Products, comprised of license fees 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 in to Class A Common Stock (on share for share basis) at any time
within the next two years and extendible for a further one year at our option.

         On October 15, 1998, we announced a five-year licensing agreement for
the Sepralac process with Carbery Milk products of Ballineen, County Cork,
Ireland. Under the agreement, Carbery will have a manufacturing and marketing
rights to certain products produced from the Sepralac Process. In return we will
receive a license fee of $350,000, $200,000 was received in 1998 with the
balance over three years at $50,000 per year.

         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 and Pacific
Stock Exchange ("PSE") on July 8, 1998. We did not meet the requirements for
continued listing of securities on NASDAQ SmallCap Market and Pacific Stock
Exchange. Since August 16, 1997, the Class A Common Stock has been trading in
the over-the-counter market. As a result, an investor will likely find it more

                                    Page 18
<PAGE>

difficult to dispose of or to obtain accurate quotations as to the value of our
securities. It is also likely that our securities will be less liquid with a
resulting negative effect on the value of such securities and our ability to
raise additional capital.

         We currently have no credit facility with a bank or other financial
institution. Historically, we and certain of our 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. We will continue our efforts to increase
sales of our existing products and to complete development and initiate
marketing of our products and processes now under development.

         We are seeking to enter into strategic alliances with corporate
partners in the industries comprising our primary target markets
(biopharmaceutical, food and dairy). Our ability to develop and market our
Sepralac process for whey separation and other potential food products and
processes will be substantially dependent upon our ability to negotiate
partnerships, joint ventures or alliances with established companies in each
market. In particular, we will be reliant on such joint venture partners or
allied companies for market introduction, operational assistance and financial
assistance. We believe that development, manufacturing and market introduction
of products in these industries will cost millions of dollars and require
operational capabilities in excess of those currently available to us. No
assurance can be given, however, that the terms of any such alliance will be
successfully negotiated or that any such alliance will be successful. We hope to
enter into alliances that will provide funding to us for the development of new
applications of our Radial Flow Chromatography (RFC) technology in return for
agreements to purchase our 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, we caution 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, our 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 us, or
on our behalf:

         Inability to Secure Additional Capital. We have incurred operating
losses each fiscal year since our inception. We must restore positive cash flow
or secure additional financing through either the sale of additional securities
or debt financing to continue operations beyond the next 6 months. Although we
are attempting to secure additional financing, there can be no assurance that
such financing will be available to us on reasonable terms or at all. We have
not met the listing requirements required for continued listing of its
securities on the NASDAQ SmallCap Market and the Pacific Exchange Tier II and
the Company's stock is thinly traded on the over the counter bulletin board. See
Item 6 "Management's Discussion and Analysis or Plan of Operation-Liquidity and
Capital Resources."

         Competition. In both our biopharmaceutical industry market and in the
market for its process systems for the food, beverage, and dairy industries, we
face intense competition from better-capitalized competitors. See Item 1
"Business-Competition."

                                    Page 19
<PAGE>

         Dependence on Joint Ventures and Strategic Partnerships. Our entry into
the food, dairy and beverage market for our process systems will be
substantially dependent upon our ability to enter into strategic partnerships,
joint ventures or similar collaborative alliance with established companies in
each market. There can be no assurance that the terms of any such alliances will
produce profits. See Item 1 "Business-Necessity of Alliances and Partnerships."

         Dependence on key personnel: Our success will depend, in large part, on
our ability to attract and retain highly qualified scientific and business
personnel, competition for which is intense. We may be unable to retain the
necessary personnel to implement our business plan.

         Dependence on key vendors: We depend on key vendors to supply us with
key components for our products. Any disruptions at these vendors or their
ability to supply products or services could adversely affect our ability to
deliver on our commitments to our customers.

Item 7.  Financial Statements
------   --------------------

         (a)      Financial Statements. The financial statements of the Company
as of December 31, 2001, and for the year then ended have been audited by
Bedinger & Company, 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, Bedinger & Company ..... 21

Balance Sheet as of December 31, 2001 ...................................... 22

Statements of Operations for the years ended December 31, 2001 and 2000 .... 23

Statement of Shareholders' Equity (Deficit) for the years ended
December 31, 2001 and 2000 ................................................. 24

Statements of Cash Flows for the years ended December 31, 2001 and 2000 .... 25

Notes to Financial Statements .............................................. 26

                                    Page 20
<PAGE>

                          Independent Auditor's Report


                                       February 22, 2002


To the Board of Directors and Shareholders
Sepragen Corporation:

We have audited the accompanying balance sheet of Sepragen Corporation (the
"Company") as of December 31, 2001, and the related statements of operations,
shareholders' deficit, and cash flows for each of the two years in the period
ended December 31, 2001. 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 audits.

We conducted our audits 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 examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the December 31, 2001 financial statements referred to above
present fairly, in all material respects, the financial position of Sepragen
Corporation as of December 31, 2001, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2001 in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has suffered
recurring losses from operations that raises substantial doubt about its ability
to continue as a going concern. Management plans in regards to these matters are
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Certified Public accountants


Bedinger & Company
Walnut Creek, California

                                    Page 21
<PAGE>

<TABLE>
<CAPTION>
                                               SEPRAGEN CORPORATION
                                                   BALANCE SHEET
                                                 December 31, 2001


<S>                                                                                                   <C>
ASSETS

Current assets:

   Cash and cash equivalents                                                                          $     76,922

   Accounts receivable, less allowance for doubtful accounts of $45,000                                    416,546

   Stock purchase receivable                                                                                50,000

   Inventories (Note C)                                                                                    234,258

   Prepaid expenses                                                                                         18,000
                                                                                                      ------------

       Total current assets                                                                                795,726
                                                                                                      ------------

Furniture and equipment, net (Note D)                                                                       84,094

Intangible Assets, net (Note A)                                                                             15,959
                                                                                                      ------------

           Total assets                                                                               $    895,779
                                                                                                      ============

LIABILITIES AND DEFICIT IN SHAREHOLDERS' DEFICIT

Current liabilities:

   Trade accounts payable                                                                             $    512,787

   Notes payable to shareholders (Note E)                                                                  215,000

   Accrued payroll and benefits                                                                            439,740

   Accrued liabilities                                                                                      68,377

   Interest payable                                                                                         39,012

   Customer deposit                                                                                        101,322
                                                                                                      ------------

       Total current liabilities                                                                         1,376,238
                                                                                                      ------------

COMMITMENTS (Note K)
Redeemable convertible Series A Preferred stock, no par value--5,000,000 shares authorized; 175,439
shares issued and outstanding (total liquidation preference of $500,000)                              $    500,000

SHAREHOLDERS' EQUITY (DEFICIT): (Note B)
   Class A common stock, no par value--20,000,000 shares authorized;
     10,972,398 shares issued and outstanding at December 31, 2001                                      13,524,281
   Class B common stock, no par value--2,600,000 shares authorized;
     701,177 shares issued and outstanding at December 31, 2001                                          4,065,618
   Accumulated deficit                                                                                 (18,570,358)
                                                                                                      ------------

   Total shareholders' deficit                                                                            (980,459)
                                                                                                      ------------

       Total liabilities and shareholders' deficit                                                    $    895,779
                                                                                                      ============
</TABLE>

    The accompanying notes are an integral part of this financial statement.

