SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarter ended August 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number 1-11047
SPARTA SURGICAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 22-2870438
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Bernal Corporate Park
7068 Koll Center Parkway, Pleasanton, CA 94566
(Address of principal executive offices)
(510) 417-8812
(Issuer's telephone number)
Check whether the issuer (1) 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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of August 31, 1995, 3,892,279 shares of Common Stock, 300,438 shares of
Redeemable convertible Preferred Stock and 50,210 shares of Series A Convertible
Redeemable Preferred Stock were outstanding.
<PAGE>
SPARTA SURGICAL CORPORATION
Form 10-QSB
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of August 31, 1995 ................ 1 - 2
Condensed Consolidated Statements
of Operations for the three months and
six months ended August 31, 1995 and 1994 .. 3
Condensed Consolidated Statements
of Cash Flows for the six months
ended August 31, 1995 and 1994 ............. 4 - 5
Notes to Financial Statements .............. 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations .................. 7 - 10
Part II. Other Information and Signatures ........................ 11 - 14
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
August 31, 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .................................. $ 25,424
Accounts receivable - trade, net of allowance
for doubtful accounts of $50,337 .......................... 1,519,021
Inventories ................................................ 4,370,013
Prepaid expenses ........................................... 139,358
-----------
Total Current Assets .................................... 6,053,816
-----------
Property and Equipment, at cost:
Machinery and equipment .................................... 1,855,196
Other equipment ............................................ 527,352
Leasehold improvements ..................................... 68,799
-----------
2,451,347
Less accumulated depreciation ............................... (1,274,925)
-----------
Net Property and Equipment .............................. 1,176,422
-----------
Other Assets:
Intangible assets, net of
accumulated amortization .................................. 1,142,708
Deposits and other ......................................... 60,423
Notes receivable - related entities ........................ 821,419
Accounts receivable - officers ............................. 117,520
-----------
Total Other Assets ..................................... 2,142,070
-----------
Total Assets ........................................... $ 9,372,308
===========
The accompanying notes are an integral
part of these condensed consolidated financial statements
- 1 -
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
August 31, 1995
(Unaudited)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade ....................................... $ 923,548
Accrued expenses:
Payroll taxes and wages ....................................... 245,518
Interest and other ............................................ 335,529
Dividends payable .............................................. 31,381
Notes payable .................................................. 1,000,000
Current portion of accrued royalty payments .................... 84,594
Current portion of long-term debt .............................. 789,627
-----------
Total Current Liabilities .................................. 3,410,197
-----------
Long-Term Debt, net of current portion above:
Obligations under capital leases ............................... 176,223
Notes payable to officers ...................................... 18,288
Financial institutions and other ............................... 3,378,677
-----------
Total Long-Term Debt ..................................... 3,573,188
-----------
Commitments and contingencies ................................... --
Stockholders' Equity:
Preferred stock: $4.00 par value, 5,000,000 shares authorized;
Non-cumulative Convertible Redeemable Preferred Stock:
1,500,000 shares authorized, 300,438 shares issued and
outstanding ................................................ 1,201,752
Series A Cumulative Convertible Preferred Stock:
250,000 shares authorized, 50,210 shares issued and
outstanding ................................................ 200,840
Common Stock: $.002 par value, 30,000,000 shares authorized,
3,892,279 shares issued and outstanding ...................... 7,785
Additional paid in capital ..................................... 6,993,214
Accumulated deficit ............................................ (6,014,668)
-----------
Total Stockholders' Equity ................................ 2,388,923
-----------
Total Liabilities and Stockholders' Equity ................ $ 9,372,308
===========
The accompanying notes are an integral
part of these condensed consolidated financial statements
