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 November 30, 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 (I.R.S. Employer
of 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 November 30, 1995, 3,984,024 shares of Common Stock, 286,138 shares of
Redeemable Convertible Preferred Stock and 46,710 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 November 30, 1995 1 - 2
Condensed Consolidated Statements
of Operations for the three months and
nine months ended November 30, 1995 and 1994 3
Condensed Consolidated Statements
of Cash Flows for the nine months
ended November 30, 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
November 30, 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .................................. $ --
Accounts receivable - trade, net of allowance
for doubtful accounts of $50,337 ......................... 1,065,342
Inventories ................................................ 4,202,868
Prepaid expenses ........................................... 122,295
------------
Total Current Assets .................................... 5,390,505
------------
Property and Equipment, at cost:
Machinery and equipment .................................... 1,857,372
Other equipment ............................................ 527,865
Leasehold improvements ..................................... 68,799
------------
2,454,036
Less accumulated depreciation ............................... (1,366,523)
------------
Net Property and Equipment .............................. 1,087,513
------------
Other Assets:
Intangible assets, net of
accumulated amortization .................................. 887,805
Deposits and other ......................................... 113,880
Notes receivable - related entities ........................ 821,419
Accounts receivable - officers ............................. 120,757
------------
Total Other Assets ..................................... 1,943,861
------------
Total Assets ........................................... $ 8,421,879
============
The accompanying notes are an integral
part of these condensed consolidated financial statements
-1-
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
November 30, 1995
(Unaudited)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade ....................................... $ 807,621
Accrued expenses:
Payroll taxes and wages ....................................... 85,307
Interest and other ............................................ 69,955
Dividends payable .............................................. 5,839
Notes payable .................................................. 2,050,000
Current portion of accrued royalty payments .................... 44,277
Current portion of long-term debt .............................. 842,841
------------
Total Current Liabilities .................................. 3,905,840
------------
Long-Term Debt, net of current portion above:
Obligations under capital leases ............................... 159,716
Notes payable to officers ...................................... 18,288
Financial institutions and other ............................... 1,924,678
------------
Total Long-Term Debt ..................................... 2,102,682
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, 286,138 shares issued
and outstanding ............................................ 1,144,552
Series A Cumulative Convertible Preferred Stock:
250,000 shares authorized, 46,710 shares issued
and outstanding ............................................ 186,840
Common Stock: $.002 par value, 30,000,000 shares authorized,
3,984,024 shares issued and outstanding ...................... 7,968
Additional paid in capital ..................................... 7,095,612
Accumulated deficit ............................................ (6,021,615)
------------
Total Stockholders' Equity ................................ 2,413,357
------------
Total Liabilities and Stockholders' Equity ............... $ 8,421,879
============
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 Nine Months Ended
November 30, November 30,
------------------------------ -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales .............................................. $ 1,549,326 $ 1,929,958 $ 5,250,269 $ 5,784,644
Cost of sales .......................................... 779,242 873,443 2,495,461 2,526,908
----------- ----------- ----------- -----------
Gross Profit ...................................... 770,084 1,056,515 2,754,808 3,257,736
----------- ----------- ----------- -----------
Selling, general and administrative
expenses ............................................... 575,303 831,752 1,748,450 2,327,229
Research and development expense ....................... 5,337 22,550 52,415 73,351
Depreciation and amortization .......................... 123,291 163,840 452,321 520,784
----------- ----------- ----------- -----------
Income From Operations ............................... 66,153 38,373 501,622 336,372
----------- ----------- ----------- -----------
Other Income (Expense):
Interest and other income ............................ 1,639 8,852 9,827 33,652
Interest expense ..................................... (68,900) (201,190) (469,090) (583,441)
----------- ----------- ----------- -----------
Total Other Income (Expense) ...................... (67,261) (192,338) (459,263) (549,789)
----------- ----------- ----------- -----------
Income (Loss) Before Provision for
Income Taxes ........................................... (1,108) (153,965) 42,359 (213,417)
