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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, 1998; 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.
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(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 October 26, 1998, there were outstanding 3,618,471 shares of Common Stock,
$.001 par value per share.
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FORM 10-Q
QUARTERLY REPORT
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. FINANCIAL INFORMATION Page No.
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the three-month and
nine-month periods ended September 30, 1998 and 1997 and for
the period from June 12, 1990 (inception) to September 30, 1998 4
Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1998 and 1997 and for the period
from June 12, 1990 (inception) to September 30, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II. OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
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PART I-FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,358,413 $ 4,767,317
Short-term investments -- 1,473,275
Prepaid expenses and other assets 190,991 68,778
------------ ------------
Total current assets 3,549,404 6,309,370
Fixed assets, net 199,408 336,695
Other assets:
License agreements, net of amortization
of $102,631 in 1998 and $92,912 in 1997 12,157 21,876
Restricted cash 92,972 148,310
------------ ------------
$ 3,853,941 $ 6,816,251
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 644,395 $ 741,240
------------ ------------
Total current liabilities 644,395 741,240
------------ ------------
Stockholders' equity:
Preferred Stock, not designated, $.001 par value;
authorized and unissued 8,845,231 shares -- --
Series B' Convertible Preferred Stock, $.001 par value;
authorized 2,154,769 shares; issued and outstanding
851,241 shares in 1998 and 1,020,747 shares in 1997 851 1,021
Common Stock, $.001 par value; authorized 72,000,000
shares; issued and outstanding 3,578,472 shares in
1998 and 3,116,154 shares in 1997 3,578 3,116
Additional paid-in capital 28,661,745 28,616,607
Stock subscriptions receivable (66,667) (133,333)
Deferred compensation (117,246) (167,654)
Deficit accumulated during the development stage (25,272,715) (22,244,746)
------------ ------------
Total stockholders' equity 3,209,546 6,075,011
------------ ------------
$ 3,853,941 $ 6,816,251
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period From
Three Months Ended Nine Months Ended June 12, 1990
September 30, September 30, (Inception) to
------------------- -------------------- September 30,
1998 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Grant, contract and license fee income $ 138,451 $ 16,568 $ 554,303 $ 39,074 $ 837,379
Interest income 54,760 108,071 195,828 352,161 1,229,826
------------ ------------ ------------ ------------ ------------
Total revenue 193,211 124,639 750,131 391,235 2,067,205
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development 970,701 865,011 2,863,995 2,844,974 15,793,358
General and administrative 302,666 371,785 914,105 1,102,723 8,248,649
Charge for acquired research
and development -- -- -- -- 3,297,913
------------ ------------ ------------ ------------ ------------
Net loss $ (1,080,156) $ (1,112,157) $ (3,027,969) $ (3,556,462) $(25,272,715)
============ ============ ============ ============ ============
Basic and diluted net loss per share $ (.30) $ (.52) $ (.89) $ (1.75)
============ ============ ============ ============
Basic and diluted weighted average
number of shares outstanding (Note 4) 3,549,770 2,129,547 3,385,670 2,031,607
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30, Period from June 12, 1990
------------------------------ (Inception) to
1998 1997 September 30, 1998
------------ ------------ ------------------
Operating activities:
<S> <C> <C> <C>
Net loss ........................................................ $ (3,027,969) (3,556,$62) (25,272,715)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on investments ......................................... -- -- 3,316
Depreciation and amortization ............................... 151,352 162,940 1,089,786
Write down of license agreement ............................. -- -- 45,200
Acquired research & development ............................. -- -- 3,197,913
Issuance of convertible notes for services .................. -- -- 220,474
Issuance of stock for services .............................. 45,430 60,514 267,389
Compensation expense related to stock options and
warrants granted ............................................ 50,408 104,970 485,391
Compensation expense related to forgiveness of stock
subscriptions receivable .................................... 50,000 66,667 116,667
Changes in operating assets and liabilities,
net of effect from acquisition:
Prepaid expenses and other assets .......................... (122,213) (151,804) (190,991)