                                    Page 22
<PAGE>

                              SEPRAGEN CORPORATION
                            STATEMENTS OF OPERATIONS


                                                            For the Year
                                                         Ended December 31,
                                                    ---------------------------

                                                        2001            2000
                                                        ----            ----

         Revenues:

         Net sales                                  $ 1,153,953     $ 1,495,697

       Cost of goods sold                               686,386         819,757
                                                    -----------     -----------

         Gross margin                                   467,567         675,940

       Selling, general, and administrative           1,280,259       1,495,752

       Research and development                         547,282         672,808
                                                    -----------     -----------

Total costs and expenses                              2,513,927       2,988,317
                                                    -----------     -----------

  Loss from operations                               (1,359,974)     (1,492,620)

Interest expense                                              0          (3,707)

Net loss                                             (1,359,974)     (1,496,327)
                                                    -----------     -----------

Loss per common share, basic and diluted            $     (0.14)    $     (0.18)

Weighted average common shares outstanding            9,496,908       8,099,719


   The accompanying notes are an integral part of these financial statements.

                                    Page 23
<PAGE>

<TABLE>
<CAPTION>
SEPRAGEN CORPORATION

STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------------------------

                                                  Common Stock
                                -------------------------------------------------------
                                          Class A                      Class B
                                          -------                      -------             Additional                      Total
                                  Number of                    Number of                     Paid-in    Accumulated    Shareholder's
                                   Shares         Amount        Shares        Amount         Capital       Deficit        Deficit
                                ------------   ------------  ------------  ------------   ------------  ------------   ------------
<S>                               <C>          <C>                <C>      <C>            <C>           <C>            <C>
BALANCES
December 31, 1999                  5,412,562     10,948,207       701,177     4,065,618             --   (15,714,057)      (700,232)

Conversion of Series A
Preferred Stock                       35,002        100,000                                                                 100,000

Issuance of Class A Common
Stock at $0.68 per share
(net of offering costs of
$5,707)                            2,022,334      1,369,480                                                               1,369,480

Issuance of Class A Common
Stock for accrued liabilities
at $0.75 per share                    36,000         27,000                                                                  27,000

Issuance of Class A Common
Stock for notes payable and
accrued interest at $0.74 per
share                                199,833        148,565                                                                 148,565

Compensation for issuance
of stock options                                    129,330                                                                 129,330

Exercise of Warrants to
purchase Class A Common Stock
at $0.50 per share                    30,000         15,000                                                                  15,000

Issuance of Class A Common
Stock for services and accrued
liabilities at $0.75 per share        60,000         45,000                                                                  45,000

Net loss for period ending
12/31/01                                                                                                  (1,496,327)    (1,496,327)
                                ------------   ------------  ------------  ------------   ------------  ------------   ------------
BALANCES
December 31, 2000                  7,795,731   $ 12,782,582       701,177  $  4,065,618   $         --  $(17,210,384)  $   (362,184)
                                ============   ============  ============  ============   ============  ============   ============

Issuance of Class A Common
Stock at $0.25 per share (net
of offering costs of $43,702)      2,990,000        703,798                                                                 703,798

Issuance of Class A Common
Stock in exchange of a note
receivable                           200,000         50,000                                                                  50,000

Redemption of Class E Common               `        (12,099)                                                                (12,099)
Cancellation of Class A Common       (13,333)

Net loss for period ending
12/31/01                                                                                                  (1,359,974)    (1,359,974)
BALANCES
December 31, 2001                 10,972,398   $ 13,524,281       701,177  $  4,065,618   $         --  $(18,570,358)  $   (980,459)
                                ============   ============  ============  ============   ============  ============   ============
</TABLE>

                        See Notes to Financial Statements

                                    Page 24
<PAGE>

<TABLE>
<CAPTION>
                                            SEPRAGEN CORPORATION
                                           STATEMENT OF CASH FLOWS
------------------------------------------------------------------------------------------------------------
                                                                                    Year Ended December 31,
                                                                                  --------------------------
                                                                                      2001           2000
                                                                                  -----------    -----------
<S>                                                                               <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                                      ($1,359,974)   ($1,496,327)
    Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation                                                                       44,489         90,944
    Amortization                                                                       29,272         24,978
    Issuance of common stock at a discount                                                           174,330
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES
    (Increase) Decrease in current assets:
     Accounts receivable                                                               36,072        (53,601)
     Inventories                                                                       31,121         (4,843)
     Prepaid expenses                                                                  30,486        (33,975)
    Increase (Decrease) in current liabilities:
     Accounts payable                                                                  75,231        (92,852)
     Accrued liabilities                                                              (23,493)       (38,482)
     Accrued payroll and benefits                                                     315,253        (28,194)
     Interest payable                                                                    (306)       (27,991)
     Customer deposits                                                                 75,516         25,806
                                                                                  -----------    -----------
NET CASH USED FOR OPERATING ACTIVITIES:                                              (746,333)    (1,460,207)
                                                                                  -----------    -----------

CASH FLOWS FROM INVESTING
ACTIVITIES:
    Acquisition of fixed assets                                                       (95,610)       (20,905)
                                                                                  -----------    -----------
NET CASH (USED) FOR INVESTING ACTIVITIES                                              (95,610)       (20,905)
                                                                                  -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from issuance of common stock                                            703,798      1,369,480
    Redemption of Common E shares                                                     (12,099)
    Proceeds from exercise of
    warrants                                                                                          15,000

    Net proceeds (principal repayments) from notes payable from stockholders'         170,000       (134,435)
    Net repayments of notes payable                                                   (25,000)       (45,000)
                                                                                  -----------    -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES                                      836,699      1,205,045
                                                                                  -----------    -----------

NET INCREASE (DECREASE) IN CASH                                                        (5,244)      (276,067)
CASH, beginning of period                                                              82,166        358,233
                                                                                  -----------    -----------
CASH, end of period                                                               $    76,922    $    82,166
                                                                                  ===========    ===========
SUPPLEMENTAL DISCLOSURE
    Cash paid during the year for                                                 $       800    $       800
    taxes
    Conversion of liabilities into common stock                                                      175,565
    Cash paid for interest                                                                            18,000
    Conversion (Redemption) of Class E to                                             (12,099)        12,099
    liability
</TABLE>

                        See Notes to Financial Statements

                                    Page 25
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 2001 and 2000


Note A - 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 purification 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 affect 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 of its customers. The Company maintains reserves for potential
credit losses on customer accounts, when probable, and such losses have been
within management's expectations.