Provision for income taxes ............................. -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) ...................................... (1,108) (153,965) 42,359 (213,417)
Preferred stock dividends .............................. (5,839) (17,589) (44,184) (50,589)
----------- ----------- ----------- -----------
Net Income (Loss) Applicable to
Common Stockholders .................................... $ (6,947) $ (171,554) $ (1,825) $ (264,006)
=========== =========== =========== ===========
Net Income (Loss) Per Share of
Common Stock:
Primary:
Weighted average number of
common shares outstanding .......................... 3,773,853 2,955,644 3,592,508 2,315,898
=========== =========== =========== ===========
Net income (loss) per common share ................. $ -- $ (.06) $ -- $ (.11)
=========== =========== =========== ===========
Fully diluted:
Weighted average number of
common shares outstanding .......................... 3,773,853 2,955,644 3,934,631 2,315,898
=========== =========== =========== ===========
Net income (loss) per common share ................. $ -- $ (.06) $ -- $ (.11)
=========== =========== =========== ===========
<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)
Nine Months Ended
November 30,
--------------------------
1995 1994
---- ----
Cash Flows From Operating Activities:
Net income (loss) ............................... $ 42,359 $ (213,417)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ................ 452,321 520,784
Forgiveness of debt by officers .............. -- (1,053)
Gain on disposal of equipment ................ -- (9,250)
Reduction of expenses on settlement of
Storz claim ................................. (135,184) --
Changes in assets and liabilities:
(Increase) in accounts receivable ........... (42,836) (196,559)
(Increase) decrease in inventories .......... 79,596 (144,454)
(Increase) decrease in prepaid expenses
and other .................................. 39,008 (77,450)
(Increase) in deposits and other ............ (66,253) (7,203)
(Decrease) in accounts payable and
accrued expenses ........................... (518,516) (497,092)
----------- -----------
Net Cash (Used) By Operating Activities ..... (149,505) (625,694)
----------- -----------
Cash Flows From Investing Activities:
Proceeds from disposal of equipment ............. -- 61,950
Capital expenditures ............................ (18,048) (195,052)
Increase in intangible assets ................... (1,042) (1,537)
Increase in receivables from related entities ... (8,461) (80,689)
----------- -----------
Net Cash (Used) By Investing Activities ..... (27,551) (215,328)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing ........................ 5,590,030 7,036,674
Principal payments on notes payable ............. (5,331,230) (6,762,415)
Principal payments on accrued royalties ......... (87,270) (65,251)
Debt issuance cost .............................. -- (86,531)
Offering costs incurred ......................... -- (795,486)
Issuance of common stock upon exercise
of Warrants .................................... -- 207,631
Proceeds from public offering ................... -- 1,650,000
----------- -----------
Net Cash Provided By Financing Activities ... 171,530 1,184,622
----------- -----------
Net Increase in Cash and Cash Equivalents ... (5,526) 343,600
Cash and Cash Equivalents at Beginning
of Period .................................. 5,526 13,796
----------- -----------
Cash and Cash Equivalents at End of Period .. $ -- $ 357,396
=========== ===========
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)
Nine Months Ended
November 30,
-----------------------
1995 1994
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest ......................................... $ 469,090 $ 410,777
Income taxes ..................................... -- --
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Conversion of Preferred Stock into Common Stock ... $ 670,516 $ 97,160
Conversion of notes payable into Common Stock ..... -- 1,163,192
Dividends payable on Series A Convertible
Preferred Stock .................................. 31,381 17,589
Stock dividends paid on Series A Convertible
Preferred Stock .................................. 6,964 33,000
Stock dividends paid on Redeemable Convertible
Preferred Stock .................................. -- 145,667
Deferred offering costs offset against proceeds
of public offering ............................... -- 186,710
Reduction of intangibles due to adjustment in
acquisition cost ................................. -- 32,437
Reduction of note payable due to settlement
of Storz claim ................................... 400,000 --
Reduction of royalties payable due to settlement
of Storz claim ................................... 62,495 --
Reduction of intangibles due to settlement of
Storz claim ...................................... 223,210 --
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 nine months ended
November 30, 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 November 30, 1995
as Compared to Three Months Ended November 30, 1994
Net sales for the three months ended November 30, 1995 ("Third Quarter Fiscal
1996") were $1,549,326, a 19.7% decrease from net sales of $1,929,958 for the
three month period ended November 30, 1994 ("Third Quarter Fiscal 1995"). The
net sales decrease during the Third Quarter Fiscal 1996 as compared to the Third
Quarter Fiscal 1995 is the result of a 7.5% decrease in sales for the medical
product line coupled with a 33.3% decrease in sales for the surgical and
electrotherapy product lines. The net loss for the Third Quarter Fiscal 1996 was
$1,108 as compared to a net loss of $153,965 for the Third Quarter Fiscal 1995.