Restricted cash ....................................... 55,338 50,409 154,377
Accounts payable and accrued expenses ...................... (96,845) (56,179) 494,395
------------ ------------ ------------
Net cash used in operating activities .. (2,894,499) (3,318,945) (19,388,798)
------------ ------------ ------------
Investing activities:
Payment of acquisition related fees & expenses .................. -- -- (128,842)
Purchases of available-for-sale securities ...................... -- -- (2,576,468)
Maturities of available-for-sale securities ..................... 1,473,275 -- 2,573,152
Purchases of fixed assets ....................................... (4,346) (8,988) (147,943)
Acquisition of license agreements ............................... -- -- (160,078)
------------ ------------ ------------
Net cash provided by (used in) investing
activities ............................. 1,468,929 (8,988) (440,179)
------------ ------------ ------------
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 .......................... -- 80,000 4,992,031
Repurchase of Common Stock ...................................... -- -- (45)
Proceeds from issuance of Preferred Stock ....................... 16,666 -- 14,816,704
Increase in debt issuance costs ................................. -- -- (469,950)
------------ ------------ ------------
Net cash provided by financing activites 16,666 80,000 23,187,390
------------ ------------ ------------
Increase (Decrease) in cash and cash equivalents ................ (1,408,904) (3,247,933) 3,358,413
Cash and cash equivalents at beginning of period ................ 4,767,317 10,246,812 --
------------ ------------ ------------
Cash and cash equivalents at end of period ...................... $ 3,358,413 $ 6,998,879 $ 3,358,413
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
1. Company Background
Sparta Pharmaceuticals, Inc. (and together with its subsidiary, the
"Company"), a development stage biopharmaceutical 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, chronic
metabolic diseases and inflammation.
The Company has generated no product revenues to date and has incurred
losses since its inception. The Company anticipates incurring additional losses
over at least the next several years and such losses are expected to increase as
the Company expands its research and development activities. Substantial
financing will be needed by the Company to fund its operations and to develop
its products commercially. There is no assurance that such financing will be
available when needed. Operations of the Company are subject to certain risks
and uncertainties including, among others, uncertainty of product development,
technological uncertainty, dependence on collaborative partners, uncertainty
regarding patents and proprietary rights, comprehensive government regulations,
marketing and sales capability and experience, limited clinical trial
experience, and dependence on key personnel.
2. Basis of Presentation
The consolidated financial statements include the accounts of Sparta
Pharmaceuticals, Inc. and Orizon Pharmaceuticals, Inc., a 95% owned subsidiary.
The Company recognizes 100% of Orizon's net loss in its consolidated results of
operations. All intercompany balances and transactions have been eliminated.
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 Annual Report on Form 10-K for the fiscal year ended December 31,
1997. Results for the interim periods are not necessarily indicative of the
results for any other interim period or for the full fiscal year.
3. Recapitalization
At the Company's Annual Meeting of Stockholders held on May 11, 1998, the
stockholders approved an amendment to the Company's Restated Certificate of
Incorporation effecting a one-for-five reverse stock split of its Common Stock.
The Company's Common Stock began trading on a post-reverse split basis at the
commencement of trading on May 13, 1998. All Common Stock and per share amounts
in the accompanying Consolidated Financial Statements have been retroactively
restated to reflect the reverse stock split.
4. Net Loss Per Share of Common Stock
The Company has adopted SFAS No. 128 ("SFAS 128"), "Earnings per Share,"
which supersedes APB Opinion No. 15 ("APB 15"), "Earnings per Share," and which
is effective for all periods ending after December 15, 1997. SFAS 128 requires
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dual presentation of basic and diluted earnings per share ("EPS") for complex
capital structures on the face of the Statements of Operations. Basic EPS is
computed by dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock. For the nine months and
three months ended September 30, 1998 and 1997, the effects of the (i) exercise
of outstanding stock options and warrants and (ii) conversion of the outstanding
shares of convertible preferred stock (as if converted on their dates of
issuance) were excluded from the calculation of diluted EPS because their effect
was antidilutive.
5. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which
requires that all items that are required to be recognized under accounting
standards or components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 became effective for fiscal years beginning after
December 15, 1997, with initial application as of the beginning of the Company's
1998 fiscal year. SFAS No. 130 requires comparative financial statements
provided for earlier periods to be reclassified to reflect application of the
provisions of this new standard.
The Company has reviewed SFAS No. 130 and has determined that for the nine
months and three months ended September 30, 1998 and 1997, no items meeting the
definition of comprehensive income as specified in SFAS No. 130 existed in the
financial statements. As a result, no disclosure is necessary to comply with
SFAS No. 130.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sparta is a development stage pharmaceutical company 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, chronic metabolic diseases
and 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, 1998, the Company's accumulated deficit was $25,272,715.
General
In the third quarter, the Company was awarded a Phase I/II Fast-Track Small
Business Innovation Research ("SBIR") Grant by the National Cancer Institute.
The Fast-Track initiative is designed to expedite the decision and award of SBIR
Phase II funding for projects that have high potential for commercialization.
This is the second major SBIR grant to be received by the Company in the past
twelve months. Both awards together total $1.6 million.
The new grant will be received over two and one-half years and totals
$850,000. This grant will provide funds for the development of IPdR, a prodrug
of IUdR, which has the potential to benefit patients receiving radiation therapy
for cancer. The specific goals of the grant are to take IPdR through toxicology
studies and the first two years of clinical trials. The Company anticipates that
the Phase I trial will begin in the first half of 1999.
During the third quarter, the Company completed negotiations with
Astra-Merck for the return to the Company of all rights to develop and
commercialize LEX032. This return of rights provides the Company the ability to
license LEX032 for targets such as stroke and other cardiovascular disorders.
The $750,000 Phase II SBIR Grant from the National Institute of Neurological
Disorders and Stroke awarded to the
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Company in September, 1997 (the "Phase II SBIR Grant") currently funds
pre-clinical development of LEX032 targeted for stroke.
The Company expects to conclude its current clinical trials with both 5-FP
and RII retinamide in the fourth quarter of 1998. If evaluation of the trial
results is favorable, the Company will seek to identify those pharmaceutical
companies interested in licensing these compounds for further clinical
development.
The Company is completing preparations for the initiation of its pivotal
trial for Spartaject busulfan and its initial clinical activity with
Pyrazinoylguanidine ("PZG"). Both trials are expected to begin within the next
few months.
Results of Operations
Three Months Ended September 30, 1997 and 1998
Revenue increased from $124,639 for the three months ended September 30,
1997 to $193,211 for the three months ended September 30, 1998 due to a higher
level of grant income. The Company recorded grant income of $138,451 for the
three months ended September 30, 1998 under the Phase II SBIR grant awarded in
1997, and contract income of $16,568 for the three months ended September 30,
1997 related to a feasibility study being conducted for a pharmaceutical company
("feasibility study"). Interest income decreased from $108,071 in the third
quarter of 1997 to $54,760 in the third quarter of 1998 due to a lower level of
funds available for investment as the Company consumes funds for continuing
operations. Interest income is likely to continue to decrease in subsequent
quarters unless the Company is able to secure additional funding. The amount of
total revenue may vary significantly from year-to-year and quarter-to-quarter
and will 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 $865,011 in the third
quarter of 1997 to $970,701 in the third quarter of 1998. This increase is
attributable to increased drug development and license agreement costs,
partially offset by decreased legal expenses, primarily for patent filings, and
decreased insurance expense. Subject to the availability of funding, the Company
expects research and development expenses to increase during the next several
years as product development, preclinical activity, clinical trials, and
regulatory activities increase.
