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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 150(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING: August 31, 2005
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
COMMISSION FILE NO. 1-11047
SPARTA SURGICAL CORPORATION
(Name of Small Business Issuer as specified in its Charter)
Delaware 22-2870438
(State Incorporated) (I.R.S. Employer ID Number)
5445 DTC Parkway, Suite 520
Greenwood Village, CO 80111
(Address of Principal Executive Offices) (Zip Code)
848-391-2893
(Issuer's Telephone Number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days: Yes (X) No ( ).
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Class on which registered
$0.002 Par Value Common Stock None.
$4.00 Par Value Redeemable Convertible Preferred Stock None.
$4.00 Par Value Series A Convertible Preferred Stock None.
Securities registered pursuant to Section 12 (g) of the Act:
$0.002 Par Value Common Stock
$4.00 Par Value Series A Convertible Preferred Stock
$4.00 Par Value Series Convertible Preferred Stock
The Registrant had no revenues for its most recent fiscal year.
As of August 31, 2005, 9,973,830 shares of Registrant's Common Stock, 82,533
shares of Redeemable Convertible Preferred Stock, and 28,068 shares of Series A
Convertible Preferred Stock were outstanding.
SPARTA SURGICAL CORPORATION
Form 10-QSB
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited) 3
Balance Sheet for the six months ended
August 31, 2005 (Unaudited) 3
Statements of Operations for the three and six
months ended August 31, 2005 and 2004 (Unaudited) 4
Statements of Cash Flows for the six months
ended August 31, 2005 and 2004 (Unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited) 11
Item 3. Controls and Procedures 14
Part II. Other Information and Change in Securities
Item 1. Legal Proceedings 15
Item 2. Change in Securities 15
Item 3. Default upon Senior Securities 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Signatures 15
2
Sparta Surgical Corporation
Balance Sheet
August 31, 2005
(unaudited)
ASSETS $ -
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TOTAL ASSETS $ -
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 357,025
Accrued Interest and Other 55,101
Accrued Payroll
Notes Payable to Trust 198,718
Notes Payable to Trust 181,568
Notes Payable to Credit Facility -
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TOTAL CURRENT LIABILITIES 792,412
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STOCKHOLDERS' EQUITY
Preferred Stock:
1992 Non-cumulative Convertible Redeemable
Preferred Stock, 165,000 shares authorized,
82,533 shares issued and outstanding 330,132
Series A Cumulative Convertible Preferred Stock,
30,000 shares authorized, 27,818 shares issued
and outstanding 111,272
Series AA Cumulative Convertible Preferred Stock,
875,000 shares authorized, none issued and outstanding
Common Stock, $0.002 par value, 25,000,000 authorized and
9,973,830 outstanding 15,467
Additional Paid in Capital 14,486,197
Accumulated Deficit (15,735,480)
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TOTAL STOCKHOLDERS' EQUITY (792,412)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -
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See accompanying notes to financial statements
3
Sparta Surgical Corporation
Statements of Operations
(unaudited)
For the three months ended: For the six months ended:
-------------------------- --------------------------
August 31, August 31, August 31, August 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Sales $ - $ - $ - $ -
Selling, General and
Administrative Expenses - - - -
----------- ----------- ----------- -----------
Loss from Operations - - - -
----------- ----------- ----------- -----------
Other Income (Expense):
Interest Expense (5,555) (5,547) (11,111) (11,095)
Gain on extinguishment of debt' - - - -
----------- ----------- ----------- -----------
Total Other Income (Expense) (5,555) (5,547) (11,111) (11,095)
----------- ----------- ----------- -----------
Loss before income taxes $ (5,555) $ (5,547) $ (11,111) $ (11,095)
Income Tax Expense - - - -
----------- ----------- ----------- -----------
Net Income (Loss) $ (5,555) $ (5,547) $ (11,111) $ (11,095)
=========== =========== =========== ===========
Weighted average shares 9,973,830 9,973,830 9,973,830 9,973,830
Basic and Diluted Earnings per Share,
Net income (loss) per share (0.00) (0.00) (0.00) (0.00)
See accompanying notes to financial statements
4
Sparta Surgical Corporation
Statements of Cash Flows
(unaudited)
For the six months ended:
-------------------------
August 31, August 31,
2005 2004
--------- ---------
RECONCILIATION OF INCOME FROM OPERATIONS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ (11,911) $ (11,095)
--------- ---------
Adjustments to reconcile operating income to net
cash from operating activities:
Gain on extinguishment of debt - -
Change in operating assets and
liabilities:
Accounts payable - -
Accrued expenses 11,911 11,095
Income taxes payable - -
Notes payable - -
--------- ---------
Net cash from operating activities $ - $ -
========= =========
See accompanying notes to financial statements
5
Sparta Surgical Corporation
Notes to the Financial Statement
Note 1. Business and Summary of Significant Accounting Policies
Sparta Surgical Corporation, (the "Company"), a non-operating public company was
incorporated in Delaware on March 23, 1984. The Company was engaged in the
research, development, manufacturing and marketing of surgical and
electrotherapy products for the worldwide healthcare industry. In October 2001
and May 2002, the Company divested substantially all of its assets and ceased
operations on May 2, 2002. As a result, the Company retained no assets after
ceasing operation, and has performed only administrative duties as a transitory,
or shell, corporation.