The decrease in net loss for the Third Quarter Fiscal 1996 as compared to the
Third 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 $439,288 offset by the gross profit effect of the net sales decrease
during the Third Quarter Fiscal 1996. The decrease in operating expenses for the
Third Quarter Fiscal 1996 as compared to the Third 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 and with the
elimination of all accrued interest, royalty and legal expenses for the current
fiscal year in the approximate aggregate amount of $135,184 related to the
Company's settlement of its claim against Storz Instrument Company ("Storz") on
October 17, 1995. See "- Liquidity and Capital Resources."
Nine Months Ended November 30, 1995
as Compared to Nine Months Ended November 30, 1994
Net sales for the nine months ended November 30, 1995 ("Nine Months Fiscal
1996") were $5,250,269, a 9.2% decrease from net sales of $5,784,644 for the
nine months ended November 30, 1994 (" Nine Months Fiscal 1995"). The net sales
decrease during the Nine Months Fiscal 1996 as compared to the Nine Months
Fiscal 1995 is the result of a 0.8% decrease in sales for the medical product
line coupled with a 19.5% decrease in sales for the surgical and electrotherapy
product lines. The decrease in sales for the surgical and electrotherapy product
lines can be primarily attributed to the decrease in the Company's working
capital which resulted in the shifting of financial resources and sales and
marketing efforts more towards the medical product line and its manufacturing
operation. In addition, in October 1994 the Company signed a one year,
non-cancelable $500,000 contract with Henley Healthcare ("Henley") in which the
Company provided Henley with its Spectrum Max-SD TENS unit. The Henley contract
was completed in July 1995. The Company is currently negotiating a new contract
with Henley and expects negotiations to be finalized by the current fiscal year
end.
On December 7, 1995, the Company sold its wound care product line to Tecnol
Medical Products, Inc. The wound care product line, which consisted primarily of
wound care gauze dressings, generated approximately $3,150,000 or 60.0% of the
Company's revenues for the Nine Months Fiscal 1996. However, because of its
relatively high overhead, historically this line has contributed a small
percentage towards the Company's net income. The wound care product line
required considerable capital investment to maintain its operations and its
growth. The Company believes that the sale will enable it to concentrate on more
profitable product lines, such as microsurgical instruments, critical care
disposables, oral maxillofacial plating systems and electrotherapy products. In
addition, the Company intends to consider growth through selective strategic
acquisitions in complementary lines of business. See "- Liquidity and Capital
Resources."
-7-
<PAGE>
Gross profit was $2,754,808 or 52.5% of net sales for the Nine Months Fiscal
1996 as compared to $3,257,736 or 56.3% of net sales for the Nine 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
profit margins than other sales. In addition, as a result of changing market
conditions, the sales prices on certain products have been lowered which
resulted in reduced gross profit margins. Although private label sales generate
lower gross profit margins they provide benefits as they better allow for
long-range planning of production schedules and overall factory utilization.
Selling, general and administrative ("SG&A") expenses for the Nine Months Fiscal
1996 were $1,748,450, a decrease of $578,779 or 24.9% from SG&A expenses of
$2,327,229 for the Nine Months Fiscal 1995. The decrease in SG&A expenses for
the Nine Months Fiscal 1996 as compared to the Nine 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 coupled with the
elimination of all accrued royalty and legal expenses for the current fiscal
year in the approximate aggregate amount of $59,059 related to the Company's
settlement of its claim against Storz on October 17, 1995. See "- Liquidity and
Capital Resources."
