UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the Quarterly Period Ended: September 30, 1996; or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from _______ to ________.
Commission File Number
0-23076
Sparta Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1755527
- ---------------------------- -------------------------------------
(State of incorporation) (IRS Employer Identification No.)
111 Rock Rd. Horsham, PA 19044
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(Address of principal executive offices, including zip code)
(215) 442-1700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 11, 1996, there were outstanding 8,481,085 shares of Common
Stock, $.001 par value per share.
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FORM 10-Q
QUARTERLY REPORT
---------------
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements:
Balance Sheets as of September 30, 1996 and
December 31, 1995 3
Statements of Operations for the three-month periods
and for the nine-month periods ended September 30,
1996 and 1995 and for the period from June 12, 1990
(inception) to September 30, 1996 4
Statements of Cash Flows for the nine-month periods
ended September 30, 1996 and 1995 and for the period
from June 12, 1990 (inception) to September 30, 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 19
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheets
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 11,534,906 $ 734,296
Prepaid expenses and other current assets 69,271 180,125
------------ ------------
Total current assets 11,604,177 914,421
Property, plant & equipment, net 500,915 21,102
Other assets:
License agreements, net of amortization
of $67,445 in 1996 and $50,345 in 1995 47,343 64,443
Restricted Cash 194,451 --
------------ ------------
$ 12,346,886 $ 999,966
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 365,849 $ 185,861
------------ ------------
Total current liabilities 365,849 185,861
Shareholders' equity:
Preferred Stock, not designated, $.001 par
value; authorized and unissued 8,000,000 shares -- --
Series B' Convertible Preferred Stock, $.001 par
value; authorized 3,000,000 shares; issued
and outstanding 1,696,500 shares in 1996 and
0 shares in 1995 1,697 --
Common Stock, $.001 par value; authorized
42,000,000 shares; issued and outstanding
8,192,219 shares in 1996 and 6,185,931 shares
in 1995 8,192 6,186
Additional paid-in capital 28,165,073 10,825,375
Deficit accumulated during the development stage (15,815,734) (10,017,456)
Deferred compensation (178,191) --
Stock subscriptions receivable (200,000) --
Total shareholders' equity 11,981,037 814,105
------------ ------------
$ 12,346,886 $ 999,966
============ ============
The accompanying notes are an integral part of the financial statements.
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period From
Three Months Ended Nine Months Ended June 12, 1990
September 30 September 30 (Inception) to
------------------------- ------------------------- September
1996 1995 1996 1995 30, 1996
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Contract revenue $ -- $ 1,000 $ -- $ 17,875 $ 127,870
Interest income 101,197 24,400 148,781 108,061 440,443
----------- ----------- ----------- ----------- ------------
Total revenue 101,197 25,400 148,781 125,936 568,313
Operating expenses:
Research and development 834,199 608,817 1,868,201 1,567,002 7,872,606
General and administrative 251,737 239,586 1,015,945 704,349 5,448,528
Charge for acquired research
and development (Note 4) -- -- 3,062,913 -- 3,062,913
----------- ----------- ----------- ----------- ------------
Net loss $ (984,739) $ (848,403) $(5,798,278) $(2,145,415) $(15,815,734)
=========== ----------- =========== =========== ============
Net loss per share $ (.12) $ (.13) $ (.76) $ (.35) $ (4.14)
=========== =========== =========== =========== ============
Weighted average number
of shares outstanding (Note 2) 8,192,195 6,174,000 7,649,130 6,161,713 3,822,394
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
Nine Months ended September 30, June 12, 1990
------------------------------ (Inception) to
1996 1995 September 30, 1996
--------------- ------------- ------------------
<S> <C> <C> <C>
Operating activities:
Net loss ................................................ $ (5,798,278) $(2,145,415) $(15,815,734)
Adjustments to reconcile net loss to net cash used
in operating activities:
Recognition of gain/loss on investments ............. -- 3,316 3,316
Depreciation and amortization ....................... 117,093 25,315 671,242
Writedown of license agreement ...................... -- -- 45,200
Acquired research & development (Note 4) .......... 3,062,913 -- 3,062,913
Issuance of convertible notes for services .......... -- -- 220,474
Issuance of stock for services ...................... 3,694 76,692 161,445
Compensation expense related to stock options granted 27,909 -- 227,909
Changes in operating assets and liabilities:
Prepaid expenses and other assets .................. 110,853 (191,795) (69,272)
Restricted cash .................................... 52,898 -- 52,898
Accounts payable and accrued expenses .............. 29,989 (139,843) 215,850
------------ ----------- ------------
Net cash used in operating activities ................... (2,392,929) (2,371,730) (11,223,759)
------------ ----------- ------------
Investing activities:
Payment of acquisition related fees & expenses .......... (130,842) -- (130,842)
Purchases of available-for-sale securities .............. -- -- (1,103,193)
Maturities of available-for-sale securities ............. -- 1,099,877 1,099,877
Purchases of fixed assets ............................... (11,226) -- (66,092)
Acquisition of license agreements ....................... -- -- (160,078)
------------ ----------- ------------
Net cash provided by (used in) investing activities ..... (142,068) 1,099,877 (360,328)
------------ ----------- ------------
Financing activities:
Proceeds from issuance of convertible notes and notes
payable ................................................. -- -- 4,488,650
Repayment of notes payable .............................. -- -- (640,000)
Proceeds from issuance of Common Stock .................. 2,000 7,500 4,914,031
Repurchase of common stock .............................. -- -- (45)
Proceeds from issuance of Preferred Stock ............... 13,333,607 -- 14,826,307
Increase in debt issuance costs ......................... -- -- (469,950)
------------ ----------- ------------
Net cash provided by financing activities ............... 13,335,607 7,500 23,118,993
------------ ----------- ------------
Increase (Decrease) in cash and cash equivalents ........ 10,800,610 (1,264,353) 11,534,906
Cash and cash equivalents at beginning of period ........ 734,296 2,348,522 --
------------ ----------- ------------
Cash and cash equivalents at end of period .............. $ 11,534,906 $ 1,084,169 $ 11,534,906
============ =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest .................. $ -- $ -- $ 196,972
============ =========== ============
Supplemental disclosures of noncash investing and
financing activities:
Conversion of Convertible Notes and Series C
Convertible Preferred Stock into Common
Stock ................................................. $ -- $ -- $ 4,086,624
============ =========== ============
Issuance of Series A Convertible Preferred Stock for
cancellation of notes payable ........................... $ -- $ -- $ 200,000
============ =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
1. Company Activities and Significant Accounting Policies
Sparta Pharmaceuticals, Inc. (formerly MediRx Pharmaceuticals, Inc.), a
development stage company incorporated in 1990, is engaged in the business of
acquiring rights to, and developing for commercialization, technologies and
drugs for the treatment of a number of life threatening diseases, including
cancer, cardiovascular disorders and acute inflammation.
