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, 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 November 30, 1997, 928,464 shares of Common Stock, 122,583 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 November 30, 1997 1 - 2
Condensed Consolidated Statements
of Operations for the three months and
nine months ended November 30, 1997 and 1996 3
Condensed Consolidated Statements
of Cash Flows for the nine months
ended November 30, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6 - 9
Part II. Other Information and Signatures 10 - 13
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
November 30, 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .................................. $ --
Accounts receivable - trade, net of allowance
for doubtful accounts of $34,131 ......................... 374,402
Inventories ................................................ 2,161,036
Prepaid expenses ........................................... 73,674
-----------
Total Current Assets .................................... 2,609,112
-----------
Property and Equipment, at cost:
Machinery and equipment .................................... 491,923
Leasehold improvements ..................................... 15,733
-----------
507,656
Less accumulated depreciation ............................... (298,188)
-----------
Net Property and Equipment .............................. 209,468
-----------
Other Assets:
Intangible assets, net of
accumulated amortization .................................. 928,027
Deposits and other ......................................... 139,604
Notes receivable - related entities ........................ 512,095
-----------
Total Other Assets ..................................... 1,579,726
-----------
Total Assets ........................................... $ 4,398,306
===========
The accompanying notes are an integral
part of these condensed consolidated financial statements
-1-
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
November 30, 1997
(Unaudited)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade ...................................... $ 656,448
Accrued expenses:
Payroll taxes and wages ...................................... 48,538
Interest and other ........................................... 7,383
Other liabilities ............................................ 147,380
Dividends payable ............................................. 3,509
Notes payable ................................................. 165,000
Royalties payable ............................................. 40,465
Current portion of long-term debt ............................. 238,882
-----------
Total Current Liabilities ................................. 1,307,605
-----------
Long-Term Debt, net of current portion above:
Obligations under capital leases .............................. 83,023
Financial institutions and other .............................. 2,275,702
Less current portion above .................................... (238,882)
-----------
Total Long-Term Debt .................................... 2,119,843
-----------
Other liabilities .............................................. 162,047
-----------
Commitments and contingencies .................................. --
Stockholders' Equity:
Preferred stock: $4.00 par value, 750,000 shares authorized;
Non-cumulative Convertible Redeemable Preferred Stock:
165,000 shares authorized, 122,583 shares issued
and outstanding ........................................... 490,332
Series A Cumulative Convertible Preferred Stock:
30,000 shares authorized, 28,068 shares issued
and outstanding ........................................... 112,272
Common Stock: $.002 par value, 8,000,000 shares authorized,
928,464 shares issued and outstanding ....................... 1,857
Additional paid in capital .................................... 8,353,057
Accumulated deficit ........................................... (8,148,707)
-----------
Total Stockholders' Equity ............................... 808,811
-----------
Total Liabilities and Stockholders' Equity ............... $ 4,398,306
===========
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,
------------------------------ ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales .............................................. $ 609,199 $ 581,683 $ 1,818,766 $ 1,639,314
Cost of sales .......................................... 299,451 245,084 884,287 685,821
----------- ----------- ----------- -----------
Gross Profit ...................................... 309,748 336,599 934,479 953,493
Selling, general and administrative
expenses .............................................. 365,918 418,890 1,190,195 1,483,182
Research and development expense ....................... 2,582 13,352 7,687 39,852
Depreciation and amortization .......................... 83,724 59,599 228,973 177,826
Settlement of litigation ............................... -- 160,000 -- 855,712
----------- ----------- ----------- -----------
Income (Loss) From Operations ........................ (142,476) (315,242) (492,376) (1,603,079)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest and other income ............................ -- 3,248 85,000 10,597
Interest expense ..................................... (73,532) (42,497) (210,517) (170,635)
----------- ----------- ----------- -----------