- 2 -
<PAGE>
<TABLE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
---------------------------- ----------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ...................................................... $ 1,931,481 $ 1,977,592 $ 3,700,943 $ 3,854,686
Cost of sales .................................................. 854,171 888,932 1,716,219 1,653,465
----------- ----------- ----------- -----------
Gross Profit .............................................. 1,077,310 1,088,660 1,984,724 2,201,221
Selling, general and administrative expenses ................... 686,657 819,222 1,173,147 1,495,477
Research and development expense ............................... 10,314 23,121 47,078 50,801
Depreciation and amortization .................................. 165,879 176,077 329,030 356,944
----------- ----------- ----------- -----------
Income From Operations ....................................... 214,460 70,240 435,469 297,999
----------- ----------- ----------- -----------
Other Income (Expense):
Interest and other income .................................... 3,581 18,812 8,188 24,800
Interest expense ............................................. (200,096) (209,500) (400,190) (382,251)
----------- ----------- ----------- -----------
Total Other Income (Expense) .............................. (196,515) (190,688) (392,002) (357,451)
----------- ----------- ----------- -----------
Income (Loss) Before Provision for Income Taxes ................ 17,945 (120,448) 43,467 (59,452)
Provision for income taxes ..................................... -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) .............................................. 17,945 (120,448) 43,467 (59,452)
Preferred stock dividends ...................................... (31,381) (33,000) (38,345) (33,000)
----------- ----------- ----------- -----------
Net Income (Loss) Applicable to Common Stockholders ............ $ (13,436) $ (153,448) $ 5,122 $ (92,452)
=========== =========== =========== ===========
Net Income (Loss) Per Share of Common Stock:
Primary:
Weighted average number of common shares outstanding ......... 3,665,307 2,175,910 3,502,826 1,999,502
=========== =========== =========== ===========
Net income (loss) per common share .......................... $ -- $ (.07) $ -- $ (.05)
=========== =========== =========== ===========
Fully Diluted:
Weighted average number of common shares outstanding ......... 3,889,574 2,175,910 3,871,297 1,999,502
=========== =========== =========== ===========
Net income (loss) per common share .......................... $ -- $ (.07) $ -- $ (.05)
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral
part of these condensed consolidated financial statements
- 3 -
</FN>
</TABLE>
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
August 31,
--------------------------
1995 1994
---- ----
Cash Flows From Operating Activities:
Net income (loss) ............................... $ 43,467 $ (59,452)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................. 329,030 356,944
Forgiveness of debt by officers ............... -- (1,053)
Reduction of intangibles due to adjustment
in acquisition costs ......................... -- 32,437
Gain on disposal of equipment ................. -- (9,250)
Changes in assets and liabilities:
(Increase) in accounts receivable ............ (216,521) (232,379)
(Increase) in inventories .................... (87,549) (119,206)
(Increase) decrease in prepaid expenses
and other ................................... 21,945 (44,566)
(Increase) decrease in deposits and other .... (12,796) 1,264
(Decrease) in accounts payable and accrued
expenses .................................... (214,801) (45,967)
----------- -----------
Net Cash (Used) By Operating Activities ..... (137,225) (121,228)
----------- -----------
Cash Flows From Investing Activities:
Proceeds from disposal of equipment ............. -- 61,950
Capital expenditures ............................ (15,358) (168,498)
Increase in intangible assets ................... (1,042) (34,667)
Increase in receivables from related entities ... (5,616) (82,689)
----------- -----------
Net Cash (Used) By Investing Activities ..... (22,016) (223,904)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing ........................ 3,807,768 4,063,326
Principal payments on notes payable ............. (3,581,676) (4,724,426)
Principal payments on accrued royalties ......... (46,953) (20,261)
Offering costs incurred ......................... -- (742,931)
Issuance of common stock upon exercise
of Warrants .................................... -- 204,746
Proceeds from public offering ................... -- 1,650,000
----------- -----------
Net Cash Provided By Financing Activities ... 179,139 430,454
----------- -----------
Net Increase in Cash and Cash Equivalents ... 19,898 85,322
Cash and Cash Equivalents at Beginning
of Period .................................. 5,526 13,796
----------- -----------
