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 May 31, 1997
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 May 31, 1996, 833,089 shares of Common Stock, 135,483 shares of Redeemable
Convertible Preferred Stock and 28,068 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 May 31, 1997 1 - 2
Condensed Consolidated Statements
of Operations for the three months
ended May 31, 1997 and 1996 3
Condensed Consolidated Statements
of Cash Flows for the three months
ended May 31, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6 - 8
Part II. Other Information and Signatures 9 - 12
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
May 31, 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .................................. $ --
Accounts receivable - trade, net of allowance
for doubtful accounts of $30,381 ......................... 335,247
Inventories ................................................ 2,248,942
Prepaid expenses ........................................... 67,107
-----------
Total Current Assets .................................... 2,651,296
-----------
Property and Equipment, at cost:
Machinery and equipment .................................... 491,923
Leasehold improvements ..................................... 15,733
-----------
507,656
Less accumulated depreciation ............................... (264,705)
-----------
Net Property and Equipment .............................. 242,951
-----------
Other Assets:
Intangible assets, net of
accumulated amortization .................................. 831,545
Deposits and other ......................................... 130,152
Receivables from officer ................................... 529,362
-----------
Total Other Assets ..................................... 1,491,059
-----------
Total Assets ........................................... $ 4,385,306
===========
The accompanying notes are an integral
part of these condensed consolidated financial statements
-1-
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
May 31, 1997
(Unaudited)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade ....................................... $ 736,748
Accrued expenses:
Payroll taxes and wages ....................................... 52,240
Interest and other ............................................ 1,070
Other liabilities ............................................. 147,380
Dividends payable .............................................. 3,509
Notes payable .................................................. 165,000
Accrued royalty payments ....................................... 46,715
Current portion of long-term debt .............................. 324,352
-----------
Total Current Liabilities .................................. 1,477,014
-----------
Long-Term Debt:
Obligations under capital leases ............................... 105,736
Financial institutions and other ............................... 1,909,290
Less current portion above ..................................... (489,352)
-----------
Total Long-Term Debt ..................................... 1,525,674
-----------
Other liabilities ............................................... 209,650
-----------
Commitments and contingencies ................................... --
Stockholders' Equity:
Preferred Stock: $4.00 par value, 750,000 shares authorized;
Non-cumulative Redeemable Convertible Preferred Stock:
165,000 shares authorized, 135,483 shares issued
and outstanding ............................................ 541,932
Series A Cumulative Convertible Redeemable Preferred Stock:
30,000 shares authorized, 28,068 shares issued
and outstanding ............................................ 112,272
Common Stock: $.002 par value, 8,000,000 shares authorized,
833,089 shares issued and outstanding ....................... 1,667
Additional paid in capital ..................................... 8,172,146
Accumulated deficit ............................................ (7,655,049)
-----------
Total Stockholders' Equity ................................ 1,172,968
-----------
Total Liabilities and Stockholders' Equity ............... $ 4,385,306
===========
The accompanying notes are an integral
part of these condensed consolidated financial statements
-2-
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
May 31,
------------------------
1997 1996
---- ----
Net sales ........................................ $ 649,540 $ 584,953
Cost of sales .................................... 321,899 242,651
--------- ---------
Gross Profit ................................ 327,641 342,302
Selling, general and administrative expenses ..... 424,167 512,241
Research and development ......................... 1,913 17,975
Depreciation and amortization .................... 66,904 57,589
--------- ---------
Income (Loss) From Operations .............. (165,343) (245,503)
--------- ---------
Other Income (Expense):
Interest and other income ....................... 85,000 4,185
Interest expense ................................ (64,943) (31,779)
--------- ---------