Basis of Presentation and Financing Activities
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred total net
losses of $15,815,734 since inception. The Company's continuation as a going
concern is dependent upon its ability to obtain adequate financing. The Company
will require substantial additional funds to finance its business activities on
an ongoing basis and will have a continuing long-term need to obtain additional
financing. The Company's future capital requirements will depend on numerous
factors, including, but not limited to, continued progress in its research and
development programs including its preclinical and clinical trials. The Company
plans to engage in such ongoing financing efforts on a continuing basis.
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation,
have been included in the accompanying unaudited financial statements. For more
complete financial information, these financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's 10-K, as amended, for the fiscal year ended December 31, 1995.
Results for the interim periods are not necessarily indicative of the results
for any other interim period or for the full fiscal year.
2. Net Loss Per Share of Common Stock
The net loss per share amounts are presented in accordance with Accounting
Principles Bulletin No. 15. Under this guidance, options, warrants, convertible
debt and securities and other common stock equivalents are not considered
outstanding as their effect would be anti-dilutive for both primary and fully
diluted earnings per share computations.
3. Preferred Stock and Unit Issuances
On February 29, 1996, the Company sold 300,000 shares of Series A
Convertible Preferred Stock, $.001 par value ("Series A Preferred Stock"), for
aggregate consideration of $3,000,000. The Series A Preferred Stock, pursuant to
its Certificate of Designation, was automatically converted into units comprised
of Series B' Convertible Preferred Stock and Class C Common Stock Warrants in
connection with a "Qualified Offering" (as defined in the Certificate of
Designation) concluded during July and August 1996. In connection with the
Company's private placement of its Series A Preferred Stock, the Company paid
commissions of $300,000 and non-accountable expense allowances of $90,000 to a
company controlled by a significant shareholder which served as placement agent
for the transaction (the "Placement Agent"). In addition, the Company issued to
the Placement Agent a warrant to purchase 30,000 shares of Series A
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Preferred Stock for an aggregate exercise price of $375,000, which was converted
into a warrant to purchase securities offered in the Qualified Offering
concluded during July and August 1996. Net proceeds of the financing after
commissions, legal fees and other expenses were approximately $2,570,000.
In July and August 1996, the Company completed a private placement of
equity securities. All previously issued shares of Series B Convertible
Preferred Stock were converted into shares of Series B' Convertible Preferred
Stock concurrently with the closing held on August 23, 1996 so as to give all
purchasers comparable rights and privileges. Gross proceeds involved in the
placement amounted to $12,965,000. The securities sold were Units, or fractions
thereof, and each Unit was comprised of 10,000 shares of the Company's Series B'
Convertible Preferred Stock , par value $.001 per share ("Series B' Preferred
Stock"), and a warrant to purchase 66,667 shares of the Company's Common Stock
at an exercise price of $1.50 per share. Each unit was priced at $100,000.
The Series B' Preferred Stock included in the Units is convertible at any
time at the option of the holder into shares of the Company's Common Stock at an
initial conversion price of $1.50 per share such that the 10,000 shares of the
Company's Series B' Preferred Stock included in a Unit are convertible into
66,667 shares of the Company's Common Stock. In the event of a Liquidation Event
( as defined in the Certificate of Designation relating to the Series B'
Preferred Stock), the holders of the Series B' Preferred Stock are entitled to
be paid out of the assets of the Company available for distribution to its
shareholders an amount equal to $13.00 per share, plus an amount equal to all
declared and unpaid dividends thereon, before any payment is made in respect of
stock junior to the Series B' Preferred Stock, including Common Stock. Holders
of Series B' Preferred Stock are also entitled to dividends, if any, as shall be
declared on the Company's Common Stock or on any other class of preferred stock,
unless holders of at least 66 2/3% of the outstanding Series B' Preferred Stock
consent otherwise. On August 23, 1997 the conversion rate of the Series B'
Convertible Preferred Shares into shares of Common Stock will be subject to
increase if the average closing bid price of the Common Stock for the 30
consecutive trading days immediately prior to August 23, 1997 is not greater
than $1.95 per share. The outstanding Series B' Preferred Stock is currently
convertible into 11,309,722 shares of Common Stock. Class C Warrants to purchase
11,309,722 shares of Common Stock are currently outstanding and are redeemable
under certain conditions after one year. Each Warrant has a five year term.
The Company filed a Registration Statement on Form S-3 on October 7, 1996
registering for resale 11,309,722 of the Company's Class C Warrants and 25,
324,253 shares of the Company's Common Stock issuable upon exercise of the Class
C Warrants, conversion of the Series B' Convertible Preferred Stock, the
exercise of certain Placement Agent Warrants, the exercise in full of the Unit
Purchase Options granted to the underwriter of the Company's Initial Public
Offering and shares previously issued to a University. The registration
statement was declared effective by the United States Securities and Exchange
Commission on October 22, 1996.