Cash and Cash Equivalents at End of Period .. $ 25,424 $ 99,118
=========== ===========
The accompanying notes are an integral
part of these condensed consolidated financial statements
- 4 -
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Six Months Ended
August 31,
-----------------------
1995 1994
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest ........................................... $ 362,036 $ 331,060
Income taxes ....................................... -- --
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Conversion of Convertible Redeemable Preferred
Stock into Common Stock ........................... $ 599,316 $ --
Conversion of notes payable into Common Stock ...... -- 1,163,192
Dividends payable on Series A Convertible
Preferred Stock ................................... 31,381 33,000
Stock dividends paid on Series A Convertible
Preferred Stock ................................... 6,964 --
Stock dividends paid on Redeemable Preferred Stock . -- 145,667
The accompanying notes are an integral
part of these condensed consolidated financial statements
- 5 -
<PAGE>
SPARTA SURGICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying financial information of the Company is prepared in
accordance with the rules prescribed for filing condensed interim financial
statements and, accordingly, does not include all disclosures that may be
necessary for complete financial statements prepared in accordance with
generally accepted accounting principles. The disclosures presented are
sufficient, in management's opinion, to make the interim information
presented not misleading. All adjustments, consisting of normal recurring
adjustments, which are necessary so as to make the interim information not
misleading, have been made. Results of operations for the six months ended
August 31, 1995 are not necessarily indicative of results of operations
that may be expected for the year ending February 28, 1996. It is
recommended that this financial information be read with the complete
financial statements included in the Company's Annual Report on Form 10-KSB
for the year ended February 28, 1995 previously filed with the Securities
and Exchange Commission.
- 6 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended August 31, 1995
as Compared to Three Months Ended August 31, 1994
Net sales for the three months ended August 31, 1995 ("Second Quarter Fiscal
1996") were $1,931,481, a 2.3% decrease from net sales of $1,977,592 for the
three month period ended August 31, 1994 ("Second Quarter Fiscal 1995"). The net
sales decrease during the Second Quarter Fiscal 1996 as compared to the Second
Quarter Fiscal 1995 is the result of a 6.6% increase in sales for the medical
product line offset with a 17.3% decrease in sales for the surgical and
electrotherapy product lines. The net income for the Second Quarter Fiscal 1996
was $17,945 as compared to a net loss of $120,448 for the Second Quarter Fiscal
1995. The increase in net income for the Second Quarter Fiscal 1996 as compared
to the Second Quarter Fiscal 1995 is primarily due to a decrease in selling,
general and administrative expense ("SG&A"), research and development expenses
("R&D"), depreciation and amortization and interest expenses in the approximate
aggregate amount of $164,974. The decrease in SG&A expenses for the Second
Quarter Fiscal 1996 as compared to the Second Quarter Fiscal 1995 is primarily
due to a company-wide cost reduction program which has been implemented since
the beginning of the current fiscal year.
Six Months Ended August 31, 1995
as Compared to Six Months Ended August 31, 1994
Net sales for the six months ended August 31, 1995 ("Six Months Fiscal 1996")
were $3,700,943, a 4.0% decrease from net sales of $3,854,686 for the six months
ended August 31, 1994 (" Six Months Fiscal 1995"). The net sales decrease during
the Six Months Fiscal 1996 as compared to the Six Months Fiscal 1995 is the
result of a 2.2% increase in sales for the medical product line offset with a
14.4% decrease in sales for the surgical and electrotherapy product lines.
The Company has increased its sales and marketing efforts to broaden the
customer base and target distributors for each of our product lines as well as
seek other joint product development and private label arrangements. As a result
of these efforts, on October 25, 1994 the Company signed a one year,
non-cancelable $500,000 contract with Henley Healthcare ("Henley") a division of
Maxxim Medical, Inc. in which the Company provided Henley with its Spectrum
Max-SD TENS units. The Henley contract was completed in July 1995. The Company
is currently negotiating a new contract with Henley and expects negotiations to
be finalized in late 1995. In addition, on January 1, 1995, the Company entered
into a 30 month exclusive wound care private label agreement with Kendall
Healthcare Products, Inc. ("Kendall") valued at $4,500,000. Sales to our private
label customers for the Six Months Fiscal 1996 have increased as compared to the
same period last year.