Research and development ("R&D") expenses for the Nine Months Fiscal 1996 were
$52,415, a 28.5% decrease from R&D expenses of $73,351 for the Nine Months
Fiscal 1995. R&D for the Nine Months Fiscal 1996 includes 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.
Depreciation and amortization ("D&A") expenses for the Nine Months Fiscal 1996
were $452,321, a 13.1% decrease from D&A expenses of $520,784 for the Nine
Months Fiscal 1995. During the Nine 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 Nine Months Fiscal 1996 was $459,263, a 16.5%
decrease from net interest expense of $549,789 for the Nine Months Fiscal 1995.
The decrease in net interest expense is primarily due to the elimination of all
accrued interest for the current fiscal year in the approximate aggregate amount
of $76,125 in connection with the Company's settlement of its claim against
Storz on October 17, 1995 partially offset by 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 Nine Months Fiscal 1996 was
$42,359, an increase of $255,776 from a net loss of $213,417 for the Nine Months
Fiscal 1995. The increase in net income for the Nine Months Fiscal 1996 as
compared to the Nine Months Fiscal 1995 is primarily due to a decrease in
operating expenses as partially offset by the gross profit effect of the net
sales decrease during the Nine Months Fiscal 1996.
Primary loss per share was $.00 for the Nine Months Fiscal 1996 as compared to a
primary loss per share of $.11 for the Nine Months Fiscal 1995. Fully diluted
loss per share, which assumes all dilutive preferred share conversions and the
exercise of all dilutive stock options and warrants, was $.00 for the Nine
Months Fiscal 1996 as compared to a fully diluted loss of $.11 per share for the
Nine Months Fiscal 1995. The primary and fully diluted income per share
computations reflect dividends paid 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.
-8-
<PAGE>
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 November 30, 1995 was $1,484,665 as compared to
$2,335,067 at February 28, 1995 . The Company's working capital position
decreased by $850,402 primarily due to the reclassification of a note payable to
Storz from long term to short term.
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 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. As of November 30, 1995, the outstanding balance on the
Loan was $2,209,302 and approximately $17,000 in credit was available under the
Loan. On December 8, 1995 the Company repaid substantially all of the amounts
owing under its Loan from Congress.
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 alleged 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 sought to recover an as yet undetermined amount of
damages it sustained. 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. On October 17, 1995, the
Company settled its claim against Storz. The terms of the settlement agreement
consisted of a reduction of the Company's note payable to Storz from $1,450,000
to $1,050,000. In addition, all accrued interest, accrued royalties and future
royalties in connection with the acquisition of the product line were forgiven
by Storz. The net impact of this settlement to the Company is approximately
$700,000 which consists of a reduction in the note payable and goodwill and
eliminated all accrued interest, royalty and legal expenses. On December 13,
1995 the Company repaid $600,000 to Storz in connection with the note payable.
On December 7, 1995, the Company sold its impregnated wound care gauze dressings
product line to Tecnol Medical Products, Inc., a medical products manufacturer
headquartered in Fort Worth, Texas (the "Tecnol Sale"). The purchase price was
$5,675,000, of which approximately $5,000,000 was paid in cash, with the balance
being paid primarily in the form of a promissory note bearing interest at prime
rate and due on September 1997 upon certain conditions being met. In addition to
wound care inventory, equipment and other assets, the Company's operations in
Hammonton, New Jersey were included in the sale.
The Company has used or will use the cash proceeds of the Tecnol Sale to repay
most of its outstanding debt including (i) $2,282,505 owed to Congress Financial
Corporation under a revolving credit facility; (ii) $111,602 owed for the
purchase of certain manufacturing equipment which was subject to a lease; (iii)
-9-
<PAGE>
$469,710 owed to Asset Factoring, Inc., consisting of the principal due on
certain promissory note plus accrued interest; (iv) $600,000 owed to Storz
Instrument Company relating to a $1,050,000 note payable in connection with the
Company's acquisition of certain assets of Storz' Oral Maxillofacial product
line; and (v) $1,000,000 to Arbora, A.G. ("Arbora") as of December 14, 1995 as
principal consideration to redeem 4,761,842 shares of the Company's common
stock, which shares were issued to Arbora on December 4, 1995 as a result of the
conversion of a $1,000,000 note into equity pursuant to an agreement reached
between it and the Company. In connection with this transaction, the Company
canceled a warrant to purchase 1,000,000 shares of the Company's common stock at
$1.40 per share held by Arbora and issued Arbora a warrant to purchase up to
500,000 shares of the Company's common stock at $.47 per share. In addition, a
voting trust was entered into which provided the Company's Chairman, President
and Chief Executive Officer, Thomas F. Reiner, with voting rights as to such
shares.