Total Other Income (Expense) ................ 20,057 (27,594)
--------- ---------
Income (Loss) Before Provision
For Income Taxes ........................... (145,286) (273,097)
Provision for income taxes ....................... -- --
--------- ---------
Net Income (Loss) ................................ (145,286) (273,097)
Preferred stock dividends ........................ (3,509) (4,134)
--------- ---------
Net Income (Loss) Applicable To
Common Shareholders ............................. $(148,795) $(277,231)
========= =========
Net Income (Loss) Per Share of Common Stock:
Primary:
Weighted average number of common
shares outstanding ............................ 817,500 690,381
========= =========
Net Income (Loss) Per Common Share ............ $ (.18) $ (.40)
========= =========
Fully diluted:
Weighted average number of common
shares outstanding ............................ 817,500 690,381
========= =========
Net Income (Loss) Per Common Share ............ $ (.18) $ (.40)
========= =========
The accompanying notes are an integral
part of these condensed consolidated financial statements
-3-
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
May 31,
--------------------------
1997 1996
---- ----
Cash Flows From Operating Activities:
Net income (loss) .............................. $ (145,286) $ (273,097)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization ................ 66,904 57,589
Reduction of accrued liabilities ............. (85,000) --
Changes in assets and liabilities:
(Increase) in accounts receivable ........... (13,570) (39,173)
Decrease in inventories ..................... 11,517 49,326
(Increase) in prepaid expenses and other .... (24,837) (41,076)
(Increase) Decrease in deposits and other ... (31,222) 2,341
(Decrease) in accounts payable
and accrued expenses ....................... (232,173) (258,435)
----------- -----------
Net Cash (Used) By Operating Activities .... (453,667) (502,525)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures ........................... (5,967) (905)
Increase in intangible assets .................. (250) (31,665)
Increase in receivables from related entities .. -- (4,662)
Principal payments received on notes receivable. 578,399 --
----------- -----------
Net Cash Provided (Used) By Investing
Activities ................................ 572,182 (37,232)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing ....................... 1,259,177 1,055,898
Principal payments on notes payable ............ (1,377,692) (602,535)
Principal payments on accrued royalties ........ -- (31,106)
Issuance of common stock upon exercise
of warrants ................................... -- 117,500
----------- -----------
Net Cash Provided (Used) By Financing
Activities ................................ (118,515) 539,757
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents .......................... -- --
Cash and Cash Equivalents at Beginning
of Period ................................. -- --
----------- -----------
Cash and Cash Equivalents at End of Period . $ -- $ --
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest ..................................... $ 44,967 $ 19,004
Income taxes ................................. -- --
Supplemental Disclosure of Noncash Investing
and Financing Activities:
Conversion of Preferred Stock into Common Stock. $ 100,780 $ 436,708
Dividends payable on Series A Convertible
Redeemable Preferred Stock .................... 3,509 4,134
Issuance of common stock and warrants in
payment of loan costs ......................... 127,500 --
The accompanying notes are an integral
part of these consolidated condensed financial statements
-4-
<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 three months
ended May 31, 1997 are not necessarily indicative of results of operations
that may be expected for the year ending February 28, 1998. 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, 1997 previously filed with the Securities
and Exchange Commission.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended May 31, 1997
as Compared to Three months ended May 31, 1996
Net sales for the three months ended May 31, 1997 ("First Quarter Fiscal
1998") were $649,540, a 11.1% increase from net sales of $584,953 for the three
months ended May 31, 1996 ("First Quarter Fiscal 1997"). The net sales increase
during the First Quarter Fiscal 1998 as compared to the First Quarter Fiscal
1997 is the result of an increase of $97,327 or 36.1% in electrotherapy product
sales from $269,814 to $367,14 coupled with a decrease of $32,740 or 10.4% in
surgical product sales from $315,139 to $282,399. The increase in sales for the
electrotherapy product line can be primarily attributed to the receipt of two
non-cancelable purchase orders from Henley Healthcare ("Henley") in the
approximate aggregate amount of $300,000. During the First Quarter Fiscal 1997
the Company had approximately $135,000 in sales to Henley. The Company
anticipates that it will receive additional purchase orders from Henley for the
fiscal year ending February 28, 1998 ("Fiscal 1998").