General and administrative expenses decreased from $371,785 in the third
quarter of 1997 to $302,666 in the third quarter of 1998. This decrease is
primarily due to a decrease in professional fees, personnel expenses, facility
expenses, and insurance 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, 1997 and 1998
Revenue increased from $391,235 for the nine months ended September 30,
1997 to $750,131 for the nine months ended September 30, 1998 due to a higher
level of grant income and license fee income. The Company recorded grant income
of $404,303 under the Phase II SBIR Grant awarded in September, 1997 and license
fee income from Schering-Plough Ltd. and Schering Corporation of $150,000 for
the nine months ended September 30, 1998, and contract income of $39,074 for the
nine months ended September 30, 1997 related to the feasibility study. Interest
income decreased from $352,161 in the first nine months of 1997 to $195,828 in
the first nine months of 1998 due to a lower level of funds available for
investment as the Company consumes funds for continuing operations. Interest
income is likely to continue to decrease in
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subsequent quarters unless the Company is able to secure additional funding. The
amount of total revenue may vary significantly from year-to-year and
quarter-to-quarter and will 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 slightly from $2,844,974 in the
first nine months of 1997 to $2,863,995 in the first nine months of 1998. This
increase is attributable to (a) increased drug development and license fee
costs, and (b) increased personnel expenses, mostly offset by (a) decreased
legal expenses, primarily for patent filings, (b) decreased facilities
expenditures as a result of the sublease of a portion of the Company's office
facility in the second quarter of 1997, and (c) insurance expense. Subject to
the availability of funding, the Company expects research and development
expenses to increase during the next several years as product development,
preclinical activity, clinical trials, and regulatory activities increase.
General and administrative expenses decreased from $1,102,723 in the first
nine months of 1997 to $914,105 in the first nine months of 1998. This decrease
is due to a decrease in (a) personnel expenses, (b) legal expenses, (c) public
relations expense, (d) facilities expense as a result of the sublease of a
portion of the Company's office facility in the second quarter of 1997, and (e)
insurance expense.
Liquidity and Capital Resources
The Company has used $19,388,798 to fund operations from inception through
September 30, 1998. The Company has financed its operations to date from the
proceeds of its private placements concluded in 1996, its initial public
offering in 1994, prior placements of equity and convertible debt securities and
investment income. In 1998, the Company is obligated under its license
agreements to make minimum royalty payments and an annual maintenance fee in the
aggregate amount of $352,000, of which $177,000 had been paid as of October 12,
1998. Under a collaboration and option agreement, the term of which has been
extended, the Company may have to make payments of up to approximately $30,000
based on the fulfillment of certain benchmarks during the term of said
agreement.
The Company is a party to several research agreements, clinical trial
production contracts and agreements with clinical research organizations which
require future payments in cash, and under the terms of one agreement, with a
combination of cash and Common Stock. The Company anticipates making aggregate
payments of approximately $1,024,000 during the terms of the agreements that
were in effect as of October 12, 1998. 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 three of its executive officers as well as certain consulting
agreements which provide for aggregate annual, minimum payments of $546,000 and
$229,000, respectively, of which approximately $215,000 is still owed as of
October 12, 1998. The Company is a party to an operating lease agreement which
will require the Company to make payments of approximately $108,000 in 1998, of
which approximately $90,000 has already been paid. The agreement also requires
the Company to pay a certain amount of contingent rentals based upon operating,
maintenance, management, and repair expenses incurred by the lessor.
The Series B' Preferred Stock is convertible at any time at the option of
the holder into shares of the Company's Common Stock at a conversion price of
$3.75 per share, after giving effect to the reverse stock split, effective May
13, 1998, such that 10,000 shares of the Company's Series B' Preferred Stock are
convertible into 26,667 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 stockholders 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
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66 2/3% of the outstanding Series B' Preferred Stock consent otherwise. The
Company has the option to order mandatory conversion of the Series B' Preferred
Stock into fully paid shares of Common Stock if the closing price of the Common
Stock exceeds $7.50 for 20 out of any 30 consecutive trading days. At September
30, 1998, after giving effect to the reverse stock split, the outstanding Series
B' Preferred Stock was convertible into 2,269,976 shares of Common Stock.