In June 2002 and March 2004, the Company issued to LKDTBJP Living Trust, (the
"Living Trust"), various Convertible Secured Promissory Notes, (the "Convertible
Notes") in the aggregate amount of $380,286 for assuming certain of the
Company's debt and notes payable. The Convertible Notes, both principal and
accrued interest, are due on December 20, 2006. Furthermore, at the option of
the Living Trust, the Convertible Notes are convertible at any time into
15,000,000 shares of the Company's common stock, par value $0.002.
Significant Accounting Policies
There have been no significant changes in Company's significant accounting
policies during the six months ended August 31, 2005 as compared to what was
previously disclosed.
Income Taxes
No provision for federal and state income taxes has been recorded as the Company
has incurred net operating losses through August 31, 2005. The Company believes
sufficient uncertainty exists regarding the realizability of the deferred tax
assets such that a full valuation allowance is required, leaving a net deferred
tax asset of $-0-. The Company also has net operating loss carryforwards for tax
reporting periods. The Company retained no assets after ceasing operations on
May 2, 2002, and has performed only administrative duties as a transitory, or
shell, corporation. The Company seeks to merge with an operating company and
does not believe net operating loss carryforwards will be available to offset
future taxable income after such merger.
6
Basic and Diluted Earnings Per Common Shares
In accordance with Financial Accounting Standards Boards (FASB) No. 128, basic
earnings per share computed by dividing net income by the number of weighted
average common shares outstanding during the year. Diluted earnings per share is
computed by dividing net income by the number of weighted average common shares
outstanding during the year. Statement of Financial Accounting Standards No.
128, "Earnings per Share", requires that employee equity share options,
nonvested shares and similar equity instruments granted by the Company be
treated as potential common shares outstanding in computing diluted earnings per
share. Diluted shares outstanding include the dilutive effect of in-the-money
options which is calculated based on the average share price for each fiscal
period using the treasury stock method. Under the treasury stock method, the
amount the employee must pay for the exercise stock options, the amount of
compensation cost for future service that the Company has not yet recognized,
and the amount of benefits that would be recorded in additional paid-capital
when the award becomes deductible are assumed to be used to repurchase shares.
For six months ended August 31, 2005 and 2004, there is no difference between
the basic and diluted income (loss) per shares, as there were no dilutive stock
options.
2005 2004
Numerator: ----------- -----------
Net Loss applicable to common stockholders $ (11,911) $ (11,095)
Denominator
Weighted average shares outstanding during the year 9,973,830 9,973,830
Basic and diluted income/(loss) per common share (0.00) (0.00)
Revenue Recognition
The Company recognized revenue when the products are shipped. Provisions for
discounts and rebates to customers, estimated returns and allowances and other
adjustments are provided for in the same period the related revenues are
recorded.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered. The Company looks primarily to the undiscounted future cash flows
in its assessment of whether or not long-lived assets have been impaired.
7
Recently Issued Accounting Pronouncements
In December 2004, the FASB approved Financial Accounting Standard 123R, "Share
Based Payment, and Amendment of FASB Statements No. 123 and 95." The Standard
covers the accounting transactions in which an enterprise pays for employee
service with share based payments including employee stock options. Under the
Standard, all share based payments would be treated as other forms of
compensation by recognizing the related costs generally measured as the fair
value at the date of grant in the income statement. The company does not believe
that it will have a material effect of the Company's financial statements. This
pronouncement will be effective for interim and year-end periods beginning after
June 15, 2005.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of accounts payable and accrued expenses approximate carrying
value due to the short-term nature of such instruments. The fair value of debt
obligations with related parties and individuals is not determinable due to the
terms of the debt and there is no comparable market for such debt.
Concentration of Credit Risk
There are no financial statements that potentially subject the Company to
significant concentrations of credit risk.
Note 3- Related Party
Amount Due to Related Party
As of August 31, 2005, in connection with the Company's Convertible Notes in the
aggregate amount of $380,286 issued to LKDTBJP Living Trust (the "Living
Trust"), the Company had amounts due, including accrued interest in the total
amount of $435,387.