Total Other Income (Expense) ...................... (73,532) (39,249) (125,517) (160,038)
----------- ----------- ----------- -----------
Income (Loss) Before Provision
for Income Taxes ...................................... (216,008) (354,491) (617,893) (1,763,117)
Provision for income taxes ............................. -- 4,703 -- 4,703
----------- ----------- ----------- -----------
Net Income (Loss) ...................................... (216,008) (359,194) (617,893) (1,767,820)
Preferred stock dividends .............................. (3,509) (3,509) (24,560) (96,594)
----------- ----------- ----------- -----------
Net Income (Loss) Applicable to
Common Stockholders ................................... $ (219,517) $ (362,703) $ (642,453) $(1,864,414)
=========== =========== =========== ===========
Net Income (Loss) Per Share of
Common Stock:
Primary:
Weighted average number of
common shares outstanding .......................... 924,033 760,338 869,667 732,757
=========== =========== =========== ===========
Net income (loss) per common share ................. $ (.24) $ (.48) $ (.74) $ (2.54)
=========== =========== =========== ===========
Fully diluted:
Weighted average number of
common shares outstanding .......................... 924,033 760,338 869,667 732,757
=========== =========== =========== ===========
Net income (loss) per common share ................ $ (.24) $ (.48) $ (.74) $ (2.54)
=========== =========== =========== ===========
The accompanying notes are an integral
part of these condensed consolidated financial statements
-3-
</TABLE>
<PAGE>
SPARTA SURGICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
November 30,
--------------------------
1997 1996
---- ----
Cash Flows From Operating Activities:
Net income (loss) ............................... $ (617,893) $(1,767,820)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization ................ 228,973 177,826
Settlement of litigation ..................... -- 433,212
Reduction of accrued liabilities ............. (85,000) --
Changes in assets and liabilities:
(Increase) in accounts receivable ........... (52,725) (25,005)
Decrease in inventories ..................... 99,423 75,444
(Increase) Decrease in prepaid expenses
and other .................................. (31,404) 15,942
(Increase) in deposits and other ............ (40,674) (4,351)
(Decrease) in accounts payable and
accrued expenses ........................... (357,465) (284,117)
----------- -----------
Net Cash (Used) By Operating Activities ..... (856,765) (1,378,869)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures ............................ (5,967) (11,131)
(Increase) in intangible assets ................. (116,868) (31,951)
(Increase) Decrease in receivables
from related entities .......................... 17,267 (6,930)
Principal payments received on notes receivable . 578,399 --
----------- -----------
Net Cash Provided (Used) By Investing
Activities ................................. 472,831 (50,012)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing ........................ 4,118,482 3,186,542
Principal payments on notes payable ............. (3,728,298) (1,834,958)
Principal payments on accrued royalties ......... (6,250) (40,203)
Issuance of common stock upon exercise
of Warrants .................................... -- 117,500
----------- -----------
Net Cash Provided By Financing Activities ... 383,934 1,428,881
----------- -----------
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 ..................................... $ 140,030 $ 98,211
Income taxes ................................. -- 4,703
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Conversion of Preferred Stock
into Common Stock ............................ $ 152,380 $ 522,088
Dividends payable on Series A
Convertible Preferred Stock .................. 3,509 21,677
Stock dividends paid on Series A
Convertible Preferred Stock .................. 21,051 3,509
Stock dividends paid on Redeemable
Preferred Stock .............................. -- 71,409
Issuance of Common Stock and Warrants
in payment of loan costs ..................... 235,950 --
The accompanying notes are an integral
part of these condensed consolidated 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 six months ended
November 30, 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
Three months ended November 30, 1997
as Compared to Three months ended November 30, 1996
Net sales for the three months ended November 30, 1997 ("Third Quarter
Fiscal 1998") were $609,199, a 4.7% increase from net sales of $581,683 for the
three month period ended November 30, 1996 ("Third Quarter Fiscal 1997"). The
net sales increase during the Third Quarter Fiscal 1998 as compared to the Third
Quarter Fiscal 1997 is the result of a decrease of $53,258 or 16.9% in surgical
product sales from $315,967 to $262,709 offset by an increase of $80,774 or
30.4% in electrotherapy product sales from $265,716 to $346,490. The net loss
for the Third Quarter Fiscal 1998 was $216,008, a decrease of $143,186 from a
net loss of $359,194 for the Third Quarter Fiscal 1997. The decrease in net loss
is primarily due to a one time $160,000 expense related to the settlement of a
litigation proceeding which was incurred during the Third Quarter Fiscal 1997.