As of September 30, 1998, the Company had cash and cash equivalents of
$3,358,413, accounts payable and accrued expenses of $644,395, and working
capital of $2,905,009.
The Company is considering strategic transactions with, and is continuing
to evaluate expressions of interest from, other pharmaceutical and biotechnology
companies involving the Company and its technologies and/or product candidates,
which could result in, among other things, the possible licensing or sale of
those technologies and product candidates, whether individually or in the
aggregate. The Company has retained an investment banking firm to assist the
Company in identifying and evaluating these alternatives.
Continuing development of the Company's product candidates will require
substantial additional funds to finance such activities on an ongoing basis.
Based on implementation of its current plan for operations and absent cost
overruns or unanticipated expenses, at this time, the Company anticipates that
its available cash and cash equivalents will be sufficient to fund such
operations through the second quarter of 1999. If additional funding is not
obtained in an amount sufficient to maintain operations at the level called for
in such plan, or the Company is unable to enter into a strategic relationship
that provides access to additional capital, the Company will be required to
delay, reduce or eliminate research and development programs and other operating
expenses. Other than funds available to it under its two SBIR grants, the
Company has no commitments for additional funding at this time and there can no
assurances given that such additional funding will become available to the
Company, or such funding, if available would be obtainable on reasonable terms
or without significant dilution to existing securityholders.
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 Nasdaq SmallCap
Market. The Nasdaq Stock Market ("Nasdaq") has implemented a $1.00 minimum bid
price listing requirement for all common stock securities listed on the Nasdaq
SmallCap Market. The Company has been advised by Nasdaq of its failure to meet
the minimum bid price listing requirement for the Company's Common Stock (SPTA).
The Company has until November 30, 1998, to comply with the $1.00 minimum bid
price requirement. If at any time within the period ending November 30, 1998,
the Common Stock reports a closing bid price of $1.00 or greater for ten
consecutive trading days, it will have complied with the minimum bid price
requirement. In the event that the Company fails to meet the $1.00 minimum bid
price within the period ending November 30, 1998, the Company's securities would
likely be removed from the Nasdaq SmallCap Market and moved to the OTC Bulletin
Board. As a result of the Common Stock being traded on the OTC Bulletin Board,
investors could find it difficult to obtain accurate quotations as to the price
of the Common Stock. Additionally, if delisting occurs, the Company's securities
may also become "penny stock" as defined in the Securities Exchange Act of 1934,
as amended, which may also adversely affect the Company's ability to raise
funds. The Company's Class A, B, and C Common Stock Warrants and Units (SPTAW,
SPTAZ, SPTAL and SPTAU) were delisted on October 9, 1998 due to the failure of
the securities to maintain a minimum of two active market makers.
Impact of Year 2000
The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. Some computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in systems failures
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or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
Based on a recent assessment, the Company believes that the exposure of its
internal systems to the Year 2000 Issue is immaterial as internal systems are
Year 2000 compliant. The Company continues to assess compliance of its
significant contractors to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issues. To date, the Company is unaware of any situations of noncompliance that
would adversely affect its operations. However, there can be no assurance that a
failure to convert by another company would not have a material adverse effect
on the Company.
- ----------
This quarterly report contains certain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, including without limitation, the length of time that
available cash and equivalents will be sufficient to fund operations. Such
statements are made based on management's current expectations and beliefs, and
actual results may vary from those currently anticipated based upon a number of
factors, including uncertainties inherent in the drug development process,
progress in the Company's 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 undertakes no obligation to release
publicly any revisions which may be made to reflect events or circumstances
after the date hereof.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
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PART II-OTHER INFORMATION
ITEM 5. Other Information
On September 22, 1998, Sparta issued the press release filed as Exhibit
99.35 hereto announcing the award of a Phase I/II Fast-Track Small Business
Innovation Research Grant by the National Cancer Institute.