The Company intends to continue to concentrate its efforts on increasing
its level of sales to achieve profitable operations. In addition, the Company
intends to consider growth through selective strategic acquisitions in
complementary lines of business. In that regard, on November 1, 1996 the Company
entered into a non-binding letter of intent for the acquisition of substantially
all of the operating assets of Orion Life Systems, Inc. and its wholly owned
subsidiary, Orion Medical Products, Inc. ("Orion"). Based in Wheeling, Illinois,
Orion specializes in contract manufacturing, packaging, and sterilization of
medical devices and single-use procedure trays as well as manufacturing and
marketing its own line of urological, respiratory, and I.V. therapy disposable
products. The closing of the acquisition is subject to several conditions,
including the determination by the Company that the results of its due diligence
investigation of Orion's business and assets are satisfactory; approval of the
Board of Directors of both companies; the execution of a mutually acceptable
definitive purchase agreement; and completing the Company's financing.
Gross profit was $327,641 or 50.4% of net sales for the First Quarter
Fiscal 1998 as compared to $342,302 or 58.5% of net sales for the First Quarter
Fiscal 1997. The decrease in gross profit percentage is primarily due to the
increase in electrotherapy product sales. In general, the electrotherapy product
line generates lower gross profits than the surgical product line.
Selling, general and administrative ("SG&A") expenses for the First Quarter
Fiscal 1998 were $424,167, a 17.2% decrease from SG&A expenses of $512,241 for
the First Quarter Fiscal 1997. The decrease in SG&A expenses for the First
Quarter Fiscal 1998 as compared to the First Quarter Fiscal 1997 is primarily
due to legal expenses incurred during the First Quarter Fiscal 1997 which were
not repeated during the First Quarter Fiscal 1998. In an effort to continue to
decrease SG&A expenses for Fiscal 1998, in June 1997, the Company implemented a
restructuring plan involving a reduction of personnel, a Company wide reduction
in salaries, and the implementation of an overall cost containment program.
Research and development ("R&D") expenses for the First Quarter Fiscal 1998
were $1,913, a 89.4% decrease from R&D expenses of $17,975 for the First Quarter
Fiscal 1997. During the First Quarter Fiscal 1998 the Company completed its
redesign of the TENS units resulting in increased quality and lower product cost
for the electrotherapy product line.
Depreciation and amortization ("D&A") expenses for the First Quarter Fiscal
1998 were $66,904, a 16.2% increase from D&A expenses of $57,589 for the First
Quarter Fiscal 1997. During the First Quarter Fiscal 1998, D&A expenses
increased due to the amortization of $127,500, over a two year period, resulting
from the issuance of common stock and warrants in payment of loan costs. See " -
Liquidity and Capital Resources".
Total other income for the First Quarter Fiscal 1998 was $20,057, an
increase of $47,594 from total other expense of $27,594 for the First Quarter
Fiscal 1997. The increase in total net income is primarily due to the reduction
of $85,000 in accrued liabilities offset by an increase of $37,349 in net
interest expense resulting primarily from higher loan balances and banking
expenses to FINOVA, the Company's primary lender.
-6-
<PAGE>
As a result of the foregoing, the net loss for the First Quarter Fiscal
1998 was $145,286, a decrease of $127,811 from a net loss of $273,097 for the
First Quarter Fiscal 1997. The decrease in net loss for the First Quarter Fiscal
1998 as compared to the First Quarter Fiscal 1997 is primarily due to the
decrease in SG&A expenses coupled with an increase in total other income as
discussed above.
Primary loss per share was $.18 for the First Quarter Fiscal 1998 as
compared to a primary loss per share of $.40 for the First Quarter Fiscal 1997.
Fully diluted loss per share, which assumes all dilutive preferred share
conversions and the exercise of all dilutive stock options and warrants, was
$.18 for the First Quarter Fiscal 1998 as compared to fully diluted loss of $.40
per share for the First Quarter Fiscal 1997. The primary and fully diluted
income per share computation for the First Quarter Fiscal 1998 reflect accrued
dividends on the Series A Convertible Preferred Stock which will be paid in June
1997.
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 May 31, 1997, the Company had net operating loss carry forwards of
approximately $6,500,000. Availability of the Company's net operating loss carry
forwards, if not utilized, will expire at various dates through the year 2011.
The Company's working capital at May 31, 1997 was $1,174,282 as compared to
$1,066,176 at February 28, 1997. The Company's working capital position
increased by $108,106.