         Approximately 30% and 49% of net sales for the years ended December 31,
2001 and 2000, respectively, were to customers outside the United States.

         For the year ended December 31,2001, two customers individually
accounted for 34% and 13% of sales. For the year ended December 31, 2000, the
Company had two customers who individually accounted for 20% and 15% of sales.

         For the year ended December 31, 2001, three customers individually
accounted for 35%, 14% and 9% of accounts receivable.

         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. Management performs periodic assessments
to determine the existence of obsolete, slow moving and non-salable inventories,
and records necessary provisions to reduce such inventories to net realizable
value.

         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 that 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.

         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. Accumulated amortization on patents is
$174,060 on December 31, 2001.

                                    Page 26
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 2001 and 2000


         Fair value of financial instruments. The fair value of cash and cash
equivalents, accounts receivable and accounts payable approximates carrying
value due to the short-term nature of such instruments. Based on borrowing rates
currently available to the Company for bank loans with similar terms and
maturities, the fair value of the Company's notes payable approximates the
carrying value.

         Income Taxes: The Company uses an asset and liability approach for
income taxes. Deferred income tax assets and liabilities are computed 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
established 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.

         Revenue Recognition: The Company recognizes revenue from product sales
upon shipment and customer acceptance.

         Research and development: Expenses related to present and future
products are expensed as incurred.

         Loss Per Common Share: Basic loss per share is calculated using the
weighted average number of common shares outstanding in the period. Diluted loss
per share includes potentially dilutive securities such as outstanding options
and warrants, using the "treasury stock "method and convertible securities using
the "if-converted" method. The assumed exercise of options and warrants and
assumed conversion of convertible securities have not been included in the
calculation of diluted loss per share as the affect would be anti-dilutive.

         Stock Based Compensation: 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.

         Impact of Accounting Standards: In June 2001, the FASB issued SFAS No.
141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets." Under these new standards, all acquisitions subsequent to June 30, 2001
must be accounted for under the purchase method of accounting and purchased
goodwill is no longer amortized over its useful life. Instead, goodwill will be
subject to a periodic impairment test based upon its value. The Company does not
expect any effect on its financial position or results of operations from the
adoption of this statement. In August 2001, the FASB issued SFAS No. 143,
"Accounting for Asset retirement Obligations." SFAS 143 establishes accounting
standards for recognition and measurement of a liability for the costs of asset
retirement obligations. Under SFAS 143, the costs of retiring an asset will be
recorded as a liability when the retirement obligation arises, and will be
amortized to expense over the life of the asset. The Company does not expect any
effect on its financial position or results of operations from the adoption of
this statement. In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long lived assets and
discontinued operations. The Company does not expect any effect on its financial
position or results of operations from the adoption of this statement.

Note B - Going Concern and management plans:

         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 quarters. Accordingly, there can be no
assurance 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

                                    Page 27
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 2001 and 2000


operating revenues and/or raise additional equity capital sufficient to generate
enough cash flow 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
obtained. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Note C - Inventories:

         Inventories consist of the following at December 31, 2001:

                  Raw materials                            $ 103,565
                  Work in process                             46,707
                  Finished goods                              83,986
                                                           ---------
                                                           $ 234,258
                                                           =========

Note D - Furniture and Equipment:

         Furniture and equipment consist of the following at December 31, 2000:

                  Leasehold improvement                    $  91,968

                  Office equipment                            94,642

                  Machinery                                   93,831

                  Furniture and fixtures                       5,813

                  Lab Equipment                              114,033

                  Autos                                        6,309
                                                           ---------

                                                             406,596

                  Less accumulated depreciation and
                  amortization                              (322,502)
                                                           ---------
                                                           $  84,094
                                                           =========

Note E - 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
December 1998, the Company converted $165,000 of the shareholder's debt
including accrued interest of $11,657 into 368,035 shares of Class A Common
Stock. In 1999, the Company paid $20,000 to a shareholder. In August, 1999, the
Company received proceeds from a convertible note payable from a shareholder of
$260,000 with interest at 9.5% per annum. In March 2000, a shareholder converted
$130,000 Note payable into 173,333 shares of Class A Common stock. The remaining
balance of $130,000 was paid in April 2000. Between January and March 2000, the
Company repaid $30,000 of the shareholder notes and converted $10,000 of related
party notes payable accrued interest into 11,150 shares of Class A Common Stock.
In 2000, the Company paid $25,000 to unrelated party and $25,565 to
shareholders. In December 2000, the Company received $50,000 in convertible
notes payable with interest at 10% per annum from a shareholder. Between
February and November 2001, the Company borrowed an aggregate of $170,000 in
convertible notes payable with interest at 7% per annum from various
shareholders. The company repaid $25,000 of these notes payable during the year.

                                    Page 28
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 2001 and 2000


NOTE F - Series A 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 ($2.85
per share). There were no underwriting discounts or commissions paid in
connection with the transaction.

         The shares of Series A Preferred Stock were sold pursuant to exemptions
from registration under section 4(2) and Regulation S under the Securities Act
of 1933, in a transaction that was not publicly offered. Anchor is a New Zealand
corporation.

         The Company's Series A Preferred Stock provides for both a 7.5%
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. 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 dividend 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 affecting 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 future material breach.

         On September 15, 1999, the Company issued 35,002 shares of Series A
Preferred Stock to Monterey Mechanical Co. of Oakland, California upon the
conversion of $100,000 of accounts payable into Series A 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. On March 17,
2000, Monterey Mechanical converted all of its 35,002 shares of Series A
Preferred Stock into 35,002 shares of Class A Common Stock.

Note G - Class A Common Stock

         The Company issued 625,000 of its Class A Common Stock at $.48 per
share, to two individual investors in December, 1998. Net proceeds were
$300,000. In addition to the warrants issued to a shareholder in connection with
the debt financing, the Company has issued an additional warrants to purchase
112,951 shares of Class A Common Stock to other shareholders and creditors who
converted outstanding debt into common stock in December, 1998. The warrants
were issued on substantially the same terms as those issued to a shareholder.