Nine months ended November 30, 1997
as Compared to Nine months ended November 30, 1996
Net sales for the nine months ended November 30, 1997 ("Nine Months Fiscal
1998") were $1,818,766, a 11.0% increase from net sales of $1,639,314 for the
nine months ended November 30, 1996 ("Nine Months Fiscal 1997"). The net sales
increase during the Nine Months Fiscal 1998 as compared to the Nine Months
Fiscal 1997 is the result of an increase of $280,869 or 38.3% in electrotherapy
product sales from $732,804 to $1,013,673 coupled with a decrease of $101,417 or
11.2% in surgical product sales from $906,510 to $805,093. 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 $600,000. During the Nine Months Fiscal 1997 the
Company had approximately $400,000 in sales to Henley. Consistent with the
Company's efforts to increase sales, in August 1997, the Company signed a three
year $1,200,000 exclusive manufacturing agreement with Henley appointing the
Company as the sole developer and manufacturer of Henley's patented
SYNAPS/T.E.A.M. Analgesia unit. The Company anticipates it will commence
shipments under this agreement in April 1998.
Since the sale of the wound care product line in December 1995, the
Company's acquisition search efforts have increased significantly as the focus
remains in the identification and review of a number of candidates. In addition,
to help us grow through acquisitions, in July 1997, the Company obtained a $2.5
million line of credit from NationsCredit Commercial Corporation, A NationsBank
Company.
Gross profit was $934,479 or 51.4% of net sales for the Nine Months Fiscal
1998 as compared to $953,493 or 58.2% of net sales for the Nine Months 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 Nine Months
Fiscal 1998 were $1,190,195, a 19.8% decrease from SG&A expenses of $1,483,182
for the Nine Months Fiscal 1997. The decrease in SG&A expenses for the Nine
Months Fiscal 1998 as compared to the Nine Months Fiscal 1997 is primarily due
to legal expenses incurred during the Nine Months Fiscal 1997 which were not
repeated during the Nine Months Fiscal 1998. In addition, lower SG&A expenses
were experienced for the Nine Months Fiscal 1998 due to the Company's
implementation in June 1997 of a restructuring plan involving a reduction of
personnel, a Company wide reduction in salaries, and an overall cost containment
program.
Research and development ("R&D") expenses for the Nine Months Fiscal 1998
were $7,687, a 80.7% decrease from R&D expenses of $39,852 for the Nine Months
Fiscal 1997. In Fiscal 1997, the Company R&D efforts were focused on its
redesign of the TENS units resulting in increased quality and lower product cost
for the electrotherapy product line.
-6-
<PAGE>
Depreciation and amortization ("D&A") expenses for the Nine Months Fiscal
1998 were $228,973, a 28.8% increase from D&A expenses of $177,826 for the Nine
Months Fiscal 1997. During the Nine Months Fiscal 1998, D&A expenses increased
due to the amortization of $127,500, over a two year period and $108,000 over a
four year period, resulting from the issuance of common stock and warrants in
payment of loan costs. See "Liquidity and Capital Resources".
Total other expense for the Nine Months Fiscal 1998 was $125,517, a
decrease of $34,521 from total other expense of $160,038 for the Nine Months
Fiscal 1997. The decrease in total other expense is primarily due to the
reduction of $85,000 in accrued liabilities offset by an increase of $39,882 in
net interest expense resulting primarily from higher loan balances and banking
expenses to the Company's primary lender.
As a result of the foregoing, the net loss for the Nine Months Fiscal 1998
was $617,893, a decrease of $1,149,927 from a net loss of $1,767,820 for the
Nine Months Fiscal 1997. The decrease in net loss for the Nine Months Fiscal
1998 as compared to the Nine Months Fiscal 1997 is primarily due to a decrease
in SG&A expenses, a settlement expense in the amount of $855,712 incurred during
the Nine Months Fiscal 1997 which was not repeated during the Nine Months Fiscal
1998 and a decrease in total other expense as discussed above.