On March 11, 1996, FINOVA Capital Corporation ("FINOVA") provided the
Company with a 36-month Revolving Line of Credit of up to $1,500,000 (the
"Loan"). The Company agreed to pay FINOVA interest on the average outstanding
principal amount of the Loan at a per annum rate of prime plus 4%. 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 $1,500,000. In
addition, $450,000 of the Loan is personally guaranteed by Thomas F. Reiner, the
Company's Chairman, President and Chief Executive Officer. As of May 31, 1997,
the outstanding balance on the Loan was $947,485 and approximately $3,000 in
credit was available. The Loan is being used to provide working capital for
current operations.
On March 19, 1997, the Company repaid $575,000 against the amount of
$740,000 in principal and accrued interest owing under a $600,000 promissory
note issued to Halstead LLC ("Halstead"). This amount was required to be paid by
the Company upon the Company's negotiated settlement with Tecnol which resulted
in Tecnol paying the Company $575,000. On that same date, the Company issued
Halstead a promissory note in the principal amount of $165,000 bearing 12%
interest per annum due December 1997. The $165,000 promissory note represents
the remaining principal amount owed of $25,000 plus the $140,000 in accrued
interest under the $600,000 note. The promissory note is subordinated to FINOVA,
the Company's primary lender, and is personally guaranteed by Mr. Reiner.
On March 20, 1997, the Company borrowed $375,000 from J&C Resources, Inc.
("J&C Resources"), a company controlled by Mr. Johnston evidenced by a
promissory note bearing 15% interest per annum due in March 1999. The promissory
note is subordinated to FINOVA, and is personally guaranteed by Mr. Reiner. In
connection with the financing, the Company issued J&C Resources 50,000 shares of
Common Stock and a warrant to purchase up to 16,667 shares of its Common Stock
exercisable at $.60 per share at any time until March 17, 2001. The Company also
entered into a two year consulting agreement with J&C Resources in which the
Company is required to pay J&C Resources $50,000 per year for consulting
services.
On September 27, 1996, the Company was served with a complaint filed by
Storz Instrument Company ("Storz") seeking to collect the remaining balance of
$450,000 relating to a $1,050,000 note payable in connection with the Company's
acquisition of certain assets of Storz' Oral Maxillofacial product line. On
November 27, 1996, the Company paid Storz $100,000 and entered into an agreement
pursuant to which Storz would take no further action on its complaint in
exchange for payment of $350,000, on or before April 15, 1997, together with all
accrued interest thereon through the date of payment, plus $5,000 as a fixed sum
for attorneys' fees. On March 27, 1997, the Company repaid $120,000 to Storz
against the $350,000 note payable, $5,000 as a fixed sum for attorneys' fees,
and amended its November 27, 1996 agreement pursuant to which the Company is
required to make monthly payments of $10,000 to be applied to interest and
-7-
<PAGE>
principal, plus quarterly $10,000 forbearance payments, not to be applied to
principal or interest. If these payments are not made, a judgement will
automatically be executed against the Company for the balance of the note
payable.
On or about November 20, 1996, Tecnol initiated an arbitration action
against the Company before the American Arbitration Association. Tecnol asserted
claims allegedly arising out of Tecnol's purchase of the Company's medical
product line in December 1995. On March 12, 1997, the Company settled the
arbitration action initiated by Tecnol. Under the settlement agreement Tecnol
paid the Company $575,000 in consideration for the cancellation by the Company
of a $665,000 note due from Tecnol and the dismissal with prejudice of the
arbitration action by both parties.
In April 1997, the Company entered into a debt repayment agreement with Mr.
Reiner. The amounts owed by Mr. Reiner will be repaid at varying amounts through
April 2004. In addition, all amounts owed by Mr. Reiner are extended to April
2004 and no interest will be charged on the notes owed by Mr. Reiner and the
Company will reimburse Mr. Reiner for certain income tax related considerations.
In June 1997, the Company amended its debt repayment agreement with Mr. Reiner
increasing the repayment amount for the next twelve months from approximately
$24,000 to $50,000. Due to the increase in payments from Mr. Reiner to the
Company, the notes and accounts receivable from Mr. Reiner are being presented
as a long term asset rather than a reduction of stockholders' equity in the
financial statements as presented on the Company's Annual Report on Form 10-KSB
for the year ended February 28, 1997 previously filed with the Securities and
Exchange Commission.