In connection with the Unit offering, the Company paid aggregate
commissions of $1,166,850 and non-accountable expense allowances of $518,600 to
the same Placement Agent which served in that capacity for the Series A
Preferred Stock transaction. In addition, the Company issued to the Placement
Agent a warrant to purchase 129,650 shares of Series B' Preferred Stock for an
aggregate purchase price of $1,426,150 and a warrant to purchase 864,333 shares
of the Company's Common Stock for an aggregate purchase price of $1,555,799.
Estimated net cash proceeds from the Unit offering are $10,760,000.
In connection with the Company's outstanding Class A and B Warrants and an
underwriter's purchase option issued in connection with its initial public
offering, the exercise price and the number of shares of Common Stock
purchasable upon the exercise of such Class A and Class B Warrants and the
underwriter's purchase option were adjusted as a result of the private placement
of equity securities in July and August 1996. Each Class A Warrant has been
adjusted such that the exercise price is $4.99 and allows the holder to acquire
1.2 shares of Common Stock. Each Class B Warrant has been adjusted such that the
exercise price is $8.25 and allows the holder to acquire 1.2 shares of Common
Stock.
4. Acquisition of the Business and Assets of Lexin Pharmaceutical Corporation
On March 15, 1996, the Company acquired the business and assets, and
assumed certain liabilities of Lexin Pharmaceutical Corporation ("Lexin"), for a
payment of 2,000,000 shares of the Company's Common Stock. The
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acquisition was accounted for using the purchase method of accounting. The fair
value of the net assets acquired was recorded based on the carrying value for
monetary and fixed assets with the remaining portion of the purchase price
($3,062,913) allocated to acquired research and development, which was expensed
in the quarter ended March 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since its inception in June 1990, the Company has been engaged in acquiring
and developing technologies and drug candidates for the treatment of cancer and
viral diseases, and through its acquisition of the assets and business of Lexin
Pharmaceutical Corporation, cardiovascular disorders and acute inflammation.
Sparta has not derived revenues from the sale of any products and expects to
incur substantial operating losses for the next several years. As of September
30, 1996, the Company's accumulated deficit was $15,815,734.
On March 15, 1996, Sparta acquired the assets and business of Lexin
Pharmaceutical Corporation ("Lexin") of Horsham, Pennsylvania. Lexin has been in
the business of developing and commercializing technology and compounds which
were licensed exclusively from the University of Pennsylvania and Wichita State
University and are directed at the potential treatment of a number of life
threatening diseases. The technology and compounds are related to inhibition of
serine proteases, which are enzymes which digest proteins and are implicated in
a number of diseases including cancer, cardiovascular disorders and acute
inflammation. Lexin's lead compound LEX032, is under option to Astra Merck Inc.
for acute pancreatitis.
During the third quarter of 1996, two compounds entered Phase I clinical
trials. Sparta's collaborator in the United Kingdom, the Cancer Research
Campaign, initiated a second Phase I pharmacokinetic trial in the United Kingdom
with a new oral formulation of asulacrine, a potential anticancer agent to which
Sparta has an option. Sparta also began its first U.S. clinical trial with RII
Retinamide, a retinoid compound, for the treatment of myelodysplastic syndromes
(MDS). Although this trial is classified as a Phase I/II trial, Sparta has
approval to administer RII Retinamide to patients for periods of 6-24 weeks.
Thus, patient selection is a very important aspect of this trial. In order to
accelerate patient enrollment, multiple clinical sites are now being added.
The results of operations for the quarter and nine months ended September
30, 1996 include the operating expenses for the Lexin business from the date of
acquisition and a charge for acquired research and development amounting to
$3,062,913 related to the Lexin acquisition. The Company's balance sheet at
September 30, 1996 reflects the inclusion of the Lexin assets acquired.
Results of Operations
Three Months Ended September 30, 1995 and 1996
Revenue increased from $25,400 for the three months ended September 30,
1995 to $101,197 for the three months ended September 30, 1996 due primarily to
a higher level of interest income. Interest income increased from $24,400 in the
third quarter of 1995 to $101,197 in the third quarter of 1996 due to a higher
level of funds available for investment. Interest income is likely to decrease
in subsequent quarters as funds are consumed by the operations of the Company,
unless the Company is able to secure additional funding. The amount of revenues
may vary significantly year-to-year and quarter-to-quarter and depend on, among
other factors, the timing and amount of future financings and the potential
awarding of future grants and contracts.
Research and development expenses increased from $608,817 in the third
quarter of 1995 to $834,199 in the third quarter of 1996. This is largely
attributable to increased expense levels, resulting from the Lexin purchase, in
the areas of personnel and facility-related expenses, offset by a net decrease
in outside development expenditures on certain drug candidates during the third
quarter of 1996. Subject to the receipt of additional funding, the Company
expects research and development expenses to increase during the next several
years as product development, preclinical and clinical trials, and regulatory
activities increase.
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General and administrative expenses increased from $239,586 in the third
quarter of 1995 to $251,737 in the third quarter of 1996. This increase is
principally due to increased expenditures in the areas of personnel and
facility- related expense as a result of the Lexin purchase, offset by decreases
in financial advisory fees and legal expense.
The Company expects to incur substantial operating losses over the next
several years. The amount of net losses may vary significantly from year-to-year
and quarter-to-quarter and depend on, among other factors, the timing of
research and the progress of preclinical and clinical development programs.
Nine Months Ended September 30, 1995 and 1996
Revenue increased from $125,936 for the nine months ended September 30,
1995 to $148,781 for the nine months ended September 30, 1996 due primarily to
higher levels of interest income. Interest income increased from $108,061 for
the nine months ended September 30, 1995 to $148,781 for the nine months ended
September 30, 1996 due to a higher level of funds available for investment.
Contract revenue decreased from $17,875 for the nine months ended September 30,
1995 to $0 for the nine months ended September 30, 1996. Contract revenues for
the nine months ended September 30, 1995 resulted from the completion of work
under a Phase I SBIR grant from the National Cancer Institute, under which grant
the Company produced and tested formulations of etoposide utilizing its
Spartaject(TM) Drug Delivery Technology and a fee for a partially completed
contract under which the Company provided a pharmaceutical client with drug
formulations utilizing its Spartaject(TM) Drug Delivery Technology. The amount
of revenues may vary significantly year-to-year and quarter-to-quarter and
depend on, among other factors, the timing and amount of future financings and
the potential awarding of future grants and contracts.