Gross profit was $1,984,724 or 53.6% of net sales for the Six Months Fiscal 1996
as compared to $2,201,221 or 57.1% of net sales for the Six Months Fiscal 1995.
The decrease in gross profit percentage is primarily due to a shift in product
sales mix towards private label sales which generally have lower gross profits
than other sales. In addition, as a result of changing market conditions, the
sales prices on certain products have been lowered thereby resulting in reduced
gross profit margins. Although private label sales generate lower gross profit
margins they provide benefits in long-range planning of production schedules and
overall factory utilization.
- 7 -
<PAGE>
Selling, general and administrative ("SG&A") expenses for the Six Months Fiscal
1996 were $1,173,147, a 21.6% decrease from SG&A expenses of $1,495,477 for the
Six Months Fiscal 1995. The decrease in SG&A expenses for the Six Months Fiscal
1996 as compared to the Six Months Fiscal 1995 is primarily due to a
company-wide cost reduction program which has been implemented since the
beginning of the current fiscal year.
Research and development ("R&D") expenses for the Six Months Fiscal 1996 were
$47,078, a 7.3% decrease from R&D expenses of $50,801 for the Six Months Fiscal
1995. R&D for the Six Months Fiscal 1996 include expenses related to the
completion of the development and the preparation for market introduction of the
new Hydrogel Wound Dressing and expenses related to the redesign of the
Company's TENS units in an effort to reduce the cost of goods for the
electrotherapy product line. On April 12, 1995, the Company announced it
received a 510(k) clearance from the Food and Drug Administration for its new
Hydrogel Wound Dressing.
Depreciation and amortization ("D&A") expenses for the Six Months Fiscal 1996
were $329,030, a 7.8% decrease from D&A expenses of $356,944 for the Six Months
Fiscal 1995. During the Six Months Fiscal 1996, D&A expenses decreased due to
the complete amortization of certain loan costs and the full depreciation of
certain assets.
Net interest expense for the Six Months Fiscal 1996 was $392,002, a 9.7%
increase over net interest expense of $357,451 for the Six Months Fiscal 1995.
The increase in net interest expense is primarily due to interest paid in
connection with a $1,000,000 loan received in November 1994. See "- Liquidity
and Capital Resources."
As a result of the foregoing, net income for the Six Months Fiscal 1996 was
$43,467, an increase of $102,919 from a net loss of $59,452 for the Six Months
Fiscal 1995. The increase in net income for the Six Months Fiscal 1996 as
compared to the Six Months Fiscal 1995 is primarily due to a decrease in
operating expenses partially offset by an increase in interest expense.
Primary income per share was $-- for the Six Months Fiscal 1996 as compared to a
primary loss per share of $.05 for the Six Months Fiscal 1995. Fully diluted
income per share, which assumes all dilutive preferred share conversions and the
exercise of all dilutive stock options and warrants, was $-- for the Six Months
Fiscal 1996 as compared to a fully diluted loss of $.05 per share for the Six
Months Fiscal 1995. The primary and fully diluted income per share computations
reflect dividends or accrued on the Series A Convertible Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's primary sources of working capital have been
revenues from operations, bank and private party loans and proceeds from the
sale of securities.
As of February 28, 1995, the Company had net operating loss carry forwards of
approximately $6,000,000. Availability of the Company's net operating loss carry
forwards, if not utilized, will expire at various dates through the year 2010.
The Company's working capital at August 31, 1995 was $2,643,619 as compared to
$2,335,067 at February 28, 1995 . The Company's working capital position
increased by $308,552 primarily due to an increase in accounts receivable and
inventories partially offset by an increase in the current portion of long term
debt.