In May 1997, the Company entered into a Working Capital Credit Facility
agreement with Mr. Reiner in which Mr. Reiner is providing the Company with up
to $200,000 in working capital on an as needed basis. Working capital advances
are evidenced by demand promissory notes bearing 12% interest per annum due the
earlier of (i) thirty (30) calendar days from the advance; (ii) the closing of a
minimum of $1,000,000 equity or debt financing by the Company; or (iii) Mr.
Reiner's demand with a five day notice to the Company. The promissory notes are
subordinated to FINOVA with a junior lien on all assets of the Company. In
connection with the financing, the Company gave Mr. Reiner, at his sole
discretion, the right to convert any portion of the outstanding amount owed into
the Company's common stock at 75% of the average closing bid price during the
five (5) business days prior to the conversion as reported by Nasdaq. In
addition, the Company issued Mr. Reiner a warrant to purchase up to 97,000
shares of its common stock exercisable at $1.35 per share at any time until May
22, 2004. As of May 31, 1997, the outstanding balance on the loans from Mr.
Reiner was $40,000.
The Company may make additional acquisitions of companies, divisions of
companies or products in the future. Acquisitions entail numerous risks,
including difficulties or an inability to successfully assimilate acquired
operations and products, diversion of management's attention and loss of key
employees of acquired businesses, all of which the Company has encountered with
previous acquisitions. Future acquisitions by the Company may require dilutive
issuances of equity securities and the incurrence of additional debt, and the
creation of goodwill or other intangible assets that could result in
amortization expense. These factors could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company's current operations continue to be cash flow negative, further
straining the Company's working capital resources. The Company's future 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. In order to
continue its current level of operations, it will be necessary for the Company
to obtain additional working capital, from either debt or equity sources. If the
Company is unable to obtain such additional working capital, it may be necessary
for the Company to restructure its operations to reduce its ongoing
expenditures.
Except for the historical information contained herein, the matters set
forth in this report are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks are detailed
from time to time in the Company's periodic reports filed with the Securities
and Exchange Commission, including the Company's Annual Report on Form 10-KSB,
Quarterly Reports on Form 10-QSB and other periodic filings. These
forward-looking statements speak only as of the date hereof. The Company
disclaims any intent or obligation to update these forward-looking statements.
-8-
<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. Exhibit No.
10.90 Restated Debt Repayment Agreement dated May 15,
1997 by and between the Registrant and Mr. Reiner.
10.91 Working Capital Credit Facility dated May 23, 1997
by and between the Registrant and Mr. Reiner.
11 Computation of Primary Earnings per Share (page
10).
11.1 Computation of Fully Diluted Earnings per Share
(page 11).
27 Financial Data Schedule.
B. Reports on Form 8-K
The Company filed a Form 8-K dated March 19, 1997 to report the
following events: (i) on March 19, 1997 the Company repaid $575,000
in against the amount of $740,000 in principal and accrued interest
owing under a promissory note issued to Halstead LLC; (ii) on March
20, 1997 the Company borrowed $375,000 from J&C Resources, Inc.;
and (iii) on March 27, 1997 the Company repaid $120,000 to Storz
Instrument Company against a $350,000 note payable and amended its
November 27, 1996 agreement.