Research and development expenses increased from $1,567,002 for the nine
months ended September 30, 1995 to $1,868,201 for the nine months ended
September 30, 1996. This is largely attributable to increased expense levels,
resulting from the Lexin purchase, in the areas of personnel and
facility-related expenditures, offset by a net decrease in outside development
expenditures on certain drug candidates during the first nine months of 1996.
The Company expects research and development expenses to increase during the
next several years as product development, preclinical and clinical trials, and
regulatory activities increase.
General and administrative expenses increased from $704,349 for the nine
months ended September 30, 1995 to $1,015,945 for the nine months ended
September 30, 1996. This increase is principally due to increases in financial
advisory fees and insurance along with increased expenditures in the areas of
personnel and facility-related as a result of the Lexin purchase, offset by a
decrease in legal expenses.
Liquidity and Capital Resources
On February 29, 1996, the Company completed a private placement of
$3,000,000 of its Series A Convertible Preferred Stock, $.001 par value per
share (the "Series A Preferred Stock"). The Series A Preferred Stock, pursuant
to its Certificate of Designation, was automatically converted into units
comprised of Series B' Convertible Preferred Stock and Class C Common Stock
Warrants in connection with a "Qualified Offering" (as defined in the
Certificate of Designation) concluded during July and August 1996. In connection
with the private placement of its Series A Preferred Stock, the Company paid
commissions of $300,000 and non-accountable expense allowances of $90,000 to a
company controlled by a significant shareholder which served as placement agent
for the transaction. In addition, the Company issued the Placement Agent a
warrant to purchase 30,000 shares of the Series A Preferred Stock , for an
aggregate purchase price of $375,000, which was converted into a warrant to
purchase securities offered in the Qualified Offering concluded during July and
August 1996. Net proceeds of the financing after commissions, legal fees and
other expenses were approximately $2,570,000.
In July and August, 1996, the Company completed a private placement of
equity securities. All previously issued shares of Series B Convertible
Preferred Stock were converted into shares of Series B' Convertible Preferred
Stock concurrently with the closing held on August 23, 1996 so as to give all
purchasers comparable rights and privileges. Gross proceeds involved in the
placement amounted to $12,965,000. The securities sold were units (the "Units),
or
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fractions thereof, and each Unit was comprised of 10,000 shares of the Company's
Series B' Convertible Preferred Stock , par value $.001 per share ("Series B'
Preferred Stock"), and five-year warrants (the "Warrants") to purchase 66,667
shares of the Company's Common Stock, par value $.001 per share ("Common Stock")
at an exercise price of $1.50 per share. Each Unit was priced at $100,000.
The Series B' Preferred Stock included in the Units is convertible at any
time at the option of the holder into shares of the Company's Common Stock at an
initial conversion price of $1.50 per share such that the 10,000 shares of the
Company's Series B' Preferred Stock included in a Unit are convertible into
66,667 shares of the Company's Common Stock. In the event of a Liquidation Event
(as defined in the Certificate of Designation relating to the Series B'
Preferred Stock), the holders of the Series B' Preferred Stock are entitled to
be paid out of the assets of the Company available for distribution to its
shareholders an amount equal to $13.00 per share, plus an amount equal to all
declared and unpaid dividends thereon, before any payment is made in respect of
stock junior to the Series B' Preferred Stock, including Common Stock. Holders
of Series B' Preferred Stock are also entitled to dividends, if any, as shall be
declared on the Company's Common Stock or on any other class of preferred stock,
unless holders of at least 66 2/3% of the outstanding Series B' Preferred Stock
consent otherwise. The outstanding Series B' Preferred Stock is currently
convertible into 11,309,722 shares of Common Stock. Class C Warrants to purchase
11,309,722 shares of Common Stock are currently outstanding and are redeemable
under certain conditions after one year.
The Company has filed a registration statement with the Securities and
Exchange Commission with respect to the Common Stock issuable upon conversion of
the Series B' Preferred Stock, the Common Stock issuable upon exercise of the
Warrants included in the Units, the Warrants, the exercise of certain Placement
Agent Warrants, the exercise in full of the Unit Purchase Options granted to the
underwriter of the Company's Initial Public Offering and shares previously
issued to a University (collectively, the "Registrable Securities"). The
registration statement was declared effective by the United States Securities
and Exchange Commission on October 22, 1996.
In connection with the Unit offering, the Company paid aggregate
commissions of $1,166,850 and non-accountable expense allowances of $518,600 to
the same Placement Agent which served in that capacity in the Series A Preferred
Stock transaction. In addition, the Company issued to the Placement Agent a
warrant to purchase 129,650 shares of Series B' Preferred Stock for an aggregate
purchase price of $1,426,150 and warrants to purchase 864,333 shares of the
Company's Common Stock for an aggregate consideration of $1,555,799. Estimated
net cash proceeds from the Unit offering are $10,760,000.
The Company has used approximately $11,223,759 to fund operations from
inception through September 30, 1996. The Company has financed its operations to
date from the proceeds of its private placement of Series A Preferred Stock,
private placement of Units concluded in July and August 1996, its initial public
offering in June and July 1994, prior placements of equity and convertible debt
securities and investment income. In 1996, the Company is obligated under its
license agreements to make minimum royalty payments and an annual maintenance
fee in the aggregate of $157,000, of which $127,000 has been paid as of October
31, 1996. Under a collaboration and option agreement, the term of which has been
extended, the Company may have to make payments of up to $106,000 based on the
fullfillment of certain benchmarks. The Company is a party to several research
agreements, clinical trial production contracts and agreements with clinical
research organizations which require future payments. The Company anticipates
making payments of approximately $1,547,000 under the agreements which were in
effect as of October 31, 1996. Provided that there is adequate financing, the
amount of the Company's obligations under research agreements can be expected to
increase. In addition, the Company is a party to employment agreements with two
of its executive officers and a former executive officer as well as certain
consulting agreements which provide for aggregate annual, minimum payments of
$530,000 and $97,000, respectively, of which $115,000 is still owed as of
October 31, 1996. Upon the acquisition of the assets and business of Lexin,
Sparta assumed an operating lease obligation which will require the Company to
make payments of approximately $100,000 in 1996. The Company has contracted with
Cato Research Ltd. ("Cato") to provide drug development services. Cato's
services are paid for with a combination of cash and Common Stock.