         In September 1999, Sepragen Corporation sold 290,667 shares of Class A
Common Stock at $.75 per share to four investors in a private transaction exempt
from securities registration under the Securities Act of 1933, as amended, and
raised $218,000.In December 1999, the Company sold 922,667 shares of Class A
Common Stock at $.75 per share to six investors and raised $692,000 in gross
proceeds and $657,499 in net proceeds. It also converted $129,261 of deferred
salary and consulting fees into 142,013 Class A Common Stock. These transactions
were exempt from securities registration under the Securities Act of 1933, as
amended.

         In March 2000, the Company sold 2,022,334 shares of Class A Common
Stock at $.75 per shares to ten investors and raised $1,516,750 in gross
proceeds and $1,369,480 in net proceeds, pursuant to a private offering managed
by Crown Point. LLC. The shares were offered on a best efforts basis for a
selling commission of 5% of gross proceeds and warrants to purchase 8% of the

                                    Page 29
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 2001 and 2000


shares sold in the offering at an exercise price of $0.50 per share having an
expiration date of December 31, 2002. The shares of Class A Common Stock were
sold pursuant to exemption from registration under section 4(2) and 4(6) under
the Securities Act of 1933 and Regulation D promulgated under the Securities Act
of 1933, in a transaction that was not publicly offered. In March 2000, the
Company issued 36,000 Class A Common Stock for $27,000 accrued liability,
199,833 Class A Common Stock for $148,565 for notes payable and accrued interest
and 60,000 shares of Class A Common Stock for $45,000 for services and accrued
liabilities. 30,000 Class A Common shares were sold for the exercise of warrants
at $0.50 per share or $15,000. These transactions were exempt from securities
registration under the Securities Act of 1933, as amended.

         In September 2001, the Company sold 2,990,000 shares of Class A Common
at $0.25 per share to seventeen investors and raised $747,500 in gross proceeds
and $703,398 in net proceeds. The Company also received a $50,000 note
receivable from a director to purchase 200,000 shares of Class A Common at $0.25
per share. These transactions were exempt from securities registration under the
Securities Act of 1933, as amended. During 2001, the Company issued warrants to
shareholders to purchase 670,200 shares of the Company's Class A Common Stock.
The vesting period of these warrants range from immediate to two years, with
expiration dates ranging from three to five years. The exercise price of these
warrants is $0.25. The company also cancelled 13,333 shares of Class A Common
Stock that were previously issued for no consideration. The company redeemed the
Class E Common Stock in the amount of $12,099.

Note H - 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 one to ten years. Shares issued under the
existing stock option agreements 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 determined by the Board of Directors, provided that no option
may be exercised 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.

                                    Page 30
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                      Years ended December 31, 2001and 2000


         The Company has 218,324 options that are outstanding that are held by
the CEO at exercise prices ranging from $0.38 to $5.00. These options have
vested based upon prior performance objectives.

         The following table summarizes the Company's stock option activity for
the years ended December 31:

                                   2001                      2000
                         -----------------------   -----------------------
                                       Weighted-                 Weighted-
                                        Average                   Average
                                       Exercise                  Exercise
                           Shares        Price       Shares        Price
                         ----------   ----------   ----------   ----------

Outstanding at
beginning of year         1,468,361   $     1.23    1,298,361   $     1.29

   Granted                   54,000         0.50      170,000         0.83

   Forfeited               (725,058)        0.69           --           --
                         ----------   ----------   ----------   ----------

Outstanding at end of
year                        797,303         1.68    1,468,361   $     1.23
                         ==========   ==========   ==========   ==========



Options exercisable at      616,428                 1,201,361
year-end
                         ==========                ==========

                                    Page 31
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 2001 and 2000


         The following table summarizes information about the Company's stock
options outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                         Options Outstanding                 Options Exercisable
            -----------------------------------------    --------------------------
               Number        Average       Weighted        Number
Range of    Outstanding     Remaining       Average     Outstanding at    Weighted
Exercise    at December    Contractual     Exercise      December 31,      Average
 Prices       31, 2001     Life (years)      Price           2001      Exercise Price
--------    -----------    -----------    -----------    -----------    -----------
<S>             <C>               <C>     <C>                <C>        <C>
$0.38 to
$0.56           196,982           1.74    $      0.45        186,982    $      0.45

$0.72 to
$1.50           419,000           2.18           0.83        248,125           0.84


 $5.00          181,321           3.23           5.00        181,321           5.00
            -----------    -----------    -----------    -----------    -----------

Total           797,303           2.31    $      1.68        616,428    $      1.95
            ===========    ===========    ===========    ===========    ===========
</TABLE>

         In October, 1998, the Company reduced the exercise price of Stock
options from $0.88 to $7.62 per share to the fair market value of $0.38 per
share for specific individuals. Compensation expense relating to the reduction
in exercise price was immaterial to the financial statements.

         The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its options issued to
employees.

         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 per share in 2001 and 2000 would have been:

                                                      2001              2000
                                                      ----              ----

             Net loss as reported                 $(1,359,974)      $(1,496,327)

             Pro forma                            $ (1382,114)      $(1,620,082)

             Net loss per share, as reported      $     (0.14)      $     (0.18)

             Pro forma                            $     (0.15)      $     (0.20)

                                    Page 32
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 2001 and 2000


         The weighted average fair value of options granted during 2001 and 2000
was $0.41 and $0.79, respectively. The fair value of each option granted in 2001
and 2000 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:

                                                      2001              2000
                                                      ----              ----

             Risk free interest rate                  4.64%             5.11%

             Expected life (years)                       4.             4.76

             Volatility                                175%              179%

             Dividend yield                             --                --


Note I - Income taxes

         Deferred tax assets are comprised of the following at December 31, 2001
(rounded):

             Net operating loss carry forwards                      $ 6,456,000

             Research and development credit carry forwards             628,000

             Other differences between financial reporting and
             tax basis of assets and liabilities                         64,000
                                                                    ===========

                                                                      7,148,000

             Valuation allowance                                     (7,148,000)
                                                                    -----------

             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 $426,000 for the year ended December 31, 2001.