-9-
<PAGE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months Ended
May 31,
-------------------------
1997 1996
---- ----
Shares outstanding at beginning of period .......... 764,249 641,138
Shares issued during the period (weighted average) . 53,251 49,243
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) ..................... -- --
----------- -----------
Total Primary Shares ............................... 817,500 690,381
=========== ===========
Net Income (Loss) Applicable To Common Shareholders $ (148,795) $ (277,231)
=========== ===========
Net Income (Loss) Per Primary Share ................ $ (.18) $ (.40)
=========== ===========
-10-
<PAGE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Three Months Ended
May 31,
-------------------------
1997 1996
---- ----
Shares outstanding at beginning of period .......... 764,249 641,138
Shares issued during the period (weighted average) . 53,251 49,243
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) ..................... -- --
----------- -----------
Total Fully Diluted Shares ......................... 817,500 690,381
=========== ===========
Net Income (Loss) Applicable To Common Shareholders $ (148,795) $ (277,231)
=========== ===========
Net Income (Loss) Per Fully Diluted Share .......... $ (.18) $ (.40)
=========== ===========
-11-
<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
Thomas F. Reiner
- ---------------------------
Thomas F. Reiner
Chairman of the Board
President & CEO
Wm. Samuel Veazey
- ---------------------------
Wm. Samuel Veazey
Vice President of Finance
and Administration
June 23, 1997
- 12 -
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
EXHIBITS
TO
FORM 10-QSB
FOR THE QUARTER ENDED MAY 31, 1997
EXHIBIT 10.90
<PAGE>
RESTATED DEBT REPAYMENT AGREEMENT
This Agreement (the "Agreement") is made effective as of the 15th day of
May, 1997, by and between Sparta Surgical Corporation, a Delaware corporation,
having its principal offices at 7068 Koll Center Parkway, Bernal Corporate Park,
Suite 401, Pleasanton, California 94566 (the "Company"), and Thomas F. Reiner,
President, Chief Executive Officer and Chairman of the Board of the Company
("Reiner").
WHEREAS, Reiner was, on the date of a Debt Repayment Agreement previously
entered into between the Company and himself (the "Original Agreement"),
indebted to the Company in the amount of approximately $556,413.00, which
consisted of the amount of approximately $210,000.00 owing from him to the
Company pursuant to a non-interest bearing promissory note, the amount of
$222,419.00 owing from him to the Company pursuant to a promissory note, bearing
interest at the rate of six percent (6%) per annum (the "Interest Bearing Note")
and the amount of approximately $123,994.00 owing as an account receivable of
the Company, as the amounts owing on such obligations may be increased or
decreased from time to time (the "Debt");
WHEREAS, the Company and Reiner are desireous of entering into this
Agreement in place of and in lieu of the Original Agreement, with the Original
Agreement being hereafter null and void and of no effect; and
WHEREAS, Reiner has offered to repay the Debt in the manner provided for
herein out of his future salary and has agreed to permit the Company to pay such
amounts directly in the manner provided herein and the Company has agreed to
such arrangement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and Reiner
agree as follows:
1. Repayment. Reiner agrees to repay the Debt by paying to the Company the
following amounts of his annual base salary (as such term is used in Section 4
(a) of Reiner's Employment Agreement with the Company dated April 8, 1996 (the
"Employment Agreement")) during each year of the term of his Employment
Agreement:
Period Annual Payment Amount
5/15/1997 - 4/7/1998 $50,000.00 (less amounts previously paid)
4/8/1998 - 4/7/1999 $50,000.00
4/8/1999 - 4/7/2000 $55,000.00
4/8/2000 - 4/7/2001 $60,000.00
4/8/2001 - 4/7/2002 $60,000.00
4/8/2002 - 4/7/2003 $65,000.00
4/8/2003 - 4/7/2004 $70,000.00
4/8/2004 - 4/7/2005 $70,000.00
4/8/2005 - 4/7/2006 Balance outstanding on 4/8/2005
<PAGE>
Such annual amounts (each being a "Debt Reduction Payment") shall be repaid
by Riener in twelve equal installments payable on the first date of each month
(commencing July 1, 1997) during the year to which such Debt Reduction Payment
pertains. In the event that the entire amount of the Debt is satisfied for any
reason (including in the event of the termination of Reiner's employment
pursuant to Section 4 (g) of the Employment Agreement) Reiner shall be entitled
to receive any amounts owing to him under the Employment Agreement without the
Debt Reduction Payments being deducted, offset or otherwise deemed owing.
2. Modification of Certain Terms of the Debt; Application of Payments. In
consideration of Reiner's entering into this Agreement, the Company agrees that
(i) the due date for each portion of the Debt shall be extended to April 7,
2006; (ii) all interest owing under the Interest Bearing Note shall be waived;
and (iii) the terms of the Interest Bearing Note shall be modified so that the
Interest Bearing Note no longer requires the payment of any interest. All
payments made pursuant to this Agreement shall be applied first to interest
owing on the Debt and to such portion of the Debt which represents accrued
interest owing from Reiner to the Company (together representing approximately
$319,209 in accrued interest) and thereafter to principal.