As of September 30, 1996, the Company had cash and cash equivalents of
$11,534,906, accounts payable and accrued expenses of $365,849, and working
capital of $11,238,328. The report of the Company's independent auditors on the
Company's financial statements as of December 31, 1995 and 1994 for the years
then ended and for the period from
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June 12, 1990 (inception) to December 31, 1995 contains a paragraph regarding
the uncertainty with respect to the ability of the Company to continue as a
going concern.
The Company currently anticipates that the available cash, cash
equivalents, and investments will be sufficient to fund operations through the
first quarter of 1998. However, the Company may be required to obtain additional
financing to continue operations during such period in the event of cost
overruns or unanticipated expenses. The Company has experienced delays in
funding its planned research and development activities and will require
substantial additional funds to finance its business activities on an ongoing
basis. The Company's future capital requirements will depend on numerous
factors, including, but not limited to, progress in its research and development
programs, including preclinical and clinical trials, costs of filing and
prosecuting patent applications and, if necessary, enforcing issued patents or
obtaining additional licenses of patents, competing technological and market
developments, the cost and timing of regulatory approvals, the ability of the
Company to establish collaborative relationships, and the cost of establishing
manufacturing, sales and marketing capabilities. The Company has no current
commitment to obtain additional funding and is unable to state the amount or
potential source of such additional funds. Moreover, because of the Company's
potential long-term capital requirements, it may undertake additional equity
offerings whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. There can be no assurance
that the Company will be able to obtain additional funding when needed, or that
such funding, if available, will be obtainable on reasonable terms. Any such
additional funding may result in significant dilution to existing stockholders.
If adequate funds are not available, the Company may be required to delay,
reduce or eliminate research and development programs, capital expenditures, and
other operating expenses. The Company may be required to obtain funds through
arrangements with collaborative partners that may require the Company to
relinquish certain material rights to its products that it would not otherwise
relinquish.
The Company's ability to raise funds is likely to be adversely affected if
it is unable to continue to meet the listing criteria on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") SmallCap
Market. The NASDAQ SmallCap Market listing criteria requires a minimum of
$2,000,000 in total assets and a minimum capital and surplus of $1,000,000. The
Company's assets fell below the required minimum during the third quarter of
1995. The Listing Qualifications Committee of NASDAQ (the "Qualifications
Committee") granted the Company a temporary exception from such requirements
subject to meeting certain conditions, one of which was the closing of the
recently completed private placement no later than February 29, 1996. On March
14, 1996, the Company was notified that it had satisfied the requirements for
continued listing. If the Company is unable to raise sufficient funds when
needed, thereby allowing it to remain in compliance with the listing
requirements, the Company will either have to significantly reduce its
operations, particularly its research and development, or it will cease to be in
compliance during such period. If the Company becomes unable to meet such
criteria and is delisted from NASDAQ, trading, if any, in the Common Stock would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or, if then available, the National Association of Securities Dealers
Inc.'s ("NASD") "Electronic Bulletin Board." If delisting occurs, the Company's
securities may also become "penny stock" as defined in the Securities Exchange
Act of 1934, which may also adversely affect the Company's ability to raise
funds. As a result, an investor would likely find it more difficult to dispose
of, or to obtain accurate quotations as to the value of, the Company's
securities. The Company anticipates that the proceeds of the recently concluded
private placement of Units will enable the Company to satisfy the Minimum Asset
Requirement for continued listing until December 31, 1997.
11
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
In July and August, 1996, the Company held closings related to its
private placement of Units comprised of Series B' Convertible
Preferred Stock and Class C Common Stock Warrants. All previously
issued shares of Series B Convertible Preferred Stock were converted
into shares of Series B' Convertible Preferred Stock concurrently with
the closing held on August 23, 1996 so as to give all purchasers
comparable rights and privileges. In addition, all outstanding shares
of Series A Convertible Preferred Stock were automatically converted
into the Units. In the event of a Liquidation Event ( as defined in
the Company's Restated Certificate of Incorporation), holders of
Series B' Preferred Stock have a liquidation preference with respect
to their shares over holders of Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
%%%2.1 -- Copy of the Asset Purchase Agreement, with exhibits thereto,
dated February 22, 1996, between the Registrant and Lexin
Pharmaceutical Corporation
@3.4 -- Amended and Restated Certificate of Incorporation filed August
1, 1996.
%%%%%3.4A -- Certificate of Designation of the Series B' Convertible
Preferred Stock filed on August 23, 1996.
**4.2 -- Form of Common Stock Certificate
**4.3 -- Form of Class A Warrant Certificate
**4.4 -- Form of Class B Warrant Certificate
***4.5 -- Unit Purchase Option granted to Americorp Securities Inc. dated
June 28, 1994
***4.6 -- Warrant Agreement entered into among Midlantic National Bank,
Americorp Securities, Inc., and the Registrant dated June 21,
1994
@@ 4.7 -- Warrant Agreement for the Class C Warrants, dated August 23,
between the Company, the Warrant Agent and Paramount Capital,
Inc.