         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:

                                                      2001              2000
                                                      ----              ----

             Risk free interest rate                  4.64%             5.11%
             Statutory federal income tax rate          34%               34%

             State income taxes                          6                 6

             Change in valuation allowance             (40)%             (40)%
                                                        --                --
                                                     =====             =====

         At December 31, 2001, the Company had net operating loss carry forwards
available to reduce its future taxable income of approximately $17,648,000, for
federal income tax purposes, and $3,345,000 for California State franchise
purposes. These net operating losses expire at various times through 2021.

                                    Page 33
<PAGE>

                              SEPRAGEN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               Years ended December 31, 2001 and 2000 (Continued)


         For federal and state tax purposes, the Company's net operating loss
and tax credit carry forwards could be subject to certain limitations on annual
utilization due to changes in ownership, as defined by federal and state laws.

Note J - Commitments

         The Company currently rents its office and production facility under an
annual operating lease which expires December 31, 2005. Rental expense for the
years ended December 31, 2001 and 2000 was $193,004 and $102,120, respectively.
The minimum rental commitment remaining on the leased property is as follows:

         Years Ending December 31:
                   2002                   197,570
                   2003                   204,123
                   2004                   210,937
                   2005                   218,025
                                         --------
                      Total              $830,655
                                         ========

Note K - Segment reporting

         Sepragen has two operating segments based on the nature of the
customer's industry, the biotech and food (dairy) and beverage segments. The
chief operating decision-maker is the Company's Chief Executive Officer who
regularly reviews segment performance. Selling, general and administrative
expenses are not allocated to individual segments. There are no significant
assets that are identifiable to a segment. Operating results by segment for the
years ended December 31, 2001 and 2000 are as follows:

                                   2001                      2000
                                   ----                      ----

                                        Food and                  Food and
                           Biotech      Beverage     Biotech      Beverage
                          ----------   ----------   ----------   ----------
     Sales                 1,153,953   $        0   $1,353,000   $  143,000

     Cost of goods           686,306            0      770,000       50,000
                          ----------   ----------   ----------   ----------

     Gross Profit         $  467,567   $        0      583,000       93,000

                                    Page 34
<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 doubt 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 accountants
                  was approved by the Board of Directors of the Company.
         (iv)     There have been and are no current disagreements with Coopers
                  & Lybrand LLP (predecessor entity to Pricewaterhouse Coopers
                  LLP) on any matter of accounting principles or practices,
                  financial statements disclosure, or auditing scope or
                  procedure.
         (v)      Effective February 6, 1998, Grant Thornton LLP, was engaged as
                  principal independent accountant for Sepragen Corporation.
         (vi)     Effective November 28, 2000, Grant Thornton, LLP resigned as
                  principal independent accountants for Sepragen Corporation
         (vii)    There has been no disagreement with Grant Thornton, LLP on any
                  matter of accounting principles or practices, financial
                  statement disclosures, or auditing scope or procedure.
         (viii)   The opinion for the year ended December 31, 1998 was
                  unqualified except for a modification with respect to the
                  Company's ability to continue as a going concern and the
                  opinion for the year ended December 31, 1999 was unqualified.
         (ix)     Effective December 18, 2000, the Company has selected Bedinger
                  Company as its independent accountants.
         (x)      The change of independent accountants was approved by the
                  Board of Directors of the Company.

                                    Page 35
<PAGE>

                                    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 authorized by the
Bylaws of the Company is up to six.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------

Name, Offices and Position                                                                   First
with the Company or Principal                                                                Became a
Occupation and Directorships                                                         Age     Director
----------------------------                                                         ---     --------
-----------------------------------------------------------------------------------------------------

<S>                                                                                  <C>      <C>
VINIT SAXENA                                                                         46       1985
         President, Chief Executive Officer, Chief Financial 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
         background includes several years as a biochemical engineer, product
         marketing manager, and prior to joining Sepragen, as a product
         marketing manager for industrial chromatography with Bio-Rad
         Laboratories (from 1980-1984) and a manager of production and
         bioengineering for Bio-Response (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 director of Scan Incorporated of
         Mountain View, California, a privately held artificial intelligence
         medical imaging company.
-----------------------------------------------------------------------------------------------------

ARMIN RAMEL                                                                          76       1986
         Director of the Company since September 1986 and was elected as
         Secretary of the Company in 1995. He has been employed since July 1993
         as Vice President of Product Development of Scios Nova Inc., a publicly
         held biotech 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 Research 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.
-----------------------------------------------------------------------------------------------------

HENRY N. EDMUNDS.*                                                                   59       1997
         Dr. Edmunds became Chief Financial officer of the Company in December
         2000. He served as Vice President and Chief Financial Officer of
         Prometheus, in San Diego, from 1999 to 2000 and was Vice President and
         Chief Financial Officer of SangStat Medical Corporation, a Menlo Park,
         California based company, from 1992 to 1999. 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
         University.
-----------------------------------------------------------------------------------------------------
</TABLE>

                                    Page 36
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------

Name, Offices and Position                                                                   First
with the Company or Principal                                                                Became a
Occupation and Directorships                                                         Age     Director
----------------------------                                                         ---     --------
-----------------------------------------------------------------------------------------------------

<S>                                                                                  <C>      <C>
JOHN WALKER.*                                                                        55       1998
         Mr. Walker successfully managed and sold companies in separations and
         dairy fields. He founded the Northern California region of TEC (The
         Executive Committee, an organization dedicated to the empowerment of
         CEOs). He mentors six new chairpersons of TEC. He also runs his
         consulting firm John Walker and Associates, which provides, among other
         things, strategic planning and management assistance to high tech
         companies. Mr. Walker has a B.A. in Industrial Engineering from Georgia
         Tech and an M.B.A. from Stanford University.
-----------------------------------------------------------------------------------------------------

JOSEPH R. MALLON, JR.                                                                56       1999
         On April 1, 1995, Mr. Mallon was appointed President, Chief Executive
         Officer of the Board of Measurement Specialties, Inc. ("MSI"). Mr.
         Mallon has served on the Board of Directors of MSI since April 1, 1992.
         In October 1985, Mr. Mallon co-founded NovaSensor, a leader in the
         field of micromachined pressure and acceleration sensors, where he
         served as Co-President and Director until its acquisition in 1990, by
         Lucas Industries, Inc., a United States subsidiary of Lucas Industries
         plc of the United Kingdom. From that time until his departure in
         January of 1993, Mr. Mallon was the Executive Vice President and
         Director of Lucas Nova Sensor. Mr. Mallon holds a B.S. in Science from
         Farleigh Dickinson University, and a M.B.A. from California State
         University.
-----------------------------------------------------------------------------------------------------

