<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
August 12, 1999
Date of Report (Date of earliest event reported):
SUPERGEN, INC.
--------------
(Exact name of registrant as specified in its charter)
Delaware 0-27628 91-1841574
-------- ------- ----------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
Two Annabel Lane, Suite 220, San Ramon, California 94583
-------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (925) 327-0200
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 12, 1999, we completed the acquisition of Sparta Pharmaceuticals,
Inc. ("Sparta") through the merger of our wholly-owned subsidiary, Royale
Acquisition Corp., with and into Sparta. Sparta continued as the surviving
corporation and as our wholly-owned subsidiary.
As a result of the merger, we acquired the assets of Sparta, which consist
primarily of intangible properties relating to the development of pharmaceutical
products. We believe the purchase price will be approximately $9.4 million
(subject to finalization of acquisition costs) of which at least 75% will be
expensed as in-process research and development.
As part of the merger, we issued 429,055 shares of our common stock and
warrants exercisable for 220,945 shares of our common stock, at an exercise
price of $18.18 per share, in exchange for all of the outstanding capital
stock of Sparta. The warrants, which will expire on August 12, 2001, will be
publicly traded and are registered on a Form 8-A, filed with the Securities
and Exchange Commission on August 12, 1999. In addition, we assumed all
outstanding options to purchase shares of common stock of Sparta, which
converted into options to purchase 13,890 shares of our common stock. We
also assumed all outstanding warrants to purchase shares of common stock of
Sparta, which converted into warrants to purchase 96,746 shares of our common
stock. These assumed options and warrants will not be publicly traded.
The merger is structured as a tax-free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended, and we will treat the merger as a
purchase for accounting purposes.
The above description of the merger is a summary only. You should read the
documents filed as exhibits to this report for a complete understanding of the
merger.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
2
<PAGE>
SPARTA PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Annual Financial Statements
Report of Independent Public Accountants--Arthur Andersen LLP.............................................. 4
Report of Independent Auditors--Ernst & Young LLP.......................................................... 5
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... 6
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998, for the period
from June 12, 1990 (Inception) to December 31, 1998...................................................... 7
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and
1998..................................................................................................... 8
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998, for the period
from June 12, 1990 (Inception) to December 31, 1998...................................................... 10
Notes to Consolidated Financial Statements................................................................. 11
Interim Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998...................................... 22
Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 1999 and
1998 and for the period from June 12, 1990 (Inception) to June 30, 1999.................................... 23
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1999 and 1998 and for the
period from June 12, 1990 (Inception) to June 30, 1999................................................... 24
Notes to Consolidated Financial Statements................................................................. 25
</TABLE>
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sparta Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Sparta
Pharmaceuticals, Inc. (a Delaware corporation in the development stage) and
Subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998 and the related
statements of operations and cash flows for the period from inception (June 12,
1990) to December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Sparta Pharmaceuticals, Inc. for the period from inception to
December 31, 1995. Such statements are included in the period from inception to
December 31, 1998 totals on the statements of operations and cash flows and
reflect total revenues and net loss of 19 percent and 38 percent, respectively,
of the related cumulative totals. Those statements were audited by other
auditors, whose report has been furnished to us, and our opinion, insofar as it
relates to amounts for the period from inception to December 31, 1995, included
in the cumulative totals, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Sparta Pharmaceuticals, Inc. and
Subsidiary, as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 and for the period from inception (June 12, 1990) to December
31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has incurred operating losses since inception and will require additional
capital to continue operations which raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans as to these
matters are described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 11, 1999
4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sparta Pharmaceuticals, Inc. (A Development Stage company)
We have audited the accompanying statements of operations, stockholders'
equity (deficit) and cash flows of Sparta Pharmaceuticals, Inc. (a development
stage company) for the period from June 12, 1990 (inception) to December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Sparta
Pharmaceuticals, Inc. (a developmental stage company) for the period from June
12, 1990 (inception) to December 31, 1995 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Sparta Pharmaceuticals, Inc. (a development stage company) will continue as a
going concern. As more fully described in Note 1, the Company has incurred
operating losses since inception and requires additional capital to continue
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans as to these matters are
described in Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of Sparta Pharmaceuticals, Inc. (a development stage company)
to continue as a going concern.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
January 31, 1996
5
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 4,767,317 $ 2,470,359
Short-term investments.......................................................... 1,473,275 --
Prepaid expenses and other current assets....................................... 68,778 14,719
-------------- --------------
Total current assets.......................................................... 6,309,370 2,485,078
-------------- --------------
Fixed assets:
Office equipment................................................................ 189,962 194,308
Leasehold improvements.......................................................... 522,215 522,215
Less: accumulated depreciation and amortization................................. (375,482) (563,987)
-------------- --------------
336,695 152,536
License agreements, net of amortization of $92,912 in 1997 and $105,870 in 1998... 21,876 8,918
Restricted cash................................................................... 148,310 94,448
-------------- --------------
$ 6,816,251 $ 2,740,980
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................... $ 741,240 $ 528,090
-------------- --------------
Total current liabilities..................................................... 741,240 528,090
-------------- --------------
Commitments (Note 7)
Stockholders' equity:
Preferred Stock, not designated, $.001 par value; authorized and unissued
8,867,731 shares.............................................................. -- --
Series BC Convertible Preferred Stock, $.001 par value; liquidation preference
$13 per share; authorized 2,132,269 shares; issued and outstanding 1,020,747
shares in 1997 and 828,741 in 1998............................................ 1,021 829
Common Stock, $.001 par value; authorized 72,000,000 shares; issued and
outstanding 3,116,154 shares in 1997 and 3,651,843 shares in 1998............. 3,116 3,652
Additional paid-in capital...................................................... 28,616,607 28,682,326
Stock subscription receivable................................................... (133,333) (66,667)
Deferred compensation........................................................... (167,654) (100,443)
Deficit accumulated during the development stage................................ (22,244,746) (26,306,807)
-------------- --------------
Total stockholders' equity.................................................... 6,075,011 2,212,890
-------------- --------------
$ 6,816,251 $ 2,740,980
-------------- --------------
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 12, 1990
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------------------------- DECEMBER 31,
1996 1997 1998 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Interest income................................... $ 296,730 $ 445,606 $ 236,467 $ 1,270,465
Grant income and contract revenue................. -- 155,206 612,407 895,483
------------- ------------- ------------- --------------
Total revenue................................... 296,730 600,812 848,874 2,165,948
------------- ------------- ------------- --------------
Operating expenses:
Research and development.......................... 3,176,742 3,748,216 3,663,055 16,592,418
General and administrative........................ 1,404,955 1,497,006 1,247,880 8,582,424
Charge for acquired research and development...... 3,062,913 235,000 -- 3,297,913
------------- ------------- ------------- --------------