Primary and fully diluted loss per share was $.74 for the Nine Months
Fiscal 1998 as compared to a primary and fully diluted loss per share of $2.54
for the Nine Months Fiscal 1997. The primary and fully diluted loss per share
computation for the Nine Months Fiscal 1998 reflect accrued dividends on the
Series A Convertible Preferred Stock which were paid in December 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 November 30, 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
2012.
The Company's working capital at November 30, 1997 was $1,301,507 as
compared to $1,066,176 at February 28, 1997. The Company's working capital
position increased by $235,331.
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.
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") a company controlled by Charles C.
Johnston ("Mr. Johnston"), a principal stockholder of the Company. 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
personally guaranteed by Mr. Reiner. As of January 14, 1998, the Company had not
made any payments against the $165,000 promissory note.
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 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.
-7-
<PAGE>
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. As of January 14, 1998, Mr. Reiner had repaid approximately
$21,000 to the Company.
In May 1997, the Company entered into a working capital credit facility
agreement with Mr. Reiner pursuant to 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 the Company's senior lender with a junior lien on all
assets of the Company. In connection with the financing, the Company gave Mr.
Reiner 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 $1.28 per share at any time until May 21, 2002. As
of January 14, 1998, the outstanding balance on the loans from Mr. Reiner was
$66,500.
On July 25, 1997, NationsCredit Commercial Funding Division of
NationsCredit Commercial Corporation, A NationsBank Company ("NationsCredit")
provided the Company with a 48-month Revolving Line of Credit of up to
$2,500,000 (the "Loan"). The Company agreed to pay NationsCredit interest on the
average outstanding principal amount of the Loan at a per annum rate of prime
plus 3%. The Loan is advanced to the Company based on a percentage of eligible
assets and is secured by a first position security interest on all of the assets
of the Company. In addition, $250,000 of the Loan is personally guaranteed by
Thomas F. Reiner, the Company's Chairman, President and Chief Executive Officer.
As of November 30, 1997, the outstanding balance on the Loan was $1,568,534 and
approximately $25,000 in credit was available. The Loan is being used to provide
working capital for current operations.
In connection with the financing, the Company issued NationsCredit a
warrant to purchase up to 42,500 shares of its Common Stock exercisable at $1.11
per share at any time until July 25, 2002. In consideration for Mr. Reiner
providing his personal guarantee for the NationsCredit Loan, on July 25, 1997,
the Company issued to Mr. Reiner 80,000 shares of Common Stock and an option to
purchase up to 150,000 of its Common Stock exercisable at $1.25 per share at any
time until July 25, 2004.
On August 22, 1997, the Nasdaq Stock Market received approval from the
Securities and Exchange Commission for the proposed changes to its listing
requirements. These changes materially enhance the threshold criteria necessary
to qualify for listing on the Nasdaq National and SmallCap Markets. The new
listing requirements for continued listing will become effective on February 23,
1998. Currently the Company does not meet the new net tangible/market
capitalization/net income requirements for continued listing on the Nasdaq
SmallCap Market and no assurance can be given that the Company will be able to
meet such requirement. If the Company is unable to meet the new listing
requirements, its securities will be subject to delisting from the Nasdaq
SmallCap Market. Trading, if any, in the Company's securities would thereafter
be conducted in the OTC Bulletin Board which could substantially reduce the
markets for the Company's securities.
The Company relies on outside suppliers for many components of its
products. From time to time the Company has experienced difficulties in
obtaining some components, and there can be no assurance that its manufacturing
sources will be able to meet the Company's product needs on a timely basis. At
present the Company obtains its TENS units and certain of its surgical
disposables from single sources. Although the Company procures its TENS units
under a manufacturing agreement, a lack of availability of product from its
current supplier would have a material adverse effect on the Company's
operations.