@@ 4.8 -- Form of Class C Warrant Certificate (see exhibit 4.7)
*+10.1 -- Exclusive License Agreement, dated October 1, 1991, between the
12
<PAGE>
Registrant and Yale University ("Yale") and Subscription
Agreement, dated October 21, 1991, between the Registrant and
Yale
*+10.1A -- Revised pages of Exhibit 10.1
*+10.2 -- License Agreement, dated October 7, 1991, between the
Registrant and The Research Foundation of State University of
New York
*+10.2A -- Revised pages of Exhibit 10.2
*+10.3 -- Research and License Agreement, dated as of October 15, 1991,
between the Registrant and Institute of Materia Medica of the
Chinese Academy of Medical Sciences ("BIMM"), as amended by an
Amendment of Research and License Agreement, dated as of March
1, 1992, between the Registrant and BIMM
*+10.3A -- Revised pages of Exhibit 10.3
*+10.4 -- Licensing and First Refusal Agreement, dated as of March 12,
1992, between the Registrant and the Dana-Farber Cancer
Institute, Inc. ("Dana- Farber"), a Letter Agreement, dated
March 12, 1992, between the Registrant and Dana-Farber, and a
Letter Agreement, dated September 12, 1992, between the
Registrant and Dana-Farber
*+10.4A -- Revised pages of Exhibit 10.4
*+10.5 -- License Agreement, dated as of August 31, 1992, between the
Registrant and Imperial Chemical Industries PLC
*+10.5A -- Revised pages of Exhibit 10.5
*10.6 -- Letter Agreement, dated October 30, 1992, among the Registrant,
Imperial Chemical Industries PLC, and ICI Bioscience Limited
*+10.7 -- Collaboration and Option Agreement, dated September 18, 1992,
by and among the Registrant, Cancer Research Campaign and
Cancer Research Campaign Technology Limited
*+10.7A -- Revised pages of Exhibit 10.7
*+10.8 -- Sublicense Agreement, dated July 13, 1992, between the
Registrant and Research Triangle Pharmaceuticals Ltd. ("RTP"),
as amended by a Letter Agreement, dated October 27, 1992,
between the Registrant and RTP and by a Second Amendment to
Sublicense Agreement, dated March 19, 1993, between the
Registrant and RTP
*+10.8A -- Revised pages of Exhibit 10.8
*+10.9 -- Service Agreement, dated November 27, 1991, between the
Registrant and Cato Research, Ltd. ("Cato"), as amended by a
Letter Agreement, dated March 16, 1993, between the Registrant
and Cato
*10.9A -- Revised pages of Exhibit 10.9
*10.10 -- Letter Agreement, dated October 28, 1991, between the
Registrant and Cato
*10.11 -- Subscription Agreement, dated November 27, 1991, between the
Registrant and Cato Holding Co
*10.12 -- Subscription Agreement, dated December 10, 1993, between the
Registrant and Cato Holding Co.
*10.13 -- Employment Agreement, dated as of January 28, 1991, between the
Registrant and William M. Sullivan, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties
*10.14 -- Nonqualified Stock Option Agreement, dated as of December 3,
1991, between the Registrant and William M. Sullivan
*10.15 -- Confidentiality Agreement, dated as of January 28, 1991,
between the Registrant and William M. Sullivan
*10.16 -- Employment Agreement, dated July 2, 1992, between the
Registrant and William McCulloch, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties, and
Guarantee by The Castle Group Ltd.
13
<PAGE>
*10.17 -- Incentive Stock Option Agreement, dated as of October 1, 1992,
between the Registrant and William McCulloch
*10.18 -- Nonqualified Stock Option Agreement, dated as of October 1,
1992, between the Registrant and William McCulloch
*10.19 -- Nonqualified Stock Option Agreement, dated as of October 1,
1992, between the Registrant and William McCulloch
*10.20 -- Confidentiality Agreement, dated as of July 2, 1992, between
the Registrant and William McCulloch
*10.21 -- Noncompetition Agreement, dated as of October 1, 1992, between
the Registrant and William McCulloch
*10.22 -- Employment Agreement, dated September 10, 1992, between the
Registrant and Richard N. Scott, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties, and
Guarantee by The Castle Group Ltd.
*10.23 -- Incentive Stock Option Agreement, dated as of September 10,
1992, between the Registrant and Richard N. Scott
*10.24 -- Nonqualified Stock Option Agreement, dated as of September 10,
1992, between the Registrant and Richard N. Scott
*10.25 -- Confidentiality Agreement, dated as of September 10, 1992,
between the Registrant and Richard N. Scott
*10.26 -- Confidentiality Agreement, dated as of September 10, 1992,
between the Registrant and John S. McBride
*10.27 -- Letter Agreement, dated March 23, 1993, between the Registrant
and Paramount Capital, Inc., as amended by Letter Agreements
dated June 24, 1993, June 28, 1993, September 24, 1993 and
November 5, 1993
*10.28 -- Indemnification Agreement, dated as of June 3, 1992, between
the Registrant and The Castle Group Ltd. relative to William
McCulloch
*10.29 -- Indemnification Agreement, dated as of September 15, 1992,
between the Registrant and The Castle Group Ltd. relative to
Richard N. Scott
*10.30 -- 1991 Stock Plan, as amended
*10.31 -- Stock Repurchase Agreement, dated as of November 21, 1991,
between the Registrant and Peter Barton Hutt
*10.32 -- Stock Repurchase Agreement, dated as of October 25, 1991,
between the Registrant and Charles O. O'Brien
*10.33 -- Stock Repurchase Agreement, dated as of October 15, 1991,
between the Registrant and Sir John Vane
*10.34 -- Stock Repurchase Agreement, dated as of December 24, 1991,
between the Registrant and The Sir John Vane Trust
*10.35 -- Stock Repurchase Agreement, dated as of October 5, 1993,
between the Registrant and Richard N. Scott and related
Assignment of even date between the parties
*10.36 -- Form of convertible notes issued on or prior to October 28,
1993 and schedule of purchasers of notes
*10.37 -- Form of Note Purchase and Subscription Agreement for issuance
of convertible notes issued prior to October 28, 1993 and
schedule of purchasers of notes
*10.38 -- Form of convertible notes issued in November 1993 and schedule
of purchasers of notes
*10.39 -- Note Purchase and Subscription Agreement dated as of November
12, 1993 between the Registrant and Financial Strategic
Portfolios, Inc. -- Health Sciences Portfolio ("FSP") for
issuance of convertible notes (See Exhibit 10.38 hereunder for