Total operating expenses........................ 7,644,610 5,480,222 4,910,935 28,472,755
------------- ------------- ------------- --------------
Net loss............................................ $ (7,347,880) $ (4,879,410) $ (4,062,061) $ (26,306,807)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Basic and diluted net loss per share................ $ (4.64) $ (2.16) $ (1.18)
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted weighted average number of shares
outstanding....................................... 1,582,414 2,260,261 3,446,252
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
DATE OF -------------------------------------
TRANSACTION SERIES A SERIES B SERIES C
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 12, 1990............................................... $ $ $
Issuance of 289,666 shares at $.015 per share.......................... June 1990 -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1990........................................... -- -- --
February through
$.015 per share for services........................................... December 1991 -- -- --
Issuance of 325,815 shares at $3.99 per share net of issuance costs.... December 1991 326 -- --
Net loss for 1991...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1991........................................... 326 -- --
Issuance of 50,125 shares at $3.99 per share in exchange for
cancellation of notes payable........................................ January 1992 50 -- --
January through
Issuance of 18,184 shares at $.015 per share........................... December 1992 -- -- --
Conversion of Series A Convertible Preferred Stock, into 75,188 shares
of Common Stock at $19.95 per share.................................. December 1992 (376) -- --
Net loss for 1992...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1992........................................... -- -- --
Repurchase of 2,500 shares at $.015 per share.......................... January 1993 -- -- --
Issuance of 125,000 shares at $2.00 per share.......................... September 1993 -- 125 --
Exchange of 125,000 shares of Series B Convertible Preferred Stock
125,000 shares of Series C Convertible Preferred Stock............... December 1993 -- (125) 125
July through
Issuance of 3,731 shares at $14.45 per share........................... December 1993 -- -- --
Issuance of options to purchase 33,333 shares Common Stock net of
issuance costs (see Note 4).......................................... -- -- --
Net loss for 1993...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1993........................................... -- -- 125
Issuance of 11,800 warrants............................................ May 1994 -- -- --
Issuance of 2,692 shares upon conversion of Convertible Notes and
Preferred Stock...................................................... June 1994 -- -- --
Conversion of Convertible Notes and Preferred Stock.................... June 1994 -- -- (125)
Proceeds of initial public offering net of offering costs of
$1,335,521........................................................... June 1994 -- -- --
March through
Issuance of 1,700 shares upon option exercise.......................... July 1994 -- -- --
Issuance of 33,000 units to underwriter upon over allotment exercise... July 1994 -- -- --
Repurchase of 500 shares............................................... July 1994 -- -- --
January through
Issuance of 1,961 shares at $20.20 for services........................ December 1994 -- -- --
Unrealized loss on available-for-sale investments...................... -- -- --
Net loss for 1994...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1994........................................... -- -- --
Issuance of 5,000 shares upon option exercise.......................... April 1995 -- -- --
January through
Issuance of 4,303 shares at $17.80 per share for services.............. September 1995 -- -- --
Net Loss for 1995...................................................... -- -- --
Loss on available-for-sale investments................................. -- -- --
----- ----------- -----
<CAPTION>
COMMON ADDITIONAL STOCK
STOCK PAID IN UNREALIZED SUBSCRIPTION
PAR VALUE CAPITAL GAIN/(LOSS) RECEIVABLE
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 12, 1990............................................... $ $ $ $
Issuance of 289,666 shares at $.015 per share.......................... 289 4,056 -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1990........................................... 289 4,056 -- --
$.015 per share for services........................................... 173 2,420 -- --
Issuance of 325,815 shares at $3.99 per share net of issuance costs.... -- 1,274,874 -- --
Net loss for 1991...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1991........................................... 462 1,281,350 -- --
Issuance of 50,125 shares at $3.99 per share in exchange for
cancellation of notes payable........................................ -- 199,950 -- --
Issuance of 18,184 shares at $.015 per share........................... 18 255 -- --
Conversion of Series A Convertible Preferred Stock, into 75,188 shares
of Common Stock at $19.95 per share.................................. 75 301 -- --
Net loss for 1992...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1992........................................... 555 1,481,856 -- --
Repurchase of 2,500 shares at $.015 per share.......................... (2) (36) -- --
Issuance of 125,000 shares at $2.00 per share.......................... -- 249,875 -- --
Exchange of 125,000 shares of Series B Convertible Preferred Stock
125,000 shares of Series C Convertible Preferred Stock............... -- -- -- --
Issuance of 3,731 shares at $14.45 per share........................... 4 53,875 -- --
Issuance of options to purchase 33,333 shares Common Stock net of
issuance costs (see Note 4).......................................... -- 167,500 -- --
Net loss for 1993...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1993........................................... 557 1,953,070 -- --
Issuance of 11,800 warrants............................................ -- 59 -- --
Issuance of 2,692 shares upon conversion of Convertible Notes and
Preferred Stock...................................................... 3 (3) -- --
Conversion of Convertible Notes and Preferred Stock.................... 412 3,868,837 -- --
Proceeds of initial public offering net of offering costs of
$1,335,521........................................................... 220 4,164,259 -- --
Issuance of 1,700 shares upon option exercise.......................... 2 2,549 -- --
Issuance of 33,000 units to underwriter upon over allotment exercise... 33 717,717 -- --
Repurchase of 500 shares............................................... (1) (6) -- --
Issuance of 1,961 shares at $20.20 for services........................ 2 39,659 -- --
Unrealized loss on available-for-sale investments...................... -- -- (3,316) --
Net loss for 1994...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1994........................................... 1,228 10,746,141 (3,316) --
Issuance of 5,000 shares upon option exercise.......................... 5 7,495 -- --
Issuance of 4,303 shares at $17.80 per share for services.............. 4 76,688 -- --
Net Loss for 1995...................................................... -- -- -- --
Loss on available-for-sale investments................................. -- -- 3,316 --
----------- ---------- ------------- ------------
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING THE STOCKHOLDERS'
DEFERRED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIT)
------------- ------------ ------------
<S> <C> <C> <C>
BALANCE AT JUNE 12, 1990............................................... $ $ $
Issuance of 289,666 shares at $.015 per share.......................... -- -- 4,345
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1990........................................... -- -- 4,345
$.015 per share for services........................................... -- -- 2,593
Issuance of 325,815 shares at $3.99 per share net of issuance costs.... -- -- 1,275,200
Net loss for 1991...................................................... -- (358,234) (358,234)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1991........................................... -- (358,234) 923,904
Issuance of 50,125 shares at $3.99 per share in exchange for
cancellation of notes payable........................................ -- -- 200,000
Issuance of 18,184 shares at $.015 per share........................... -- -- 273
Conversion of Series A Convertible Preferred Stock, into 75,188 shares
of Common Stock at $19.95 per share.................................. -- -- --
Net loss for 1992...................................................... -- (1,217,933) (1,217,933)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1992........................................... -- (1,576,167) (93,756)
Repurchase of 2,500 shares at $.015 per share.......................... -- -- (38)
Issuance of 125,000 shares at $2.00 per share.......................... -- -- 250,000
Exchange of 125,000 shares of Series B Convertible Preferred Stock
125,000 shares of Series C Convertible Preferred Stock............... -- -- --
Issuance of 3,731 shares at $14.45 per share........................... -- -- 53,879
Issuance of options to purchase 33,333 shares Common Stock net of
issuance costs (see Note 4).......................................... -- -- 167,500
Net loss for 1993...................................................... -- (2,649,224) (2,649,224)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1993........................................... -- (4,225,391) (2,271,639)
Issuance of 11,800 warrants............................................ -- -- 59
Issuance of 2,692 shares upon conversion of Convertible Notes and
Preferred Stock...................................................... -- -- --