On October 7, 1998, Sparta issued the press release filed as Exhibit 99.36
hereto announcing the receipt of a notice from Nasdaq related to continued
listing requirements and announcing that the Company has retained an
investment banking firm to evaluate strategic alternatives.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 -- Financial Data Schedule.
99.35 -- Press Release, dated as of September 22, 1998, announcing the
award of a Phase I/II Fast-Track Small Business Innovation
Research Grant by the National Cancer Institute.
99.36 -- Press Release, dated as of October 7, 1998, announcing the receipt
of a notice from Nasdaq related to continued listing requirements
and announcing that the Company has retained an investment
banking firm to evaluate strategic alternatives.
- ---------------
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter:
None.
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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.
October 30, 1998 By: /s/ Jerry B. Hook
---------------- ------------------------------------
Date Jerry B. Hook, Ph.D.
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
October 30, 1998 By: /s/ Ronald H. Spair
- ---------------- ------------------------------------
Date Ronald H. Spair
Sr. Vice President and
Chief Financial Officer
(principal financial officer)
13
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
99.35 -- Press Release, dated as of September 22, 1998, announcing the award
of a Phase I/II Fast-Track Small Business Innovation Research (SBIR)
Grant by the National Cancer Institute (NCI).
99.36 -- Press Release, dated as of October 7, 1998, announcing the receipt
of a notice from Nasdaq related to continued listing requirements
and announcing that the Company has retained an investment bank to
evaluate strategic alternatives.
<PAGE>
Exhibit 99.35
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<CAPTION>
<S> <C>
Contact: Jerry B. Hook, Ph.D. Martin Rose, M.D., J.D.
Chairman, President & CEO Vice President, Clinical & Regulatory Affairs
Sparta Pharmaceuticals, Inc. Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205 (215) 442-1700, Ext. 219
</TABLE>
http://www.spartapharma.com
FOR IMMEDIATE RELEASE
$850,000 Awarded to Sparta Pharmaceuticals, Inc.
Second Major SBIR Grant Awarded Within 12 Months
Horsham, PA, September 22, 1998, Sparta Pharmaceuticals, Inc. (NASDAQ: SPTA,
SPTAD, SPTAU, SPTUD, SPTAW, SPTAZ, SPTAL AND SPTLD) announces that the Company
has been awarded a Phase I/II Fast-Track Small Business Innovation Research
(SBIR) Grant by the National Cancer Institute (NCI). The Fast-Track initiative
is designed to expedite the decision and award of SBIR Phase II funding for
projects that have high potential for commercialization. This is the second
major SBIR grant to be received by Sparta in the past twelve months. Both awards
total $1.6 million.
This $850,000 grant will be received over two and one half years. This grant
entitled "Development of IPdR as a Radiation Sensitizing Drug" will provide
funds for the Company's prodrug of IUdR, which has the potential to benefit most
patients who receive radiation therapy for cancer. The specific goals of the
grant are to take IPdR through toxicology studies and the first two years of
clinical trials.
Sparta anticipates that the Phase I trial will begin in six months. This trial
will be conducted at Case Western Reserve University, Cleveland under the
guidance of Dr. Timothy Kinsella, Professor and Chairman of Radiation Oncology.
Following oral administration, IPdR (5-iodo-pyrimidinone-2'-deoxyribose, a
nucleoside analogue) is converted by aldehyde oxidase into IUdR within the liver
and is then released into the blood stream. IUdR is under investigation by the
NCI as a potential agent to sensitize cancer cells to radiation, and has been
studied in humans for a number of years. IUdR is currently available only in
intravenous form and is toxic to the bone marrow and gastrointestinal system.
The IPdR compound is orally active and animal studies have shown that by
administering IPdR, the same radiation sensitizing effects can be achieved as
with IUdR, with less toxicity.
IPdR is licensed to Sparta by The State University of New York at Stonybrook.
This press release contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
<PAGE>
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including the success and timing of clinical
trials and the receipt of necessary approvals by the FDA. The Company undertakes
no obligation to release publicly any revisions which may be made to reflect
events or circumstances after the date hereof.