Exhibit A to this Exhibit 10.39)
*10.40 -- Form of Note Purchase and Subscription Agreement for issuance
of convertible notes issued in November 1993 other than to FSP
*10.41 -- Form of Note Purchase and Exchange Agreement for exchange of
convertible notes, form
14
<PAGE>
of convertible notes and schedule of parties thereto
*10.41A -- Revised schedule of parties to Exhibit 10.41
*10.42 -- Stock Purchase and Exchange Agreement, dated as of December 10,
1993, between the Registrant and FBL Ventures of South Dakota
*10.43 -- Registration Rights Agreement, dated November 12, 1993, among
the Registrant and certain rights holders, as amended as of
December 14, 1993
*10.44 -- Subscription Agreement dated September 14, 1992 and Letter
Agreements dated October 12, 1992 and December 13, 1993,
between the Registrant and Yale University
*10.44A -- Letter Agreement dated January 4, 1994
*10.45 -- Noncompetition Agreement, dated as of September 10, 1992,
between the Registrant and Richard N. Scott
***10.46 -- M/A Agreement between the Registrant and Americorp Securities,
Inc. dated June 28, 1994
**10.47 -- Form of Warrant Purchase Agreement among the Registrant;
Healthcare Capital Investments, Inc. and Societe Generale
Securities Corporation; and the Holders listed on Schedule I
thereto
**10.48 -- Form of Warrant Purchase Agreement among the Registrant,
Paramount Capital, Inc. and the Holders listed on Schedule I
thereto
***10.49 -- Underwriting Agreement between the Registrant and Americorp
Securities, Inc. dated June 21, 1994
***10.50 -- Unit Purchase Option granted to LT Lawrence & Company, Inc.
dated June 28, 1994
#10.51 -- Nonqualified Stock Option Agreement, dated as of December 16,
1994, between the Registrant and William M. Sullivan
#10.52 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994,
between the Registrant and Sir John Vane, FSR
#10.53 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994,
between the Registrant and Charles O. O'Brien
#10.54 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994,
between the Registrant and Peter Barton Hutt
#10.55 -- Incentive Stock Option Agreement, dated as of December 16,
1994, between the Registrant and William McCulloch
#10.56 -- Amendment (as of March 14, 1994) to the Employment Agreement,
dated July 2, 1992, between the Registrant and William
McCulloch, as amended by a Letter Agreement, dated as of March
2, 1993, between the parties, and Guaranteed by The Castle
Group Ltd.
#10.57 -- Amendment (dated November 26, 1994) to the Service Agreement,
dated November 27, 1991, between the Registrant and Cato
Holding Co.
#10.58 -- Amendment (dated December 16, 1994) to the Employment
Agreement, dated January 28, 1991, between the Registrant and
William M. Sullivan, as amended by a Letter Agreement, dated as
of March 2, 1993, between the parties
##10.59 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995,
between the Registrant and Sir John Vane, FSR
##10.60 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995,
between the Registrant and Charles O. O'Brien
##10.61 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995,
between the Registrant and Peter Barton Hutt
##10.62 -- Amendment (dated June 1, 1995) to the Research and License
Agreement, dated as of October 15, 1991, between the Registrant
and Institute of Materia Medica of the Chinese Academy of
Medical Sciences ("BIMM"), as amended by an Amendment of
Research and License Agreement, dated as of March 1, 1992,
between the Registrant and BIMM
^10.63 -- Financial Advisory Agreement between the Registrant and
Americorp Securities, Inc., dated as of June 29, 1995
%10.64 -- Amendment (dated as of September 14, 1994) to the Collaboration
and Option Agreement,
15
<PAGE>
dated September 18, 1992, by and among the Registrant, Cancer
Research Campaign and Cancer Research Campaign Technology
Limited
%%10.65 -- Form of Nonqualified Stock Option Agreement, dated as of
December 10, 1995, between the Company and William M. Sullivan
%%10.66 -- Incentive Stock Option Agreement, dated as of December 10,
1995, between the Company and William McCulloch
%%10.67 -- Distribution Agreement, dated as of December 1, 1995, among
Sparta Pharmaceuticals, Inc., Orphan Europe SARL and Swedish
Orphan, AB
%%10.68 -- Warrant Agreement between Sparta Pharmaceuticals, Inc. and
Paramount Capital, Inc., dated February 29, 1996
^10.69 -- Financial advisory agreement between the Registrant and
Paramount Capital, Inc. dated as of February 29, 1996
^^!10.70 -- Evaluation and option agreement between Lexin Pharmaceutical
Corporation and Astra Merck, Inc. dated as of October 25, 1995
(Assigned to Registrant pursuant to the Lexin purchase)
^^!10.71 -- Collaborative Research and Licensing Agreement between Lexin
Pharmaceutical Corporation and Wichita State University dated
as of April 1, 1994 (Assigned to Registrant pursuant to the
Lexin purchase)
^^!10.72 -- License Agreement between PI Research Corporation
(predecessor in name to Lexin Pharmaceutical Corporation) and
the Trustees of The University of Pennsylvania dated as of
January 2, 1992 (Assigned to Registrant pursuant to the Lexin
purchase)
^10.73 -- Amendment (dated March 15, 1996) to the Employment Agreement
dated January 28, 1991, between the Registrant and William M.
Sullivan, as amended by letter agreements, dated as of March 2,
1993 and December 16, 1994, between the parties
^10.74 -- Placement Agency Agreement between the Registrant and Paramount
Capital, Inc., dated as of January 22, 1996
@10.75 --
Placement Agency Agreement between the Registrant and Paramount
Capital, Inc., dated as of June 3, 1996
@10.76 --
Amendment (dated January 10, 1996) to the Stock Option
Agreements between the Registrant and William McCulloch dated
as of October 1, 1992, December 1, 1996, December 16, 1994 and
December 11, 1995
@10.77 -- Amendment (dated March 29, 1996) to the Collaborative Research
and Licensing Agreement between Lexin Pharmaceutical
Corporation and Wichita State University dated as of April 1,
1994 (Assigned to Registrant pursuant to the Lexin purchase)
@@10.79 -- Promissory Note dated August 23, 1996, in the amount of
$100,000 from Jerry B. Hook Ph.D. to the Company.