Conversion of Convertible Notes and Preferred Stock.................... -- -- 3,869,124
Proceeds of initial public offering net of offering costs of
$1,335,521........................................................... -- -- 4,164,479
Issuance of 1,700 shares upon option exercise.......................... -- -- 2,551
Issuance of 33,000 units to underwriter upon over allotment exercise... -- -- 717,750
Repurchase of 500 shares............................................... -- -- (7)
Issuance of 1,961 shares at $20.20 for services........................ -- -- 39,661
Unrealized loss on available-for-sale investments...................... -- -- (3,316)
Net loss for 1994...................................................... -- (3,149,658) (3,149,658)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1994........................................... -- (7,375,049) 3,369,004
Issuance of 5,000 shares upon option exercise.......................... -- -- 7,500
Issuance of 4,303 shares at $17.80 per share for services.............. -- -- 76,692
Net Loss for 1995...................................................... -- (2,642,407) (2,642,407)
Loss on available-for-sale investments................................. -- -- 3,316
------------- ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
DATE OF -------------------------------------
TRANSACTION SERIES A SERIES B SERIES C
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........................................... -- -- --
Extension of exercise period for options of former employees........... January 1996 -- -- --
Proceeds of private placement net of commissions and expenses of
$428,571............................................................. February 1996 300 -- --
Stock issued for acquisition of Lexin Pharmaceuticals (see Note 2)..... March 1996 -- -- --
Deferred compensation related to acquisition (see Note 4).............. March 1996 -- -- --
Issuance of 1,000 shares pursuant to license agreement................. April 1996 -- -- --
June through July
Issuance of 258 shares for services.................................... 1996 -- -- --
Proceeds of private placement net of commissions and expenses of July through
$2,029,091 (see Note 4).............................................. August 1996 -- 1,297 --
Conversion of Series A to Series BC.................................... August 1996 (300) 400 --
Issuance of 7,000 warrants for services................................ December 1996 -- -- --
November through
Conversion of Preferred Stock to Common Stock.......................... December 1996 -- (210) --
Amortization of Deferred Compensation for 1996......................... -- -- --
Net Loss for 1996...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1996........................................... -- 1,487 --
Issuance of 10,000 options for services................................ January 1997 -- -- --
Forgiveness of one-third of common stock subscriptions................. July 1997 -- -- --
Issuance of 53,333 shares upon option exercise......................... September 1997 -- -- --
August through
Issuance of 7,101 shares for services.................................. September 1997 -- -- --
Issuance of 100,000 warrants for grant of license agreement............ December 1997 -- -- --
Issuance of 20,000 options for services................................ December 1997 -- -- --
May through
Issuance of 107,000 warrants for services.............................. December 1997 -- -- --
January through
Conversion of Preferred Stock to Common Stock.......................... December 1997 -- (466) --
Amortization of Deferred Compensation for 1997......................... -- -- --
Net Loss for 1997...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1997........................................... -- 1,021 --
Forgiveness of common stock subscriptions.............................. July 1998 -- -- --
Repayment of common stock subscriptions................................ July 1998 -- -- --
March through
Issuance of 23,601 shares for services................................. December 1998 -- -- --
January through
Conversion of Preferred Stock to Common Stock.......................... December 1998 -- (192) --
Amortization of Deferred Compensation for 1998......................... -- -- --
Net Loss for 1998...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1998........................................... $ -- $ 829 $ --
----- ----------- -----
----- ----------- -----
<CAPTION>
COMMON ADDITIONAL STOCK
STOCK PAID IN UNREALIZED SUBSCRIPTION
PAR VALUE CAPITAL GAIN/(LOSS) RECEIVABLE
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........................................... 1,237 10,830,324 -- --
Extension of exercise period for options of former employees........... -- 18,738 -- --
Proceeds of private placement net of commissions and expenses of
$428,571............................................................. -- 2,571,129 -- --
Stock issued for acquisition of Lexin Pharmaceuticals (see Note 2)..... 400 3,599,600 -- --
Deferred compensation related to acquisition (see Note 4).............. -- 206,100 -- --
Issuance of 1,000 shares pursuant to license agreement................. 1 14 -- --
Issuance of 258 shares for services.................................... 1 3,678 -- --
Proceeds of private placement net of commissions and expenses of
$2,029,091 (see Note 4).............................................. -- 10,934,612 -- (200,000)
Conversion of Series A to Series BC.................................... -- (100) -- --
Issuance of 7,000 warrants for services................................ -- 20,000 -- --
Conversion of Preferred Stock to Common Stock.......................... 279 (69) -- --
Amortization of Deferred Compensation for 1996......................... -- -- -- --
Net Loss for 1996...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1996........................................... 1,918 28,184,026 -- (200,000)
Issuance of 10,000 options for services................................ -- 33,750 -- --
Forgiveness of one-third of common stock subscriptions................. -- -- -- 66,667
Issuance of 53,333 shares upon option exercise......................... 53 79,947 -- --
Issuance of 7,101 shares for services.................................. 7 60,506 -- --
Issuance of 100,000 warrants for grant of license agreement............ -- 135,000 -- --
Issuance of 20,000 options for services................................ -- 29,000 -- --
Issuance of 107,000 warrants for services.............................. -- 95,050 -- --
Conversion of Preferred Stock to Common Stock.......................... 1,138 (672) -- --
Amortization of Deferred Compensation for 1997......................... -- -- -- --
Net Loss for 1997...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1997........................................... 3,116 28,616,607 -- (133,333)
Forgiveness of common stock subscriptions.............................. -- -- -- 50,000
Repayment of common stock subscriptions................................ -- -- -- 16,666
Issuance of 23,601 shares for services................................. 24 66,039 -- --
Conversion of Preferred Stock to Common Stock.......................... 512 (320) -- --
Amortization of Deferred Compensation for 1998......................... -- -- -- --
Net Loss for 1998...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1998........................................... $ 3,652 $28,682,326 $ -- $ (66,667)
----------- ---------- ------------- ------------
----------- ---------- ------------- ------------
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING THE STOCKHOLDERS'
DEFERRED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIT)
------------- ------------ ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........................................... -- (10,017,456) 814,105
Extension of exercise period for options of former employees........... -- -- 18,738
Proceeds of private placement net of commissions and expenses of
$428,571............................................................. -- -- 2,571,429
Stock issued for acquisition of Lexin Pharmaceuticals (see Note 2)..... -- -- 3,600,000
Deferred compensation related to acquisition (see Note 4).............. (206,100) -- --
Issuance of 1,000 shares pursuant to license agreement................. -- -- 15
Issuance of 258 shares for services.................................... -- -- 3,679
Proceeds of private placement net of commissions and expenses of
$2,029,091 (see Note 4).............................................. -- -- 10,735,909
Conversion of Series A to Series BC.................................... -- -- --
Issuance of 7,000 warrants for services................................ -- -- 20,000
Conversion of Preferred Stock to Common Stock.......................... -- -- --
Amortization of Deferred Compensation for 1996......................... 40,791 -- 40,791
Net Loss for 1996...................................................... -- (7,347,880) (7,347,880)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1996........................................... (165,309) (17,365,336) 10,456,786
Issuance of 10,000 options for services................................ (33,750) -- --
Forgiveness of one-third of common stock subscriptions................. -- -- 66,667
Issuance of 53,333 shares upon option exercise......................... -- -- 80,000
Issuance of 7,101 shares for services.................................. -- -- 60,513
Issuance of 100,000 warrants for grant of license agreement............ -- -- 135,000
Issuance of 20,000 options for services................................ (29,000) -- --
Issuance of 107,000 warrants for services.............................. -- -- 95,050
Conversion of Preferred Stock to Common Stock.......................... -- -- --
Amortization of Deferred Compensation for 1997......................... 60,405 -- 60,405