- 8 -
<PAGE>
On October 4, 1993, the Company entered into a financing agreement with Congress
Financial Corporation ("Congress") pursuant to which Congress provided the
Company with a 24-month Revolving Loan Facility of up to $5,000,000 (the
"Loan"). The Company agreed to pay Congress interest on the average outstanding
principal amount of the Loan at a per annum rate of prime plus 3%. In addition,
beginning in March 1994, the Company agreed to pay Congress a minimum borrowing
monthly fee equal to the difference between the interest actually paid with
respect to the Loan and the interest which would have been paid if the principal
amount of the Loan had equaled $3,500,000. The Loan is advanced to the Company
based on a percentage of eligible assets and is secured by a first lien on all
of the assets of the Company. Accordingly, the amount of available funds under
the loan may be substantially less than $5,000,000. In addition, the Loan is
subject to certain financial covenants related to working capital and tangible
net worth and is personally guaranteed by Thomas F. Reiner, the Company's Chief
Executive Officer and Chairman. At February 28, 1995 the Company was in default
of various loan covenants, on June 9, 1995 Congress issued waivers retroactive
to February 28, 1995. At August 31, 1995 the Company was in compliance with all
of its loan covenants. On July 29, 1994, the Company and Congress entered into a
one-year extension agreement through October 4, 1996. As of August 31, 1995, the
outstanding balance on the Loan was $2,211,515 and approximately $16,000 in
credit was available under the Loan.
On January 20, 1994, Sparta Maxillofacial Products, Inc. ("SMPI"), a wholly
owned subsidiary of the Company purchased certain assets of the OMF product line
of Storz, a subsidiary of American Cyanamid Company, for $1,550,000 including
$100,000 in cash and the issuance of a $1,450,000 promissory note to Storz
bearing interest at 9% per annum due January 20, 2002 (the "January 20, 1994
Agreement"). On September 8, 1994, SMPI filed a claim against Storz with the New
York Office of the American Arbitration Association. The claim alleges that
certain material misrepresentations and omissions were made by Storz in
connection with the Company's purchase of certain assets of Storz' OMF product
line on January 20, 1994 and seeks to recover an as yet undetermined amount of
damages it sustained. On or about July 12, 1994 the Company had a $300,000
payment due to Storz under the January 20, 1994 Agreement. As a result of the
alleged wrongful actions by Storz, on July 18, 1994 the Company made an election
to offset $400,000 against the $300,000 payment and against future payments due
under the January 20, 1994 Agreement. In October 1994, Storz filed a response
and counterclaim to the Company's action seeking to accelerate all amounts due
under the $1,450,000 promissory note issued to it by the Company. The Company
intends to vigorously defend the counterclaim.
On November 18, 1994, the Company borrowed $1,000,000 from Arbora A.G., a
nonaffiliated Swiss corporation ("Arbora") evidenced by an unsecured promissory
note (the "Note") bearing interest at 10% per annum payable interest only
commencing January 1, 1995 with principal due in full on June 5, 1995. The Note
provided that if not paid by June 5, 1995, it would automatically convert into
Common Stock on the basis of 125% of the number of shares of Common Stock
necessary to repay the Note in full based upon the average bid price of the
Common Stock on NASDAQ for the 10 trading days prior to June 5, 1995. The
Company is currently negotiating an extension of the due date of the Note and
does not intend on implementing the automatic conversion feature of the Note. If
issued, the shares are expected to be issued under the exemption provided by
either Section 4(2) or Regulation S of the Securities Act of 1933, as amended.
As additional consideration for the Note, the Company issued to Arbora 1,000,000
common stock purchase warrants, each warrant exercisable at $1.40 per share at
any time until November 18, 1997. The Note may also be converted at any time
prior to payment by the Company into shares of the Company's Common Stock at a
conversion price equal to the lesser of $1.75 per share or the average bid price
of the Common Stock on NASDAQ for the 10 trading days prior to the conversion
date. Shares issuable upon exercise of the common stock purchase warrant or upon
conversion of the Note carry piggyback registration rights. In connection with
the loan, the Company paid finders' fees aggregating $82,500 to three
nonaffiliated firms.