3. Payment of Tax Liability. The Company agrees to pay to Reiner each
month, as additional compensation, the estimated amount of (i) any federal,
state and local income or excise taxes that Reiner must pay for such month on
his salary with respect to amounts being repaid to the Company as a monthly
installment against the Debt Reduction Payment, as a result of any waiver of
interest on the Interest Bearing Note and as to any imputed interest on the
Interest Bearing Note hereafter; and (ii) an additional sum of money, as
compensation for any federal, state and local income or excise taxes payable
upon payments made pursuant to this Section 3, including any such taxes upon
payments pursuant to this subsection (ii), the intention being that payments
pursuant to this subsection (ii) shall equal such amount as is required to
entirely repay any cost to Reiner for such taxes. Payment of any amounts
pursuant to this Section 3 shall be calculated at the highest marginal tax rate
as to which Reiner might be subject for the tax year in which the income from
the forgiveness of such of the Indebtedness is recognized, regardless of
Reiner's actual marginal rates.
4. Notice: Any notices required to be given pursuant to the provisions of
this Agreement shall be in writing and delivered by hand delivery, express
delivery service or by certified mail return receipt requested to the parties at
the following addresses:
Company: Sparta Surgical Corporation
7068 Koll Center Parkway
Bernal Corporate Park, Suite 401
Pleasanton, California 94566
Reiner: Thomas F. Reiner
4478 Fleetwood Road
Danville, California 94506
-2-
<PAGE>
5. Successors; Binding Effect.
(a) The Company shall require any successor (whether direct or
indirect by purchase of assets, purchase or exchange of stock, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to
Reiner, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall result in the total forgiveness of the Debt. As used in
this Agreement, "Company" shall mean Sparta Surgical Corporation and any
successor to the business and/or assets of Sparta Surgical Corporation which
executes and delivers the agreement provided for in this Section 5 (a) or which
otherwise becomes bound by all of the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of Reiner hereunder shall inure to
the benefit of and be enforceable by the administrators, successors, heirs,
distributees, devisees and legatees of Reiner.
6. Arbitration. At the election of Reiner, any dispute respecting this
Agreement, whether commenced by the Company or Reiner may be resolved by
arbitration before a three person panel of independent arbitrators pursuant to
the Commercial Rules of the American Arbitration Association ("AAA"). Any
arbitration compelled pursuant to this section shall be held at the AAA office
nearest to Reiner's residence at the time such action is commenced. Reiner shall
be entitled to a stay of any legal proceeding instituted against by the Company
in the event that an election to arbitrate pursuant to this Section is made.
7. Attorney's Fees and Litigation. In any litigation or arbitration
relating to this Agreement the Company shall bear all costs and attorney's fees
of both parties.
8. Authority. Each party represents that its undersigned representative or
corporate officer has all requisite power and authority to enter into this
agreement and to execute any and all instruments and documents on its behalf
necessary to and in performance of their respective obligations hereunder.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed original, but all of which together
shall constitute one and the same instrument.
10. Severability. If any provisions of this Agreement shall be held to be
invalid or unenforceable to any extent or in any application, then the remainder
of this Agreement and such term and condition, except to such extent or in such
application, shall not be affected thereby, and each and every term and
condition of this Agreement shall be valid and enforced to the fullest extent
and in the broadest application permitted by law.
-3-
<PAGE>
11. Headings: The paragraph headings contained herein are for convenience
and reference only, and shall be given no effect in the interpretation of any
term or condition of this Agreement.
12. Miscellaneous. This Agreement is entered into and shall be construed
under the laws of the State of California applicable to contracts made and to be
entirely performed which that State. In the event that, notwithstanding Section
6 hereof, any litigation relating to this Agreement is held to be permissible,
the venue thereof shall be in the appropriate court with jurisdiction over the
matter in dispute for the county in which Reiner resides at the time of the
filing of the lawsuit in question. This Agreement shall be amended, modified or
terminated only by an instrument in writing, signed by the party or parties to
be charged. This Agreement shall inure to the benefits of the parties and their
successors in interest. This Agreement is the entire agreement of the parties
relating to the employment of Reiner by the Company and supersedes all previous
written or oral agreements.