Net Loss for 1997...................................................... -- (4,879,410) (4,879,410)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1997........................................... (167,654) (22,244,746) 6,075,011
Forgiveness of common stock subscriptions.............................. -- -- 49,999
Repayment of common stock subscriptions................................ -- -- 16,667
Issuance of 23,601 shares for services................................. -- -- 66,063
Conversion of Preferred Stock to Common Stock.......................... -- -- --
Amortization of Deferred Compensation for 1998......................... 67,211 -- 67,211
Net Loss for 1998...................................................... -- (4,062,061) (4,062,061)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1998........................................... $(100,443) ($26,306,807) $2,212,890
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM JUNE
12,
YEAR ENDED DECEMBER 31, 1990 (INCEPTION)
------------------------------------- TO DECEMBER 31,
1996 1997 1998 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $(7,347,880) $(4,879,410) $(4,062,061) $ (26,306,807)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on investments.................................. -- -- -- 3,316
Depreciation and amortization........................ 170,611 213,674 201,463 1,139,897
Acquired research and development.................... 3,062,913 135,000 -- 3,197,913
Write down of license agreement...................... -- -- -- 45,200
Issuance of convertible notes for services........... -- -- -- 220,474
Issuance of stock for services....................... 3,694 60,514 66,063 288,022
Compensation expense related to stock options
granted............................................ 79,529 155,454 67,211 502,194
Compensation expense related to forgiveness of stock
subscriptions receivable........................... -- 66,667 50,000 116,667
Changes in operating assets and liabilities, net of
effect from acquisition:
Prepaid expenses and other assets.................. 97,374 13,973 54,059 (14,719)
Accounts payable and accrued expenses.............. 293,636 111,743 (213,150) 378,090
Restricted cash.................................... 50,507 48,532 53,862 152,901
----------- ----------- ----------- -------------
Net cash used in operating activities............ (3,589,616) (4,073,853) (3,782,553) (20,276,852)
----------- ----------- ----------- -------------
INVESTING ACTIVITIES
Payment of acquisition related fees and expenses....... (128,842) -- -- (128,842)
Purchases of short-term investments.................... -- (1,473,275) -- (2,576,468)
Sale of short-term investments......................... -- -- 1,473,275 2,573,152
Purchases of fixed assets.............................. (76,364) (12,367) (4,346) (147,943)
Acquisition of license agreements...................... -- -- -- (160,078)
----------- ----------- ----------- -------------
Net cash (used in) provided by investing
activities..................................... (205,206) (1,485,642) 1,468,929 (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.............. 13,307,338 -- 16,666 14,816,704
Increase in debt issuance costs........................ -- -- -- (469,950)
----------- ----------- ----------- -------------
Net cash provided by financing activities........ 13,307,338 80,000 16,666 23,187,390
----------- ----------- ----------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 9,512,516 (5,479,495) (2,296,958) 2,470,359
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 734,296 10,246,812 4,767,317 --
----------- ----------- ----------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $10,246,812 $4,767,317 $2,470,359 $ 2,470,359
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest................. $ -- $ -- $ -- $ 196,972
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
SUPPLEMENTAL DISCLOSURE 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
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Conversion of Series BC Convertible Preferred Stock
into Common Stock.................................... $ 279 $ 1,138 $ 512 $ 1,929
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Issuance of Common Stock for acquisition of Lexin...... $ 3,600,000 $ -- $ -- $ 3,600,000
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Sparta Pharmaceuticals, Inc. and Subsidiary (together 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. Should the Company continue to function
independently, it 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 commercially develop its products.
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, or
sales capability or experience, limited clinical trial experience, and
dependence on key personnel.
In January 1999, the Company entered into an agreement providing for the
purchase of the Company by Supergen, Inc. See Note 9 "Proposed Acquisition of
the Company."
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.
On May 13, 1998, the Company effected a one-for-five reverse stock split of
its Common Stock. The financial statements and related notes have been
retroactively restated to reflect the effect of the reverse stock split. Cash
and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
At December 31, 1997, short-term investments represented government
mortgage-backed bonds maturing in less than a year and each was classified as
available-for-sale.
FIXED ASSETS
Office equipment and leasehold improvements are recorded at cost.
Depreciation and amortization are computed by using the straight-line method
over the estimated useful lives of the assets.
LICENSE AGREEMENTS
Certain costs incurred to acquire exclusive licenses of patentable
technology were capitalized and amortized using the straight-line method over a
five-year period or the term of the license, whichever was shorter.
11
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, accounts payable and accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Accrued professional fees....................................................... $ 112,159 $ 117,527
Accrued research and license agreement fees..................................... 405,563 219,139
Deferred revenue................................................................ -- 50,000
Accounts payable and other accrued expenses..................................... 223,518 141,424
---------- ----------
$ 741,240 $ 528,090
---------- ----------
---------- ----------
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), which required impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of SFAS 121
in 1996 had no impact on the Company's financial position or results of
operations.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 encourages companies to adopt the fair
value method for expense recognition of employee stock options. SFAS 123 also
allows companies to continue to account for stock options and stock based awards
using the intrinsic value method as outlined under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and to
make pro forma disclosures of net income and net income per share as if the fair
value method had been applied. The Company uses APB 25 in accounting for its
stock options and stock based awards, and will continue to apply APB 25 for
future stock options and stock based awards. The Company adopted the disclosure
requirements of SFAS 123 in 1996.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
REVENUE RECOGNITION
Grant revenues are recognized as the related expenses are incurred. Contract
revenues are recognized when all obligations of the agreement are satisfied.
12
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations when incurred.
USE OF ESTIMATES
Presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
NET LOSS PER SHARE
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
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 all years presented,
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.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," ("SFAS 130") and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), were issued in June 1997. SFAS 130 and SFAS 131 are effective for fiscal
years beginning subsequent to December 15, 1997, and, therefore, were adopted by
the Company on January 1, 1998. The adoption of SFAS 130 and SFAS 131 did not
result in any substantive changes in the Company's disclosure.
2. 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 400,000 shares of the Company's Common Stock. The acquisition was accounted
for using the purchase method of accounting. In connection with the acquisition,
the Company performed an analysis of all identifiable assets acquired. The
Company has recorded a total charge to the 1996 Statement of Operations of
$3,062,913 for acquired research and development, given the development stage
nature of the related technology.
3. ACQUISITION OF TECHNOLOGY RIGHTS
In December 1997, the Company entered into an agreement to license
Pyrazinoylguanidine ("PZG") from the Estate of Karl H. Beyer, Jr. (the "Beyer
Estate") for a payment of $100,000 and the issuance of a warrant to purchase
60,000 shares of common stock at an exercise price of $2.1875. In addition, the
Company issued to Paramount Capital Investments, LLC ("Paramount") warrants to
purchase up to 100,000 shares of common stock at an exercise price of $2.1875
and reimbursed Paramount for certain due diligence expenditures for its efforts
in negotiating the transaction with the Beyer Estate. Vesting on
13
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF TECHNOLOGY RIGHTS (CONTINUED)
warrants to purchase 60,000 of the shares issued to Paramount is based on the
successful completion of future clinical trials for PZG. In connection with the
license, the Company has recorded a total charge to the 1997 Statement of
Operations of $235,000 for acquired research and development, given the
development stage nature of the related technology.