-8-
<PAGE>
Net sales to Henley accounted for approximately 22% of the Company's
revenues for the Nine Month Fiscal 1998. Although the Company has non-cancelable
purchase orders and a manufacturing contract from Henley for its electrotherapy
products, the loss of Henley as a customer would have a material adverse effect
on the Company's operations.
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.
-9-
<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
The Annual Meeting of Stockholders was held on November 25, 1997 in
which shareholders of the Company approved all three matters voted
upon at the meeting. The matters voted upon and the number of votes
cast for, against, abstain, broker non-votes (which occur if a
beneficial owner of stock where shares are held in a brokerage or bank
account fails to provide the broker or the bank voting instructions as
to such shares) and unvoted as to each such matter follows:
1. To elect three (3) directors of the Company;
2. To approve the creation of the Company's 1997 Annual and
Long-Term Incentive-Performance Plan; and
3. To ratify the appointment of Grant Thornton LLP as the Company's
independent public accountants for the fiscal year ending
February 28, 1998.
Broker
Proposal For Against Abstain Non-votes Unvoted
-------- --- ------- ------- --------- -------
Proposal No. 1
Thomas F. Reiner 777,487 19,686 0 0 163,847
Michael Y. Granger 779,200 17,973 0 0 163,847
Allan J. Korn 779,034 18,139 0 0 163,847
Proposal No. 2 320,852 37,659 3,247 435,415 163,847
Proposal No. 3 788,391 5,767 3,014 0 163,847
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Computation of Primary Earnings Per Share (Page 11)
Computation of Fully Diluted Earnings Per Share (Page 12)
Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K
The Company filed a Form 8-K dated October 9, 1997 which reported
the dismissal of Angell & Deering as the Company's principal
independent accountant engaged to audit the Company's financial
statements and the appointment of Grant Thornton LLP as its new
independent accountants.
-10-
<PAGE>
<TABLE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
----------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period .................. 915,904 756,459 764,249 641,138
Shares issued during the period
(weighted average) ......................................... 8,129 3,879 105,418 91,619
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 ....................................... 924,033 760,338 869,667 732,757
=========== =========== =========== ===========
Net Income (Loss) Applicable to Common Stockholders ........ $ (219,517) $ (362,703) $ (642,453) $(1,864,414)
=========== =========== =========== ===========
Net Income (Loss) Per Primary Share ........................ $ (.24) $ (.48) $ (.74) $ (2.54)
=========== =========== =========== ===========
-11-
</TABLE>
<PAGE>
<TABLE>
SPARTA SURGICAL CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
----------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period .................. 915,904 756,459 764,249 641,138
Shares issued during the period
(weighted average) ......................................... 8,129 3,879 105,418 91,619
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 ................................. 924,033 760,338 869,667 732,757
=========== =========== =========== ===========
Net Income (Loss) Applicable to Common Stockholders ........ $ (219,517) $ (362,703) $ (642,453) $(1,864,414)
=========== =========== =========== ===========
Net Income (Loss) Per Fully Diluted Share .................. $ (.24) $ (.48) $ (.74) $ (2.54)
=========== =========== =========== ===========
-12-
</TABLE>
<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
January 15, 1998
-13-
<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
NOVEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-START> Mar-01-1997
<PERIOD-END> Nov-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 408,533
<ALLOWANCES> 34,131
<INVENTORY> 2,161,036
<CURRENT-ASSETS> 2,609,112
<PP&E> 507,656
<DEPRECIATION> 298,188
<TOTAL-ASSETS> 4,398,306
<CURRENT-LIABILITIES> 1,307,605
<BONDS> 2,119,843
0
602,604
<COMMON> 1,857
<OTHER-SE> 204,350
<TOTAL-LIABILITY-AND-EQUITY> 4,398,306
<SALES> 1,818,766
<TOTAL-REVENUES> 1,818,766
<CGS> 884,287
<TOTAL-COSTS> 884,287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210,517
<INCOME-PRETAX> (617,893)
<INCOME-TAX> 0
<INCOME-CONTINUING> (617,893)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (617,893)
<EPS-PRIMARY> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