- 9 -
<PAGE>
On March 21, 1995, the Company commenced an offering (the "Offering") pursuant
to a registration statement effective on that date on the NASDAQ SmallCap Market
("NASDAQ") of 1,600,000 Units of its securities (each Unit consisting of four
shares of Sparta Common Stock and Three Series B Common Stock Purchase Warrants)
through Coleman and Company Securities, Inc. ("Coleman"). On the same date,
approximately one hour after trading in the Units was initiated on NASDAQ,
NASDAQ suspended the listing of the Units and Warrants and reported to the
Company that it took such action because it believed that the Units and/or
Warrants did not meet certain NASDAQ listing criteria. Promptly after the NASDAQ
action, Coleman terminated the Underwriting Agreement with the Company, and all
sales of the Units were rescinded. On March 22, 1995, NASDAQ determined that it
would permit the Company to list the Units and Warrants and so advised the
Company. Following NASDAQ's decision to list the Units and Warrants, the Company
and Coleman attempted to resume the Offering on the same terms and conditions as
indicated in the March 21, 1995 Registration Statement. On March 31, 1995,
Coleman advised the Company that it would not resume the Offering and,
accordingly, the Offering was terminated.
On June 7, 1995, the Company served upon Coleman a demand letter which sought
payment to the Company in the amount of $631,229. This amount was equal to the
expenses incurred by the Company in the Offering, which are being sought from
Coleman due to its breach of the underwriting agreement governing that Offering.
Thereafter, on July 28, 1995 the Registrant was served with a complaint filed by
Coleman claiming approximately $5,100,000 in punitive and compensatory damages
against the Company as a result of certain alleged material misrepresentations
and omissions made in connection with the information provided to Coleman by the
Company for purposes of the Offering, and a breach by the Company of its
underwriting agreement with Coleman. The Company regards these allegations as
entirely meritless and frivolous and intends to vigorously defend the action. On
August 25, 1995, the Company filed a response and counterclaim against Coleman
and certain of its officers, directors and agents in the approximate amount of
$12.5 million in compensatory damages and an additional $12.5 million in
punitive damages.
On September 28, 1995, the Company filed suit against the National Association
of Securities Dealers ("NASD") and The NASDAQ Stock Market, Inc. ("NASDAQ"). The
lawsuit seeks damages of more than $12.5 million, relating to the defendants'
alleged mishandling the Offering in March 1995. In the complaint, the Company
alleges that the defendants misrepresented the status of the Company's stock
listings, misapplied NASD regulations and interfered with the Company's
relationships with its underwriters and investors.
The Company anticipates that its existing capital resources will enable it to
maintain its current and planned operations for at least 12 months from the date
hereof. The Company's capital requirements will depend on numerous factors,
including the acquisition of new product lines and/or other business operations
and the continued development of existing product sales, distribution and
marketing capabilities.
- 10 -
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Computation of Primary Earnings Per Share (Page 12).
Computation of Fully Diluted Earnings Per Share (Page 13).
Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K
The Company filed a Form 8-K dated August 3, 1995 to report that on
June 7, 1995, the Company served upon Coleman and Company Securities,
Inc. ("Coleman"), the underwriter in the Company's public offering
(the "Offering"), which Offering was aborted earlier this year, a
demand letter which sought payment to the Company in the amount of
$631,229. This amount was equal to the expenses incurred by the
Company in the Offering, which are being sought from Coleman due to
its breach of the underwriting agreement governing that Offering.
Thereafter, on July 28, 1995 the Company was served with a complaint
filed by Coleman claiming approximately $5,100,000 in punitive and
compensatory damages against the Company as a result of certain
alleged material misrepresentations and omissions made in connection
with the information provided to Coleman by the Company for purposes
of the Offering, and a breach by the Company of its underwriting
agreement with Coleman. The Company regards these allegations as
entirely meritless and frivolous and intends to vigorously defend the
action. On August 25, 1995, the Company filed a response and
counterclaim against Coleman and certain of its officers, directors
and agents in the approximate amount of $12.5 million in compensatory
damages and an additional $12.5 million in punitive damages.