K.CHARLES JANAC                                                                      44       2000
         Mr. Janac has served as the President and Chief Executive Officer of
         Smart Machines, Inc. from November 1994 to September 1999 (when Smart
         machines was acquired by Brooks Automation), and as Vice President and
         General Manager of Brooks Automation from October 1999 to present. He
         has an M.B.A. from Stanford University and MS in Organic Chemistry from
         Tufts University. Mr. Janac resigned as a director of the Company
         effective March 1, 2002
-----------------------------------------------------------------------------------------------------
JON  A. SALQUIST                                                                     56       2001
         Mr. Salquist is the managing partner of Mackenzie River Partners. He
         also serves on the board of D&J research, OMLC (Oregon Medical Laser
         Center. He is also a partner in Ardent Research a high-tech hedge fund.
         Mr. Salquist has started several high tech companies and provided
         financing and direction for numerous others over the last 25 years. Mr.
         Salquist attended University of Oregon, Portland State University and
         Stanford Business School for executives (A.E.A).
-----------------------------------------------------------------------------------------------------
</TABLE>

---------------
*        Member of the Compensation Committee and Audit Committee.

         All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors receive
compensation for serving on the Board of Directors as described below. The
Company has established audit and compensation committees, a majority of whose

                                    Page 37
<PAGE>

members must be non-employee directors. Dr. Edmunds and Mr. Walker serve on the
audit and compensation committees. Officers are elected annually by the Board of
Directors and serve at the discretion of the Board.

         Subsequent event:

         Mr. K. Charles Janac resigned his position as a director of the Company
effective March 1, 2002.

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 obtained directors' and officers'
liability insurance. No assurance can be given that the Company will be able to
maintain such insurance at a reasonable price. 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 Underwriting Agreement for
the Company's IPO contains provisions under which the Company and Blair have
agreed to indemnify each other (including officers 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

                  Henry Edmunds          Forms 3 and 5

                  John Walker            Forms 3 and 5

                  Charles Janac          Forms 3 and 5

Item 10. Executive Compensation
-------  ----------------------

Compensation of Directors

         Members of the Board of Directors who are not employees of the Company
do not currently receive cash compensation. Pursuant to the stock option plans,
they are eligible for stock options.

                                    Page 38
<PAGE>

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. Mr. Saxena's
agreement is for a six-year term. Mr. Saxena is to receive a salary of $125,000
per annum, plus bonuses up to $25,000 per annum. Such compensation may be
increased and bonuses may be given upon the approval of the Board of Directors
of the Company. Mr. Saxena has agreed to devote his full time and efforts to his
employment with the Company. He 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 will be entitled
to receive his salary plus fringe benefits for a period of 36 months, from the
date of termination and any bonuses prorated through the date of termination, so
long as he does not violate the non-disclosure and non-solicitation provisions
of his agreement; provided, however, any salary and benefits to be received
after termination will be reduced by any salary and benefits he receives from
any successor position during the post-termination payment period.

         Mr. Saxena has agreed not to disclose to anyone confidential
information of the Company during the term of his employment or thereafter and
will not compete with the Company during the term of his employment. All work,
research and results thereof, including, without limitation, inventions,
processes or formulae, conceived or developed by Mr. Saxena 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. The
employment agreement expired on August 20, 2000.

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 beneficiary under such
policy.

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 ("ISO's") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options ("NQSO's") 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 un-issued 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 Directors of
the Company, which determines, in its discretion, among other things, the
recipients of grants, whether a grant will consist of ISO's or NQSO's, 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 directors who are "non-employee directors" within the
meaning of Rule 16b-3 promulgated under the Exchange Act. The exercise price for
ISO's 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.

                                    Page 39
<PAGE>

         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. ISO's are
not transferable other than by will or the laws of descent and distribution.
NQSO's may be transferred to the optionee's spouse or lineal descendants,
subject to certain restrictions. 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 ISO's granted there under 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 ISO's 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 ("ISO's") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options ("NQSO's") 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 un-issued 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.

                                    Page 40
<PAGE>

Options Granted

         As of January 1, 2001, the Company had outstanding 1,468,361 options to
purchase shares of Class A Common Stock issued but during the year 725,058
expired. The board has not extended the time or granted replacement option. In
2001 the Company granted 54,000 of options to two consultants.

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 granted nonqualified options to various investors and
current and former directors, employees, and consultants to the Company of which
one option remains outstanding to purchase 314 shares of Class B Common Stock at
an exercise price of $3.01 per share, which is 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 was terminated effected
December 31, 2001.

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, 1999.

<TABLE>
<CAPTION>
                                               Annual Compensation         L-T Compensation
                                               -------------------         ----------------

(a)                                 (b)           (c)          (d)                (g)

                                                                         Securities underlying
Name and Principal Position         Year      Salary (1)      Bonus         Options/SAR's(#)

<S>                                 <C>        <C>             <C>                 <C>
Vinit Saxena, President, Chief      2001       $135,147        $0                  0
Executive Officer and Chief
Financial Officer

                                    2000       $134,327        $0                  0

                                    1999       $133,906        $0                  0
                                    ----------------------------------------------------------
</TABLE>


---------------
(1)      Includes health insurance costs for Mr. Saxena and his family in the
         amounts of $7,700, $7,596, and $10,147 during 1999, 2000 and 2001,
         respectively. Mr. Saxena `s 2001 compensation includes $57,292 paid and
         $67,708 accrued pay.

                                    Page 41
<PAGE>

Aggregated Option/SAR Exercises in Last Fiscal Year 2000 and
2001 Fiscal Year-End Option/SAR Values

<TABLE>
<CAPTION>
(a)                         (b)           (c)                 (d)                           (e)

                                                      Number of Securities       Value of Unexercised In-
                           Shares        Value       Underlying Unexercised       the-Money Options/SAR's
                        Acquired on    Realized     Options/SAR's at FY-End              at FY End
Name                    Exercise (#)      ($)     Unexercisable   Exercisable   Unexercisable   Exercisable
---------------------   ------------      ---     -------------   -----------   -------------   -----------

<S>                           <C>          <C>          <C>         <C>              <C>             <C>
Vinit Saxena                  0            $0           0           218,324          $0              $0
President, Chief
Executive Officer,
Chief Financial
Officer & Chairman of
the Board
</TABLE>

---------------

         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.