@@10.80 -- Promissory Note dated August 23, 1996, in the amount of $50,000
from Dr. William McCulloch to the Company.
@@10.81 -- Promissory Note dated August 23, 1996, in the amount of $50,000
from Ronald H. Spair to the Company.
11.1 -- Statement Re Computation of Per Share Earnings
27 -- Financial Data Schedule
- ----------
* Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-72882, filed on December 14, 1993, or amendments
thereto, and are incorporated by reference herein.
** Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-78086, filed on April 25, 1994, or in Amendment No.
1 thereto, filed on June 1, 1994.
*** Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994, filed on August 15, 1994 and are
incorporated by reference herein.
# Previously filed with the Company's 1994 Annual Report on Form 10-K, filed
on March 31, 1995, and are incorporated by reference herein.
## Previously filed with the Company's Quarterly Report on form 10-Q for the
quarterly period ended June 30,
16
<PAGE>
1995, filed on August 14, 1995.
### Previously filed with the Company's Amendment No. 1 to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995,
filed on January 24, 1996.
% Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995, filed on November 14, 1995.
%% Previously filed with the Company's 1995 Annual Report on Form 10-K, filed
on April 1, 1996, and are incorporated by reference herein.
%%% Previously filed with the Company's report on Form 8-K filed on April 1,
1996, and is incorporated by reference herein.
%%%% Previously filed with the Company's report on form 8-K filed on September
26, 1996, and is incorporated by reference herein.
%%%%% Previously filed with the Company's report on form 8-K filed on September
26, 1996, and is incorporated by reference herein.
+ Confidential Treatment has been granted by the Securities and Exchange
Commission.
! Confidential Treatment has been requested from the Securities and Exchange
Commission.
^ Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996, filed on May 15, 1996.
^^ Previously filed with the Company's Quarterly Report on Form 10-Q/A for
the quarterly period ended March 31, 1996, filed on July 17, 1996.
@ Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996, filed on August 9, 1996
@@ Previously filed with the Company's Registration Statement on Form S-3,
Registration No. 333-13621, filed on October 7, 1996 or in Amendment No. 1
thereto, filed on October 17, 1996.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter:
On August 30, 1996, a report on form 8-K dated August 7, 1996 was filed
with the Securities and Exchange Commission announcing the initiation of a
Second Phase I pharmacokinetic trial with a new oral formulation of asulacrine,
a potential anticancer agent to which Sparta has an option; and closings related
to an ongoing private placement of equity securities.
On August 30, 1996, a report on Form 8-K dated August 28, 1996, was filed
with the Securities and Exchange Commission announcing the closing of Sparta's
previously announced private placement of equity securities.
On September 9, 1996, a report on Form 8-K dated September 3, 1996, was
filed with the Securities and Exchange Commission announcing the commencement of
Sparta's first U.S. clinical trial with RII retinamide.
On September 26, 1996 a report on Form 8-K/A dated March 15, 1996, was
filed with the Securities and Exchange Commission amending the form 8-K dated
March 15, 1996, announcing the acquisition of the assets and liabilities of
Lexin Pharmaceutical Corporation. This amendment contains amended financial
statements for Lexin Pharmaceutical Corporation and amended ProForma Financial
Information.
On September 26, 1996, a report on Form 8-K dated August 23, 1996, was
filed with the Securities and Exchange Commission submitting the Certificate of
Designations for Sparta's Series B' Preferred Stock.
On September 26, 1996, a report on Form 8-K dated September 23, 1996, was
filed with the Securities and Exchange Commission announcing that the United
States Patent and Trademark Office has granted United States Patent #5,550,139
submitted by Dr. William C. Groutas of Wichita State University.
On September 26, 1996, a report on Form 8-K dated September 24, 1996, was
filed with the Securities and
17
<PAGE>
Exchange Commission announcing the appointment of Dr. Colin Bier to Sparta's
Board of Directors.
18
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sparta Pharmaceuticals, Inc.
November 11, 1996 By: /s/ Jerry B. Hook President and Chief Executive
- ------------------ -------------------- Officer (principal executive
Date Jerry B. Hook, Ph.D. officer) and Director
November 11, 1996 By: /s/ Ronald H. Spair Vice President and Chief
- ------------------ -------------------- Financial Officer (principal
Date Ronald H. Spair Financial Officer)
19
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Computations of Earnings Per Share
<TABLE>
<CAPTION>
Period From
For the three months ended For the nine months ended June 12, 1990
` -------------------------- ------------------------- (Inception) to
September September September September September
30, 1996 30, 1995 30, 1996 30, 1995 30, 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Loss $ (984,739) $ (848,403) $(5,798,278) $(2,145,415) $(15,815,734)
========== ========== =========== =========== ============
Common Stock outstanding for
the period based on a daily
weighted average 8,192,195 6,174,000 7,649,130 6,161,713 3,822,394
Net Loss per share $ (0.12) $ (0.13) $ (0.76) $ (0.35) $ (4.14)
========== ========== =========== =========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Scheudle contains summary financial information extracted from the
Financial Statements included in the Company's September 30, 1996 report
on Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,534,906
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,604,177
<PP&E> 634,672
<DEPRECIATION> 133,757
<TOTAL-ASSETS> 12,346,886
<CURRENT-LIABILITIES> 365,849
<BONDS> 0
0
1,697
<COMMON> 8,192
<OTHER-SE> 11,971,148
<TOTAL-LIABILITY-AND-EQUITY> 12,346,886
<SALES> 0
<TOTAL-REVENUES> 148,781
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,947,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,798,278)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,798,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,798,278)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> (.76)
</TABLE>