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of December 31, 1998, the Company has 828,741 shares of Series BC
Convertible Preferred Stock ("Series BC Preferred Stock") which are convertible
into 2,209,970 shares of Common Stock. In the event of a liquidation event (as
defined in the Certificate of Designation relating to the Series BC Preferred
Stock), the holders of the Series BC 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 BC Preferred Stock, including Common Stock (see Note 9). Holders
of Series BC 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 BC Preferred Stock
consent otherwise. The Series BC Preferred Stock is subject to mandatory
conversion at the option of the Company if the closing price of the Common Stock
shall have exceeded 200% of the then applicable conversion price for at least 20
trading days in any 30 consecutive trading day period.
STOCK OPTIONS
In November 1991, the Company adopted a stock plan that provides for the
issuance of non-qualified and incentive stock options and the granting of "stock
purchase opportunities" to employees, directors and consultants. Non-qualified
options are to be granted at a price approved by the Board of Directors. Options
are exercisable as prescribed by the administrator of the plan and expire ten
years from the grant date, or earlier as specified by the administrator of the
plan.
In accordance with the provisions of APB Opinion 25 and related
Interpretations, the Company does not recognize compensation cost for options
granted with an exercise price at or above the fair market value of the
Company's Common Stock on the date of grant. The Company has adopted the
disclosure requirements of SFAS No. 123 in 1996. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net loss and net loss per share would
have been increased to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net loss--as reported...................................... $ (7,347,880) $ (4,879,410) $ (4,062,061)
Net loss--pro forma........................................ (7,654,170) (5,137,196) (4,306,491)
Basic and diluted net loss per share--as reported.......... (4.64) (2.16) (1.18)
Basic and diluted net loss per share--pro forma............ (4.84) (2.27) (1.25)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model assuming an expected dividend yield of
0%, an expected stock price volatility of 70%, an
14
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
expected life of option of 6.5 years and a risk-free interest rate based on the
6.5 year average treasury bond yield on the date of grant.
The Black-Scholes option valuation model was intended for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility and
expected life of the options. Because the Company's stock options granted under
this Stock Plan have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
the Company's stock options.
Because SFAS 123 has not been applied to options granted prior to January 1,
1995, the resulting pro forma compensation cost may not be representative of
that to be expected in future years.
Set forth below is a table summarizing option activity through December 31,
1998:
<TABLE>
<CAPTION>
WEIGHTED
OPTION PRICE AVERAGE
NUMBER RANGE EXPIRATION EXERCISE
DESCRIPTION OF SHARES PER SHARE DATE PRICE
- --------------------------------------------- ----------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
Options outstanding at 12/31/95.............. 178,500 $1.50 to $30.00 2001 to 2005 $ 15.70
Options granted.............................. 222,400 $5.63 to $15.00 2005 to 2006 $ 5.90
Options canceled............................. (6,000) $15.00 to $30.00 $ 25.00
-----------
Options outstanding at 12/31/96.............. 394,900 $1.50 to $30.00 1998 to 2006 $ 10.05
Options granted.............................. 126,000 $2.23 to $4.06 2007 $ 2.55
Options exercised............................ (53,334) $1.50 $ 1.50
Options canceled............................. (36,333) $5.63 to $26.90 $ 16.80
-----------
Options outstanding at 12/31/97.............. 431,233 $2.23 to $30.00 1998 to 2007 $ 8.30
Options granted.............................. 10,000 $2.50 2008 $ 2.50
Options canceled............................. (29,583) $2.23 to $27.60 $ 11.87
-----------
Options outstanding at 12/31/98.............. 411,650 $2.23 to $30.00 2003 to 2008 $ 7.92
</TABLE>
The weighted average fair value of options granted under the plan was $4.00,
$1.60 and $1.74 in the years ended December 31, 1996, 1997 and 1998,
respectively.
15
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Set forth below are the outstanding options at December 31, 1998, summarized
by range of exercise price:
<TABLE>
<CAPTION>
WEIGHTED NUMBER WEIGHTED
NUMBER WEIGHTED AVERAGE EXERCISABLE AVERAGE
OUTSTANDING AVERAGE EXERCISE AT EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/98 REMAINING LIFE PRICE 12/31/98 PRICE
- -------------------------------- ----------- ------------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$2.23 to $4.06 131,000 8.9 $ 2.54 34,750 $ 2.74
$5.63 to $12.50 212,650 6.6 $ 5.84 123,950 $ 5.91
$15.00 to $30.00 68,000 5.4 $ 24.83 68,000 $ 24.83
------- --- --------- ------- ---------
411,650 7.1 $ 7.92 226,700 $ 11.10
------- --- --------- ------- ---------
------- --- --------- ------- ---------
</TABLE>
In 1997, the Company issued options to purchase 30,000 shares of Common
Stock at current fair market value to a consultant and the members of the
Scientific Advisory Board of the Company. The Company recorded deferred
compensation of $62,750 in connection with the grant of these non-qualified
stock options which represents the fair value of the options on the date of
grant. The Company is amortizing this deferred compensation over the vesting
period of the options. The Company recognized $8,881 and $15,686 in compensation
expense related to these options for 1997 and 1998.
In March 1996, the Company issued options to purchase 137,400 shares of
Common Stock at $13.50 per share. The Company recorded deferred compensation
expense of $206,100 in connection with the grant of these non-qualified stock
options which represents the excess of the fair market value over exercise price
on the date of grant. The Company is amortizing this deferred compensation over
the four-year vesting period of the options. The Company recognized $40,791,
$51,525 and $51,525 in compensation expense related to these options for 1996,
1997 and 1998, respectively. On December 5, 1996 these options were repriced
from $13.50 per share exercise price to $5.63, the fair market value on that
date.
"Stock purchase opportunities" represent rights to purchase Common Stock at
specified prices. The purchase price of shares offered in stock purchase
opportunities cannot be less than 50% of the fair market value. At December 31,
1998, the Company has issued 23,999 shares of Common Stock at $.015 per share
and 1,667 shares of Common Stock at $7.50 per share in connection with this
stock plan.
As of December 31, 1998, a total of 600,000 shares of Common Stock were
authorized for issuance under the stock plan, of which 102,651 shares were
available for grant. The Company has reserved 514,301 shares of its Common Stock
as of December 31, 1998 for future issuance in connection with the stock plan.
WARRANTS
In connection with its initial public offering in 1994, the Company sold
1,265,000 units ("IPO Units") each consisting of one-fifth of one share of
Common Stock, one redeemable Class A Warrant to purchase .24 shares of Common
Stock, and one redeemable Class B Warrant to purchase .24 shares of Common Stock
for $5.00 per IPO Unit, before expenses and commissions.
In connection with the 1996 private placements of Preferred Stock, the
Company issued 2,261,944 redeemable Class C Warrants to purchase one share of
Common Stock at an exercise price of $7.50 per share. The Class C Warrants are
exercisable until August 23, 2001, unless sooner redeemed. In addition to
16
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
the Class C Warrants, the Company also issued 226,200 warrants to purchase
Common Stock at an exercise price of $9.00 per share and 169,650 warrants to
purchase Series BC Preferred Stock at an exercise price of $11.00 per share to
the Placement Agent for the private placement.