                                    Page 42
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management.
-------  --------------------------------------------------------------

         The following table sets forth certain information as to the beneficial
ownership of the Company's Common Stock as of March 20, 2002 of: (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Class A and Class B Common Stock, (ii) each director of
the Company and (iii) all officers and directors of the Company as a group.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------

Name and Address of Bene-     Number of Shares of Common     Percentage of Common Stock     Percentage of
fician Owner or Number in         Stock Beneficially           Beneficially Owned (1)       Voting Power
Group                                  Owned(1)
---------------------------------------------------------------------------------------------------------
<S>                                    <C>                               <C>                     <C>
Vinit Saxena (2)                         662,690                          6%                     13%
   30689 Huntwood Avenue
   Hayward, CA 94544
---------------------------------------------------------------------------------------------------------

Michael Schneider (3)                    852,930                          7%                     15%
   150 Encinal Avenue
   Atherton, CA 94025
---------------------------------------------------------------------------------------------------------

K. Charles Janac (4)                   1,151,549                         10%                      8%
   651 River Oaks Parkway
   San Jose, CA 95134
---------------------------------------------------------------------------------------------------------

Eliezer Sternheim, Ph.D. (5)             572,916                          5%                      4%
   46871 Bayside Parkway
   Fremont, CA 94538
---------------------------------------------------------------------------------------------------------

Henry N. Edmunds  (6)                    190,218                          2%                      1%
   11096 Caminito Alvarez
   San Diego, CA 92126-5710
---------------------------------------------------------------------------------------------------------

Armin Ramel, Ph.D. (7)                   127,688                          1%                      *%
   4 Sandstone
   Portola Valley, CA 94028
---------------------------------------------------------------------------------------------------------

Joseph R. Mallon (8)                     112,000                          1%                      *%
   5 Tanager Lane
   Morristown, NJ 07960
---------------------------------------------------------------------------------------------------------

John Walker (9)
   980 Covington Road                     50,000                          *%                      *%
   Los Altos, CA 94024
---------------------------------------------------------------------------------------------------------

Jon Salquist (10)                        960,000                          8%                      7%
   2725 N.W. Circle A Drive
   Portland, OR 97229
---------------------------------------------------------------------------------------------------------

All directors and executive            3,254,145                         26%                     31%
officers as a group (6 in
number)
---------------------------------------------------------------------------------------------------------
* = less than 1%.
</TABLE>

                                    Page 43
<PAGE>

(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. We
         have two classes of Common Stock outstanding, Class A and Class B.
         Class E Common Stock became subject to redemption on March 31, 2000 and
         a notice of redemption has declared June 15, 2000 to be the effective
         date of the redemption and was not included in the above calculations.
(2)      Amounts and percentages include (i) 296,281 shares of Class B Common
         Stock which is convertible into one share of Class A Common Stock;
         (each share of Class B Common Stock has five votes per share); (ii)
         62,369 shares of Class A Common Stock; (iii) options to purchase
         218,324 shares of Class A Common Stock; (iv) 57,813 shares of Class A
         Common Stock and options to purchase 22,000 shares of Class A Common
         Stock, held by Renu Saxena, an employee of the Company and the spouse
         of Vinit Saxena; and (v) 5,903 shares of Class B Common Stock owned
         jointly by Renu Saxena and Rakesh Chabra (Renu Saxena's brother).
(3)      Amounts and percentages include 337,483 shares of Class B Common Stock
         and 515,447 shares of Class A Common Stock.
(4)      Amounts and percentages include 876,882 shares of Class A Common Stock
         and warrants to purchase 274,667 shares of Class A Common Stock.
(5)      Amounts and percentages include 520,833 shares of Class A Common Stock
         and warrants to purchase 52,083 shares of Class A Common Stock.
(6)      Amounts and percentages include (i) options to purchase 40,000 shares
         of Class A Common Stock granted under our Stock Option Plans; (ii)
         10,000 Class C Warrants to purchase Class A Common Stock, (iii) 127,471
         shares of Class A Common Stock and (iv) warrants to purchase 12,747
         shares of Class A Common Stock.
(7)      Amounts and percentages include (i) options to purchase 61,747 shares
         of Class A Common Stock granted under our Stock Option Plans; (ii)
         59,946 shares of Class A Common Stock; and (iii) warrants to purchase
         5.995 shares of Class A Common Stock.
(8)      Amounts and percentages include 72,000 shares of Class A Common Stock
         and options to purchase 40,000 shares of Class A Common Stock granted
         under our Stock Option Plans.
(9)      Amounts and percentages include options to purchase 40,000 shares of
         Class A Common Stock granted under our Stock Option Plans and an option
         to purchase 10,000 shares of Class A Common Stock.
(10)     Amounts and percentages include 800,000 shares of Class A Common Stock
         and warrants to purchase 160,000 shares of Class A Common Stock.


Item 12. Certain Relationships and Related Transactions.
-------  ----------------------------------------------

Grant of stock options

         The following directors and officers were granted stock options:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                Grant Date      Expire Date      Option Shares      Exercise $/share
----------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------
<S>                              <C>              <C>               <C>                   <C>
John Walker, Director            12/1/98          12/01/02          40,000                0.50
Joe Mallon, Director             12/1/99          12/01/03          40,000                0.72
John Walker, Director            2/4/00           01/01/05          10,000                0.75
K. Charles Janac, Director       07/10/00         07/09/05          40,000                0.78


----------------------------------------------------------------------------------------------------
</TABLE>

         Grants of warrants: Mr. Jon Salquist, a director of the company, was
granted 80,000 Class A warrants at $0.25 exercise price that will expire by
August 20, 2006.

                                    Page 44
<PAGE>

         The following officer and directors purchased Bridge Notes and related
Class C warrants from us pursuant to our November 3, 1997 private placement:

                  Dr. Kris Venkat             $10,000

                  Dr. Henry N. Edmunds        $10,000

                  Dr. Quirin Miranda          $25,000

         Drs. Venkat and Miranda were repaid in August 1998 and Dr. Edmunds
converted his note to Class A Common Stock on December 15, 1998.

Shareholder notes

         In May 1997, we borrowed $100,000 from a shareholder, payable with
interest at 9.5% per annum and was due March 1, 1999. In June 1997, we borrowed
$25,000 from Dr. Armin Ramel, a director and shareholder of the Company, payable
with interest at 9.5% per annum and such debt was converted to Class A Common
Stock on December 15, 1998. In June 1998, we borrowed $125,000 from H. Michael
Schneider, a former director and shareholder of the Company, payable with
interest at 9.5% per annum, and such debt was converted into Class A Common
Stock on December 15, 1998. In August 1998, we borrowed $30,000 from Robert
Leach, a former director and shareholder of the Company, payable with interest
at 9.5% per annum, and $15,000 of such debt was converted into Class A Common
Stock on December 15, 1998 . In March 2000, Mr. Leach converted $10,000 of his
Note payable into 11,500 shares of Class A Common Stock and the balance of
$8,958 in principal and accrued interest was paid in July 2000. In December
2000, we borrowed $50,000 from H. Michael Schneider, a former director and
shareholder of the Company. In 2001 we borrowed an aggregate of $130,000 from H.
Michael Schneider.