Sparta is a development stage pharmaceutical company 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, chronic metabolic diseases and inflammation.
The Company has focused on acquiring compounds that have been previously tested
in humans and animals and technologies that may improve the delivery or
effectiveness of previously tested, and in some cases marketed, drugs. Sparta's
portfolio of compounds in development includes three potential oncology products
and one for the treatment of Type II diabetes in clinical trials and an emerging
platform technology in recombinant and small molecule protease inhibitors.
# # #
<PAGE>
Exhibit 99.36
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To Contact Sparta: Jerry B. Hook, Ph.D. Ronald H. Spair
Chairman, President & CEO Senior Vice President & CFO
Sparta Pharmaceuticals, Inc. Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205 (215) 442-1700, Ext. 207
</TABLE>
FOR IMMEDIATE RELEASE
Sparta Announces Receipt of Nasdaq Notice
Related to Continued Listing Requirements
Company Evaluates Strategic Alternatives
Horsham, PA, October 7, 1998, Sparta Pharmaceuticals, Inc. (NASDAQ: SPTA, SPTAU,
SPTAW, SPTAZ AND SPTAL) announced today that the Company has been advised by
Nasdaq of its failure to maintain certain continued listing requirements for its
Class A, B, and C Common Stock Warrants and Units (SPTAW, SPTAZ, SPTAL and
SPTAU) which may lead to a delisting. The securities have failed to maintain a
minimum of two active market makers. An active market maker is one who is
registered to trade a security and maintains a continuous, two-sided quotation.
If the securities do not have two active market makers for any ten consecutive
trading days within the period ending October 9, 1998, they will be delisted,
effective with the close of business on October 9, 1998. Additionally, Nasdaq
has notified the Company of its failure to meet the continued listing
requirements based on to the maintenance of a $1.00 minimum bid price for the
Company's Common Stock (SPTA). The Company has until November 30, 1998, to
comply with the $1.00 minimum bid price requirement. If at any time within the
period ending November 30, 1998, the Common Stock reports a closing bid price of
$1.00 or greater for ten consecutive trading days, it will have complied with
the minimum bid price requirement. In the event that the Company fails to meet
the $1.00 minimum bid price within the period ending November 30, 1998, the
Company's securities would likely be removed from the Nasdaq SmallCap Market and
moved to the OTC Bulletin Board.
To evaluate strategic alternatives with respect to enhancing stockholder value,
Sparta has retained an investment bank specializing in the life sciences.
Sparta is a development stage pharmaceutical company 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, chronic metabolic diseases and inflammation.
The Company has focused on acquiring compounds that have been previously tested
in humans and animals and technologies that may improve the delivery or
effectiveness of previously tested, and in some cases marketed, drugs. Sparta's
portfolio of compounds in development includes three potential oncology products
and one for the treatment of Type II diabetes in clinical trials and an emerging
platform technology in recombinant and small molecule protease inhibitors.
# # #
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S SEPTEMBER 30, 1998 REPORT ON FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,358,413
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,549,404
<PP&E> 716,523
<DEPRECIATION> 517,115
<TOTAL-ASSETS> 3,853,941
<CURRENT-LIABILITIES> 644,395
<BONDS> 0
0
851
<COMMON> 3,578
<OTHER-SE> 3,205,117
<TOTAL-LIABILITY-AND-EQUITY> 3,853,941
<SALES> 0
<TOTAL-REVENUES> 750,131
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,778,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,027,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,027,969)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,027,969)
<EPS-PRIMARY> (.89)<F1>
<EPS-DILUTED> (.89)<F1>
<FN>
PER SHARE DATA HAVE BEEN ADJUSTED TO REFLECT A ONE-FOR-FIVE REVERSE SPLIT OF THE
COMPANY'S OUTSTANDING COMMON STOCK WHICH WAS EFFECTED ON MAY 13, 1998.
</FN>
</TABLE>