The Class A, B and C warrants contain provisions that provide the holders
thereof certain protections by adjustment of the exercise price and shares
issuable upon exercise in certain events, such as certain stock dividends, stock
splits, mergers, sales of all or substantially all of the Company's assets,
sales of stock at below market price and other unusual events.
In connection with the Company's acquisition of PZG (see Note 3), the
Company issued 160,000 warrants to purchase Common Stock at $2.1875 per share.
Of these warrants, 100,000 were issued to the company which served as Placement
Agent for the 1996 private placements of Preferred Stock. The vesting of 40,000
warrants issued to the Placement Agent is based upon public announcement or
written notice from the Company that Phase II clinical trials with the compound
have been completed and that the Company or a third party intends to initiate
Phase III clinical trials, and the vesting of 20,000 of the warrants is based
upon the announcement of a filing of a New Drug Application with the Food and
Drug Administration.
In connection with the Company's retention of two investor relations firms,
the Company issued 7,000 warrants in 1996 to purchase common stock at $5.625 per
share and 107,000 warrants during 1997 to purchase common stock at exercise
prices ranging from $2.10 per share to $10.00 per share. In connection with the
issuance of these warrants, the Company recognized $20,000 and $95,050 of
expense in 1996 and 1997, respectively.
Total warrants outstanding at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
UNDERLYING
NUMBER WARRANT EXPIRATION
DESCRIPTION OF SHARES PRICE DATE
- ------------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
Class A Warrants............................................. 303,600 $20.80 1999
Class B Warrants............................................. 303,600 $34.40 1999
Class C Warrants............................................. 2,261,944 $7.50 2001
Placement Agent Warrants..................................... 762,420 $4.15-$34.40 1999-2002
Other Warrants............................................... 274,000 $2.10-$10.00 2001-2002
</TABLE>
5. INCOME TAXES
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $19,439,000 and research and experimental credit carryforwards of
$483,700 for income tax purposes that expire in years 2006 through 2013 of which
approximately $4,865,000 of net operating loss carryforwards relate to the
acquisition of Lexin. For financial reporting purposes, a valuation allowance of
$10,671,000 has been recognized to offset the deferred tax assets related to
those carryforwards at December 31, 1998. When, and if, recognized, the tax
benefit for those items will be reflected in current operations of the
17
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
period when the benefit is recognized as a reduction of income tax expense.
Significant components of the Company's deferred tax liabilities and assets at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................................... $ 5,355,300 $ 6,609,200
Capitalized research and development..................................... 3,134,000 3,372,000
Research and experimental credit carryforwards........................... 343,900 483,700
Contribution carryforward................................................ 83,300 83,300
Depreciation............................................................. 80,800 122,800
------------ -------------
Total deferred tax assets.................................................. 8,997,300 10,671,000
Valuation allowance for deferred tax assets................................ (8,997,300) (10,671,000)
------------ -------------
Net deferred tax assets.................................................... $ -- $ --
------------ -------------
------------ -------------
</TABLE>
No current income taxes have been provided for the period ended December 31,
1998, as the Company had a loss for both financial reporting and tax purposes.
Based on the number of shares of Common Stock, Convertible Notes and
Preferred Stock issued in 1993 and March of 1996, the Company exceeded the
limits allowable under the Tax Reform Act of 1986 related to changes in
ownership percentage governing future utilization of net operating loss
carryforwards. Net operating loss carry forwards at the time of the change were
limited to approximately $225,000 per year for losses incurred through August
23, 1993 and approximately $1,198,000 per year for losses incurred between
August 24, 1993 and March 15, 1996. In addition, future net operating loss carry
forwards related to Lexin are limited to approximately $191,000 per year. The
proposed merger (see Note 9) will result in an ownership change and a potential
additional limitation of net operating loss carry forwards.
6. EMPLOYEE BENEFIT PLAN
The Company previously maintained a Salary Reduction Simplified Employee
Pension Plan, which was funded by elective salary deferrals by employees.
Additionally, the Company made mandatory contributions of $5,029 for 1996.
As of January 1, 1997, the Company initiated a 401(k) plan covering all
current employees, which is funded by elective salary deferrals by employees.
The Company was not required to make a mandatory contribution for 1997 or 1998.
7. COMMITMENTS
CONSULTING AGREEMENTS: The Company is a party to several consulting
agreements with terms ranging from one to two years which commit the Company to
future stock sales upon exercise of outstanding options and specified fees upon
the occurrence of certain events. The Company is obligated to pay consulting
fees of $130,000 per year. Consulting fees paid totaled approximately $268,000,
$154,000 and $297,000 in 1996, 1997 and 1998, respectively.
18
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS (CONTINUED)
LICENSE, OPTION AND RESEARCH AGREEMENTS: The Company is a party to several
license agreements for inventions, compounds, and technologies that obligate the
Company to pay certain royalties on net sales and certain fees, upon the
occurrence of certain events. These agreements are subject to termination by the
Company. Unless the agreements are terminated, the Company must pay minimum
royalties and maintenance fees as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1999........................................................................................ $ 177,000
2000........................................................................................ $ 177,000
2002........................................................................................ $ 177,000
2002........................................................................................ $ 227,000
2003........................................................................................ $ 227,000
</TABLE>
Payments under these agreements to licensors totaled approximately $157,000,
$107,000 and $352,000 in 1996, 1997, and 1998, respectively.
The Company has a remaining obligation of L17,500, pursuant to a
collaboration and option agreement that was terminated by the Company.
RESEARCH AGREEMENTS: The Company has entered into various other research
contracts for certain research activities. Payments under these agreements
totaled approximately $737,000, $1,128,000 and $1,187,000 in 1996, 1997 and
1998, respectively. Included in accounts payable and accrued expenses at
December 31, 1998, is approximately $156,000 relating to these contracts. Under
terms of these agreements, the Company may be obligated to make further payments
of approximately $863,000 in 1999.
MINIMUM LEASE PAYMENTS: The Company has a lease agreement for its office
space in Horsham, Pennsylvania that terminates in July 1999. Contingent rentals
are payable under the lease based upon operating, maintenance, management, and
repair expenses incurred by the lessor. In addition, the Company must maintain a
cash balance in escrow that represents the deposit on the leased facility which
is refundable at the termination of the lease. At December 31, 1998, the cash
balance restricted in escrow was $94,448. Future minimum lease payments are as
follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
1999......................................................................................... $65,000
</TABLE>
The Company entered into a sublease agreement for a portion of its facility
in April, 1997, which payments were offset against rent expense. Net rent
expense for 1997 was $6,795 and net rent income for 1998 was $54,374.
8. RELATED PARTY TRANSACTIONS
In connection with the private placement of its Series A Preferred Stock
(see Note 4), the Company issued a warrant to purchase 30,000 shares of Series A
Preferred Stock at an aggregate purchase price of $375,000 and paid commissions
totaling $390,000 to Paramount Capital, LLC (the "Placement Agent"), a firm
controlled by Lindsay A. Rosenwald, M.D., a principal stockholder and director
of the Company.