The Company filed a Form 8-K dated October 2, 1995 to report that on
September 28, 1995, the Company filed suit against the National
Association of Securities Dealers ("NASD") and The NASDAQ Stock
Market, Inc. ("NASDAQ"). The lawsuit seeks damages of more than $12.5
million, relating to the defendants' alleged mishandling the Offering
in March 1995. In the complaint, the Company alleges that the
defendants misrepresented the status of the Company's stock listings,
misapplied NASD regulations and interfered with the Company's
relationships with its underwriters and investors.
- 11 -
<PAGE>
<TABLE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
---------------------------- ----------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period ...................... 3,837,983 2,294,215 3,228,408 1,726,977
Shares issued during the period (weighted average) ............. 14,824 69,195 461,918 662,361
Shares repurchased during the period (weighted average) ........ -- -- -- (202,336)
Dilutive shares contingently issuable upon exercise of
options and warrants(weighted average) ......................... -- -- -- --
Less shares assumed to have been purchased for treasury
with assumed proceeds of stock warrants and options
(weighted average) ............................................. -- -- -- --
Less shares placed in escrow which are issuable only if
certain income or stock price criteria are met
(weighted average) ............................................. (187,500) (187,500) (187,500) (187,500)
----------- ----------- ----------- -----------
Total Primary Shares ........................................... 3,665,307 2,175,910 3,502,826 1,999,502
=========== =========== =========== ===========
Net Income (Loss) Applicable to Common Stockholders ............ $ (13,436) $ (153,448) $ 5,122 $ (92,452)
=========== =========== =========== ===========
Net Income (Loss) Per Primary Share ............................ $ -- $ (.07) $ -- $ (.05)
=========== =========== =========== ===========
</TABLE>
- 12 -
<PAGE>
<TABLE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
---------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period ....................... 3,837,983 2,294,215 3,228,408 1,726,977
Shares issued during the period (weighted average) .............. 51,591 69,195 642,889 662,361
Shares repurchased during the period (weighted average) ......... -- -- -- (202,336)
Dilutive shares contingently issuable upon exercise of
options and warrants (weighted average) ......................... -- -- -- --
Less shares assumed to have been purchased for treasury
with assumed proceeds of stock warrants and options
(weighted average) .............................................. -- -- -- --
Less shares placed in escrow which are issuable only if
certain income or stock prices are met, as they are
anti-dilutive (weighted average) ................................ -- (187,500) -- (187,500)
----------- ----------- ----------- -----------
Total Fully Diluted Shares ...................................... 3,889,574 2,175,910 3,871,297 1,999,502
=========== =========== =========== ===========
Net Income (Loss) Applicable To Common Stockholders ............. $ (13,436) $ (153,448) $ 5,122 $ (92,452)
=========== =========== =========== ===========
Net Income (Loss)per Fully Diluted Share ........................ $ -- $ (.07) $ -- $ (.05)
=========== =========== =========== ===========
</TABLE>
- 13 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Sparta Surgical Corporation
/s/ Thomas F. Reiner
- ---------------------------
Thomas F. Reiner
Chairman of the Board
President & CEO
/s/ W. Samuel Veazey
- ---------------------------
W. Samuel Veazey
Vice President of Finance
and Administration
October 13, 1995
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Feb-28-1996
<PERIOD-START> Mar-01-1995
<PERIOD-END> Aug-31-1995
<CASH> 25,424
<SECURITIES> 0
<RECEIVABLES> 1,519,021
<ALLOWANCES> 0
<INVENTORY> 4,370,013
<CURRENT-ASSETS> 6,053,816
<PP&E> 2,451,347
<DEPRECIATION> 1,274,925
<TOTAL-ASSETS> 9,372,308
<CURRENT-LIABILITIES> 3,410,197
<BONDS> 3,573,188
<COMMON> 7,785
0
1,402,592
<OTHER-SE> 978,546
<TOTAL-LIABILITY-AND-EQUITY> 9,372,308
<SALES> 3,700,943
<TOTAL-REVENUES> 3,700,943
<CGS> 1,716,219
<TOTAL-COSTS> 1,716,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 400,190
<INCOME-PRETAX> 43,467
<INCOME-TAX> 0
<INCOME-CONTINUING> 43,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,467
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