Series A Preferred Stock

         On September 1, 1998, we sold 175,439 shares of Series A Preferred
Stock. All of the shares of Series A Preferred Stock were sold 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 us and Anchor, whereby the Company
licensed to 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 ($2.85 per share). There were no underwriting
discounts or commissions paid in connection with the transaction.

         The shares of Series A Preferred Stock were sold pursuant to exemptions
from registration under section 4(2) and Regulation S under the Securities Act
of 1933, in a transaction that was not publicly offered. Anchor is a New Zealand
corporation.

         Our Series A Preferred Stock provides for both a 7.5% dividend and
liquidation preferences. The dividend is payable from time to time at the
election of our Board of Directors of the Company subject to our 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 dividend 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

                                    Page 45
<PAGE>

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
affecting the Class A Common Stock.

         Anchor may require us to immediately redeem the preferred shares in the
event of certain covenant breaches of the license agreement by us. We are
currently in compliance with all such covenants and do not anticipate any future
material breach.

Conversion of Debt

         On December 15, 1998, we 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.

         On December 15, 1998, we 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.

         On December 15, 1998, we 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.

         On December 15, 1998, we 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.

         On December 15, 1998, we issued to Michael Schneider, a former director
and more than 5% shareholder of the Company, 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.

         On December 15, 1998, we 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.

         On March 15, 1999, we issued to Vinit Saxena, Chief Operating officer,
62,369 shares of Class A Common Stock at $0.48 per share in exchange for $29,937
of deferred salary.

         On March 15, 1999, we issued Sanjeev Saxena, an employee and brother of
Vinit Saxena, 35,938 shares of Class A Common Stock at $0.48 per share in
exchange for $17,250 of deferred salary.

         On March 15, 2000, we issued to Renu Saxena, an employee and spouse of
Vinit Saxena, 21,875 shares of Class A Common Stock at $0.48 per share in
exchange for $10,500 of deferred salary.

         On December 15, 1999, we issued to Koyah Leverage Partners 266,667
shares of Class A Common Stock at $0.75 per share in exchange for $200,000 cash.

                                    Page 46
<PAGE>

         On December 15, 1999, we issued to Koyah Partners LP 66,667 shares of
Class A Common Stock at $0.75 per share in exchange for $50,000 cash.

         On December 15, 1999, we issued to Joseph R. Mallon 72,000 shares of
Class A Common Stock at $0.75 per share in exchange for $54,000 cash.

         On December 15, 1999, we issued to Summit Securities, Inc. 333,333
shares of Class A Common Stock at $0.75 per share in exchange for $250,000 cash.

         On August 18, 1999, we received proceeds from convertible note payable
from H. Michael Schneider, former director and shareholder of $260,000 with
interest at 9.5% per annum. In March 2000, Mr. Schneider converted $130,000 of
the note payable into 173,333 shares of Class A Common Stock. The remaining
balance of $130,000 was paid in April 2000.

         On March 31, 2000, Private Situations Equity Fund, L.P. purchased
1,333,334 shares of Class A Common Stock at $0.75 per share and entered into a
registration rights agreement covering those shares. In addition, we must issue
13,333 shares of Class Common Stock to Special Situations for each month after
July 15, 2000 in which a registration statement covering their shares has not
been declared effective by the Securities and Exchange Commission. On the day
the Securities and Exchange Commission declared the registration effective
26,666 additional shares have been issued.

         Crown Point Securities, as placement agent in connection with a private
placement of Class A Common Stock completed in March 2000 received commissions
and a warrant to purchase 272,720 shares of Class A Common Stock at an exercise
price of $0.50 per share having an expiration date of March 31, 2005.

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 Report:

                  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.

                  3.3(6)   Certificate of Determination

                  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

                                    Page 47
<PAGE>

                  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

                  4.7(7)   Warrant Agreement with Charles Janac

                  4.8      Registration Rights Agreement with Special Situations
                           Private Equity Fund, L.P. dated March 31, 2000

                  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

                  10.9(7)  Convertible Secured Promissory Note issued by the
                           Company to Charles Janac

                  10.10(7) Security Agreement with Charles Janac

                  10.11(7) Patent and Trademark Mortgage

                  16.1(5)  Letter on Change in Certifying Accountant.

                  23       Consent of Bedinger & Company

                                    Page 48
<PAGE>

                  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.

                  (6)      These exhibits which are incorporated herein by
                           reference were previously filed by the Company as
                           exhibits to its Report on Form 8-K dated September 4,
                           1998.

                  (7)      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, 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 8-K report was filed in 2001.

                                    Page 49
<PAGE>

                                   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 13th day of April 2001.

                                       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                                                   April 5, 2002
------------------------------
Vinit Saxena
(Principal Executive Officer) Chief Executive Officer,
President, Chairman of the Board, and Director



/s/ ARMIN RAMEL                                                    April 5, 2002
------------------------------
Armin Ramel
Director and Secretary



/s/ HENRY N. EDMUNDS                                               April 5, 2002
------------------------------
Henry N. Edmunds
Director and Chief Financial Officer



/s/ JON SALQUIST                                                   April 5, 2002
------------------------------
Jon Salquist
Director



/s/ JOHN WALKER                                                    April 5, 2002
------------------------------
John Walker
Director



/s/ JOSEPH R. MALLON, JR.                                          April 5, 2002
------------------------------
Joseph R. Mallon, Jr.
Director

                                    Page 50
<PAGE>

                                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
-------  -----------------------------------------------------------------------
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.

3.3(6)   Certificate of Determination Series A Preferred Stock

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

4.7(7)   Warrant Agreement with Charles Janac

4.8      Registration Rights Agreement with Special Situations Private Equity
         Fund, L.P. dated March 31, 2000

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

10.9(7)  Convertible Secured Promissory Note issued by the Company to Charles
         Janac

10.10(7) Security Agreement with Charles Janac

10.11(7) Patent and Trademark Mortgage

16.1(5)  Letter on Change in Certifying Accountant.

23       Consent of Bedinger & Company

                                    Page 51
<PAGE>

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.

    (6)  These exhibits which are incorporated herein by reference were
         previously filed by the Company as exhibits to its Report on Form 8-K
         dated September 4, 1998.

                                    Page 52