19
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
In connection with the private placement of its Series BC Preferred Stock
(see Note 4), the Company paid commissions of $1,166,850 and non-accountable
expense allowances of $518,600 to the Placement Agent in connection with such
private placement. In addition, the Company will (i) pay the Placement Agent a
commission of 6% upon the exercise of any Class C Warrant and (ii) reimburse the
Placement Agent for out-of-pocket costs, not to exceed $5,000 incurred in the
connection with the solicitation of Class C Warrant exercise or the redemption
of Class C Warrants. In addition, the Company issued to the Placement Agent
certain preferred stock warrants in respect to the Series BC Preferred Stock and
common stock warrants.
On August 23, 1996, the Company made loans of $100,000, $50,000 and $50,000
to Jerry B. Hook, Ph.D., the Company's President and Chief Executive Officer,
Dr. William McCulloch, the former Senior Vice President, Research and
Development of the Company and Ronald H. Spair, Senior Vice President, Chief
Financial Officer and Secretary of the Company, respectively (the "Officers").
Proceeds of such loans were used by the Officers to purchase a Unit, or fraction
thereof, sold by the Company in its Series BC Preferred Stock private placement.
Such loans are evidenced by promissory notes bearing interest at the rate of 8%
per annum with maturity dates of July 30, 1999. Principal of the loans is
payable in three equal installments plus accrued interest on each of July 30,
1997, 1998, and 1999. On each scheduled repayment date, the amount then due
(including accrued interest) will be forgiven by the Company provided that on
such date the respective Officer continues to be employed by the Company.
One-third of the principal of the loans to Dr. Hook and Mr. Spair was forgiven
on both July 30, 1997 and 1998. One-third of the principal of the loan to Dr.
McCulloch was forgiven on July 30, 1997. Dr. McCulloch repaid one-third of the
principal of the loan and accrued interest in July, 1998. Dr. William McCulloch
is no longer employed by the Company. The outstanding balance of the loans (plus
all accrued interest) will be forgiven in full in the event that one of the
following occurs: (i) the death or disability of the Officer (within the meaning
of the respective Officer's employment agreement with the Company); (ii) the
operations of the Company are terminated; (iii) the Company is liquidated; or
(iv) the Company undergoes a change of control.
In 1995, the Company and the underwriter for the Company's initial public
offering entered into a financial advisory agreement with a one-year term. Under
the terms of the agreement, the Company recognized financial advisory fee
expense of $150,000 in 1996.
In connection with the execution of the definitive PZG licensing agreement
between the Company and the Beyer Estate (see Note 3), a warrant to purchase
100,000 shares of the Company's Common Stock was issued to Paramount Capital
Investments, LLC, an affiliate of the Placement Agent.
In 1998, the Company awarded contingent bonuses of $35,000 each to Dr. Rose
and Mr. Spair to be paid in the event that they continue to be employed on the
earlier of (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Company, (iii) any consolidation, merger,
combination, reorganization or other transaction in which the Company is not the
surviving entity or the shares of Common Stock constituting in excess of 50% of
the voting power of the Company are exchanged for or changed into other stock or
securities, cash and/or any other property, or (iv) March 31, 1999.
20
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PROPOSED ACQUISITION OF THE COMPANY
The Company and SuperGen, Inc. ("SuperGen") entered into an Agreement and
Plan of Reorganization dated as of January 18, 1999 ("Reorganization
Agreement"). Under the terms of the Reorganization Agreement, SuperGen will
issue to Sparta stockholders 650,000 shares of SuperGen common stock (subject to
adjustment) in exchange for all outstanding shares of Sparta Common and
Preferred Stock. After the merger, Sparta will operate as a wholly-owned
subsidiary of SuperGen.
The Company expects a special meeting of the Company's stockholders to vote
on certain matters will occur in the second quarter of 1999. At the Special
Meeting, stockholders will be asked to adopt and approve the Reorganization
Agreement and approve the merger. In addition, the Company's stockholders will
be asked to approve amendments to the Company's Certificate of Incorporation
("Amendments"). The Amendments will increase the conversion rate in effect for
the Sparta Series BC Preferred Stock and will eliminate the liquidation
preference to which the holders of Sparta Series BC Preferred Stock are
currently entitled. In addition to the approval of the Sparta stockholders,
these transactions also remain subject to, among other things, the effectiveness
of a registration statement and proxy statement and other customary closing
conditions.
21
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
---------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,215,798 $ 2,470,359
Prepaid expenses and other assets 45,661 14,719
---------------- -----------------
Total current assets 1,261,459 2,485,078
Fixed assets, net 35,007 152,536
Other assets:
License agreements, net of amortization
of $112,349 in 1999 and $105,870 in 1998 2,439 8,918
Restricted Cash 96,180 94,448
--------------- ----------------
$ 1,395,085 $ 2,740,980
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 379,694 $ 528,090
--------------- ----------------
Total current liabilities 379,694 528,090
--------------- ----------------
Stockholders' equity:
Preferred Stock, not designated, $.001 par value;
authorized and unissued 8,882,731 shares --- ---
Series B' Convertible Preferred Stock, $.001 par value;
authorized 2,117,269 shares; issued and outstanding
813,741 shares in 1999 and 828,741 shares in 1998 814 829
Common Stock, $.001 par value; authorized 72,000,000
shares; issued and outstanding 3,691,841 shares in
1999 and 3,651,843 shares in 1998 3,692 3,652
Additional paid-in capital 28,682,301 28,682,326
Stock subscriptions receivable (66,667) (66,667)
Deferred compensation (66,838) (100,443)
Deficit accumulated during the development stage (27,537,911) (26,306,807)
--------------- ----------------
Total stockholders' equity 1,015,391 2,212,890
--------------- ----------------
$ 1,395,085 $ 2,740,980
=============== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 12, 1990
JUNE 30, JUNE 30, (INCEPTION) TO
----------------------- ------------------------ JUNE 30,
1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Grant, contract and license fee income $ 74,589 $ 271,600 $ 207,349 $ 415,852 $ 1,102,832
Interest income 15,091 64,323 38,162 141,068 1,308,627
----------- ---------- ----------- ----------- ------------
Total revenue 89,680 335,923 245,511 556,920 2,411,459
----------- ---------- ----------- ----------- ------------
Operating expenses:
Research and development 248,776 961,717 1,051,063 1,893,294 17,643,481
General and administrative 257,674 326,872 588,002 611,439 9,170,426
Gain on sale of fixed assets (162,450) -- (162,450) -- (162,450)
Charge for acquired research
and development -- -- -- -- 3,297,913
----------- ---------- ----------- ----------- ------------
Net loss $ (254,320) $ (952,666) $(1,231,104) $(1,947,813) $(27,537,911)
=========== ========== =========== =========== ============
Basic and diluted net loss per share $ (.07) $ (.28) $ (.33) $ (.59)
=========== ========== =========== ===========
Basic and diluted weighted average
number of shares outstanding (Note 2) 3,691,841 3,414,072 3,690,110 3,302,261
=========== ========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
23
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30, Period from June 12,
---------------------------------- 1990 (Inception) to
1999 1998 June 30, 1999
-------------- ---------------- ----------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................ $ (1,231,104) $ (1,947,813) $ (27,537,911)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on investments......................... - - 3,316
Depreciation and amortization............... 86,458 101,241 1,226,355
Gain on sale of fixed assets................ (162,450) - (162,450)
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.............. - 45,430 288,022
Compensation expense related to stock
options and warrants granted............. 33,605 33,605 535,799
Compensation expense related to forgiveness
of stock subscriptions receivable........ - - 116,667
Changes in operating assets and liabilities,
net of effect from acquisition:
Prepaid expenses and other assets...... (30,942) (89,963) (45,661)
Restricted cash........................ (1,732) (3,682) 151,169
Accounts payable and accrued expenses.. (148,396) (234,574) 229,694
-------------- ---------------- ---------------------
Net cash used in operating activities (1,454,561) (2,095,756) (21,731,413)
-------------- ---------------- ---------------------
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) (147,943)
Proceeds from sale of fixed assets.............. 200,000 - 200,000
Acquisition of license agreements............... - - (160,078)
-------------- ---------------- ---------------------
Net cash provided by (used in)
investing activities............... 200,000 1,468,929 (240,179)
-------------- ---------------- ---------------------
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.......... - - 4,992,031
Repurchase of Common Stock...................... - - (45)
Proceeds from issuance of Preferred Stock....... - - 14,816,704
Increase in debt issuance costs................. - - (469,950)
-------------- ---------------- ---------------------
Net cash provided by financing
activities......................... - - 23,187,390
-------------- ---------------- ---------------------
Increase (Decrease) in cash and cash equivalents (1,254,561) (626,827) 1,215,798
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,470,359 4,767,317 -
-------------- ---------------- ---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 1,215,798 $ 4,140,490 $ 1,215,798
============== ================ =====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(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.