IN WITNESS WHEREOF the parties have executed this Agreement under seal the
day and year first above written.
SPARTA SURGICAL CORPORATION
By its Board of Directors with
Reiner abstaining
/s/ Alan J. Korn /s/ Michael Y. Granger
Alan J. Korn, Director Michael Y. Granger, Director
REINER:
/s/ Thomas F. Reiner
Thomas F. Reiner, Individually
-4-
EXHIBIT 10.91
<PAGE>
Thomas F. Reiner
c/o Sparta Surgical Corporation
7068 Koll Center Parkway, Suite 401
Pleasanton, CA 94566
WORKING CAPITAL CREDIT FACILITY PROPOSAL
CREDIT FACILITY AMOUNT - $200,000
BORROWER - Sparta Surgical Corporation ("Sparta")
LENDER - Thomas F. Reiner, Individually or his Assignee
REPAYMENT - The earlier of a) each weekly advance shall be
repaid by Sparta no later than 30 calendar days
with accrued interest; b) the Closing of a minimum
of $1.0MM equity or debt financing by Sparta; or
c) upon demand of Thomas F. Reiner with a five (5)
days notice to Sparta. In addition, at the sole
option of Thomas F. Reiner any portion of the
outstanding amount owed by Sparta shall have a
conversion feature whereby Thomas F. Reiner shall
have the option to convert all amounts owed under
the working capital credit facility into Sparta's
common stock at 75% of the average NASDAQ bid
price of the common stock during the five (5)
trading days preceding the conversion date.
SUBORDINATION - Subordinated to Sparta's senior lender- Finova
Capital Corporation with a junior lien on all
assets of Sparta Surgical Corporation and Sparta
Maxillofacial Products, Inc.
INTEREST - 12% per annum, with interest being due and payable
on the first day of each month.
WARRANTS - For the consideration of making available to
Sparta a Working Capital Credit Facility, Sparta
agrees to issue and deliver to Thomas F. Reiner,
to purchase 97,000 Common Stock purchase warrants.
The warrants would be exercisable at any time and
from time to time at an exercise price of $1.35
each share, in whole or in part, during a seven
year period expiring on May 22, 2004. With respect
to the shares of common stock issuable upon
exercise of the warrant, Sparta shall grant to
Thomas F. Reiner one demand and a full piggyback
registration rights with respect to the shares of
common stock issuable upon exercise of the
warrant.
<PAGE>
Working Capital Credit Facility Proposal
Page 2
ADVANCE CRITERIA/
PURPOSE - Working Capital Credit Facility shall be made
available on an "as needed basis" which shall be
determined at the sole discretion of Thomas F.
Reiner, President/CEO of Sparta Surgical
Corporation or his succesor in such office.
Advances or borrowing shall not exceed $25,000
weekly. Weekly advances or borrowing, if any,
shall be used exclusively for payroll, Storz
indebtedness, inventory purchases and rent
payments to River Road Associates, Balch
Investment and Parkway Properties. Sparta shall
issue a Demand Promissory Note for each weekly
advances made under the Working Capital Credit
Facility.
Agreed and Accepted by Borrower
/s/ Wm. Samuel Veazey Date: May 23, 1997
- -------------------------------------------- ------------------------
Wm. Samuel Veazey, Vice President of Finance
and Administration
Sparta Surgical Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-QSB FOR SPARTA SURGICAL CORPORATION FOR THE QUARTER ENDED
MAY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-START> Mar-01-1997
<PERIOD-END> May-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 365,628
<ALLOWANCES> 30,381
<INVENTORY> 2,248,942
<CURRENT-ASSETS> 2,651,296
<PP&E> 507,656
<DEPRECIATION> 264,705
<TOTAL-ASSETS> 4,385,306
<CURRENT-LIABILITIES> 1,477,014
<BONDS> 1,525,674
0
654,204
<COMMON> 1,667
<OTHER-SE> 517,097
<TOTAL-LIABILITY-AND-EQUITY> 4,385,306
<SALES> 649,540
<TOTAL-REVENUES> 649,540
<CGS> 321,899
<TOTAL-COSTS> 321,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,943
<INCOME-PRETAX> (145,286)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,286)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