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 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 were 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 regarded these allegations as
entirely meritless and frivolous. 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 December 27, 1995, the
Company and Coleman settled the suit between them. No consideration was paid in
connection with such settlement however, both parties exchanged mutual releases.
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 of 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
In the period covered by this report, the Company settled certain
litigation involving the Company and (i) Storz and (ii) Coleman.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
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 December 22, 1995 to report
that on December 7, 1995, the Company sold its impregnated wound
care gauze dressings product line to Tecnol Medical Products,
Inc., a medical products manufacturer headquartered in Fort
Worth, Texas (the "Tecnol Sale"). The purchase price was
$5,675,000, of which approximately $5,000,000 was paid in cash,
with the balance being paid primarily in the form of a promissory
note bearing interest at prime rate and due on September 1997
upon certain conditions being met. In addition to wound care
inventory, equipment and other assets, the Company's operations
in Hammonton, New Jersey were included in the sale.
-11-
<PAGE>
<TABLE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
-------------------------- --------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period ...................... 3,892,279 3,050,558 3,228,408 1,726,977
Shares issued during the period (weighted average) ............. 69,074 92,586 551,600 1,001,075
Shares repurchased during the period (weighted average) ........ -- -- -- (224,654)
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 ........................................... 3,773,853 2,955,644 3,592,508 2,315,898
=========== =========== =========== ===========
Net Income (Loss) Applicable to Common Stockholders ............ $ (6,947) $ (171,554) $ (1,825) $ (264,006)
=========== =========== =========== ===========
Net Income (Loss) Per Primary Share ............................ $ -- $ (.06) $ -- $ (.11)
=========== =========== =========== ===========
</TABLE>
-12-
<PAGE>
<TABLE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
-------------------------- --------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period ...................... 3,892,279 3,050,558 3,228,408 1,726,977
Shares issued during the period (weighted average) ............. 69,074 92,586 706,223 1,001,075
Shares repurchased during the period (weighted average) ........ -- -- -- (224,654)
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 stockprices are met,
as they are anti-dilutive (weighted average) ................... (187,500) (187,500) -- (187,500)
----------- ----------- ----------- -----------
Total Fully Diluted Shares ..................................... 3,773,853 2,955,644 3,934,631 2,315,898
=========== =========== =========== ===========
Net Income (Loss) Applicable to Common Stockholders ............ $ (6,947) $ (171,554) $ (1,825) $ (264,006)
=========== =========== =========== ===========
Net Income (Loss) Per Fully Diluted Share ...................... $ -- $ (.06) $ -- $ (.11)
=========== =========== =========== ===========
</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
January 8, 1996
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Feb-28-1996
<PERIOD-START> Mar-01-1995
<PERIOD-END> Nov-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,065,342
<ALLOWANCES> 0
<INVENTORY> 4,202,868
<CURRENT-ASSETS> 5,390,505
<PP&E> 2,454,036
<DEPRECIATION> 1,366,523
<TOTAL-ASSETS> 8,421,879
<CURRENT-LIABILITIES> 3,905,840
<BONDS> 2,102,682
<COMMON> 7,968
0
1,331,392
<OTHER-SE> 1,073,997
<TOTAL-LIABILITY-AND-EQUITY> 8,421,879
<SALES> 5,250,269
<TOTAL-REVENUES> 5,250,269
<CGS> 2,495,461
<TOTAL-COSTS> 2,495,461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 469,090
<INCOME-PRETAX> 42,359
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,359
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