In January 1999, the Company and SuperGen, Inc. ("SuperGen") entered
into an Agreement and Plan of Reorganization (the "Reorganization Agreement")
pursuant to which a subsidiary of SuperGen will merge with and into the
Company (the "Merger"). At the Special Meeting of Stockholders held on August
10, 1999, the Stockholders of Sparta Pharmaceuticals, Inc. approved the
Merger and related amendments to Sparta's Certificate of Incorporation. As of
the effective date of the Merger, Sparta will become a wholly-owned
subsidiary of SuperGen. The Company's common stock will be de-registered and
will discontinue trading on the OTC Bulletin Board.
Due to the pending merger with SuperGen, further clinical development
will be minimized until such time as the Company's portfolio of compounds has
been integrated into SuperGen's portfolio and the priority for all compounds
has been established.
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 consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
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, 1998. Results for
the interim periods are not necessarily indicative of the results for any
other interim period or for the full fiscal year. All common stock and per
share amounts in the accompanying Consolidated Financial Statements, for
periods prior to May 13, 1998, have been retroactively restated to reflect
the one-for-five reverse stock split of its common stock.
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 six months ended June 30, 1999 and 1998, 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.
25
<PAGE>
(b) Pro Forma Financial Information
We will file any required pro forma financial information, as
required by this item and Article 11 of Regulation S-X, by amendment to this
report as soon as possible, but not later than sixty days after this report
was required to be filed initially.
(c) Exhibits
2.1 Agreement and Plan of Reorganization by and among SuperGen, Inc.,
Royale Acquisition Corp., and Sparta Pharmaceuticals, Inc. dated
as of January 18, 1999. (1)
4.1 Warrant Agreement (including form of Common Stock Warrant) by and
between SuperGen, Inc. and ChaseMellon Shareholder Services,
L.L.C., dated as of August 12, 1999. (2)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
99.1 Press release dated August 13, 1999.
____________________________
(1) Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on January 28, 1999.
(2) Incorporated by reference to our Form 8-A, filed with the Securities
and Exchange Commission on August 12, 1999.
26
<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 hereunto duly authorized.
SUPERGEN, INC.
Date: August 26, 1999 By: /s/ Joseph Rubinfeld
----------------------------
Joseph Rubinfeld, Ph.D.
Chief Executive Officer, President
and Director
27
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
99.1 Press release dated August 13, 1999.
</TABLE>
28
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 8-K into
SuperGen, Inc.'s previously filed Form S-4 Registration Statement
(No. 333-80517), Form S-3 Registration Statement (No. 333-70505), Form S-8
Registration Statement (No. 333-07295), Form S-8 (No. 333-58303) and Form
SB-2 Registration Statement (No. 333-476-LA) filed with the Securities and
Exchange Commission.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
August 26, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 31, 1996, with
respect to the financial statements of Sparta Pharmaceuticals, Inc. included
in SuperGen, Inc.'s Current Report on Form 8-K dated August 26, 1999 filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
August 25, 1999
<PAGE>
EXHIBIT 99.1
SuperGen Completes Acquisition of Sparta Pharmaceuticals
SAN RAMON, Calif., Aug. 13 /PRNewswire/ -- SuperGen Inc. (Nasdaq: SUPG & SUPGW),
a pharmaceutical company, today announced that it has completed the acquisition
of Sparta Pharmaceuticals (OTC Bulletin Board: SPTA - news).
Under the terms of the transaction, SuperGen acquired all of the outstanding
capital stock of Sparta in exchange for 429,055 shares of SuperGen common stock.
In addition, SuperGen issued warrants to shareholders of Sparta, representing
220,945 shares of common stock. The conversion price of the warrants is $18.18,
expiring on August 12, 2001.
"We are pleased to have completed the acquisition of Sparta Pharmaceuticals,"
said Dr. Joseph Rubinfeld, president, chief executive officer and chairman of
SuperGen. "With several anti-cancer compounds in late-stage development, Sparta
complements our mission to build a dominant cancer-fighting company."
Sparta also has, in late-stage development, a novel drug delivery system,
Spartaject-TM-, that allows compounds which are insoluble or poorly soluble in
water to be delivered intravenously (or by other routes) without the need for
organic solvents that may in themselves be toxic.
Based in San Ramon, California, SuperGen is a pharmaceutical company
dedicated to the development and commercialization of products intended to
treat life-threatening diseases, particularly cancer. SuperGen has an
evolving portfolio of anticancer drugs. SuperGen is currently marketing
Nipent-Registered Trademark-(for the treatment of cancer patients with
lymphocytic malignancies) and is currently in Phase III clinical trials with
its proprietary drug rubitecan for the treatment of pancreatic cancer.
SuperGen is also conducting additional studies using rubitecan for other
cancer indications, as it has shown anti-tumor activity in a variety of human
cancers.
This press release contains forward-looking statements within the meaning of
Section 21A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbors
created thereby. Such statements include without limitation statements relating
to the enhancement of SuperGen's drug portfolio, statements using the word
"believe", or the phrase "we are confident that" and statements regarding
the anticipated uses of Sparta's drugs and drug delivery system. Such statements
involve certain risks and uncertainties associated with business combinations
generally and with an emerging pharmaceutical company. Actual results could
differ materially from those projected in the forward-looking statements as a
result of failure to achieve anticipated synergies from the proposed merger,
product portfolio risks (including risks in obtaining governmental approval),
and other risk factors discussed in SuperGen and Sparta's reports on file with
the U.S. Securities and Exchange Commission.
This news release shall not constitute an offer to exchange or sell or the
solicitation of an offer to exchange or sell nor shall there be any exchange or
sale of securities in any state in which such an
<PAGE>
offer, solicitation or exchange or sale will be unlawful prior to the
registration or qualification under the securities laws of such state.