8
Note 4- Stockholders' Equity
Preferred Stock
The authorized Preferred Stock of the Company consists of 2,000,000 shares,
$4.00 par value. The Preferred Stock may be issued in series from time to time
with such designations, rights, preferences, and limitations as the Board of
Directors of the Company may determine by resolution. The rights, preferences
and limitations of separate series of Preferred Stock may differ with respect to
such matters as may be determined by the Board of Directors, including without
limitation, the rate of dividends, method and nature of payment of dividends
terms of redemption, amounts payable on liquidation, sinking fund provisions,
conversion rights and voting rights.
1992 Preferred Stock
The Company has authorized 165,000 shares of Non-Cumulative Convertible
Preferred Stock (the "1992 Preferred Stock"). The holders of the 1992 Preferred
Stock shall be entitled to receive non-cumulative dividends, at the rate of 10%
per annum or $0.40 per share, for each year that the Company has net income
after taxes. The holders of 1992 Preferred Stock are entitled to vote on all
matters upon which holders of the common stock have the right to vote, and shall
be entitled to the number of votes equal to the number of full shares of common
stock into which the shares of 1992 Preferred Stock could be converted. Each
share of 1992 Preferred Stock is convertible at the option of the holder into
one third of one share of common stock. Each preferred share is subject to
redemption at the Company's option at $4.00 per share under certain conditions.
The liquidation preference for the 1992 Preferred Stock is $4.00 per share.
Series A Preferred Stock
The Company has authorized 30,000 shares of Series A Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"). The holders of Series A
Preferred Stock receive cumulative dividends at the quarterly rate of $0.375 per
share. The holders of Series A Preferred Stock have no voting rights except as
to matters affecting the rights of preferred stockholders or as required by law.
In connection with any such vote, each outstanding share of Series A Preferred
Stock has one vote.
The Series A Preferred Stock is redeemable at the Company's option, for cash at
$10.00 per share plus any accrued and unpaid dividends. The Series A Preferred
Stock is $10.00 per share. The 1992 preferred stock carries liquidation rights
senior to the Series A Preferred Stock.
9
Series AA Preferred Stock
The Company has authorized 875,000 shares of Series AA Convertible Redeemable
Preferred Stock (the "Series AA Preferred Stock"). The holders of Series AA
Preferred Stock receive cumulative dividends at the annual rate of $0.28 per
share, payable semiannually. The holders of the Series AA Preferred Stock have
no voting rights except as to matters affecting the rights of preferred
stockholders or as required by law. In connection with any such vote, each
outstanding share of Series AA Preferred Stock has one vote. The Series AA
Preferred Stock was convertible at any time through February 10, 2001 into
shares of common stock at a rate of 9 shares of common stock each two shares of
Series AA Preferred Stock. The Series AA Preferred Stock will automatically be
converted into common stock at this rate in the event that the daily average bid
and ask price of common stock average $3.00 per share or more over a thirty
consecutive day period through February 10, 2001. At any time subsequent to
February 10, 2001, each two shares of Series AA Preferred Stock are redeemable
at the Company's option for cash at $10.00 or $8.00 plus any accrued and unpaid
dividends in the event that the daily average bid and ask price of the common
stock average at least $2.00 per share or $3.00 per share, respectively, over a
thirty consecutive day period. The liquidation preference for the Series AA
Preferred Stock is $4.00 per share. The 1992 Preferred Stock and Series A
Preferred Stock carry liquidation rights to senior to the Series AA Preferred
Stock.
Note 5. Stock Options and Warrants
The 1987 Stock Option Plan (the "Plan") provided for the grant of both incentive
stock options and non-qualified stock options. A total of 250,000 shares of
common stock have been reserved for issuance under the Plan. In April 2000, the
Company extended the Plan for an additional ten-year period, until October 1,
2007.
In January 2001, Company shareholders approved increasing the number of shares
available under the Plan to 950,000. Options granted under the Plan generally
vest within one year and terminate between five and ten years from the date of
grant. As of May 31, 2005, there are no stock options outstanding under the
Plan.
The Company has granted warrants to purchase common stock outside of the Plan to
a consultant. In August 2001, the Company issued 1,500,000 warrants to purchase
Company's common stock at an exercise price of $0.15 to D.H. Blair & Co. The
warrants expire on August 7, 2006.
10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are a non-operating public company with no current revenues as we divested
substantially all of our assets and ceased operations in May 2002. In recent
years we have experienced losses from operations and continue to suffer from a
deficiency in available working capital. Except for the historical information
contained herein the matters set forth in this report are forward-looking
statements within the meaning of "safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties that may cause actual results to differ
materially. These risks are detailed from time to time in our periodic reports
filed with the Securities and Exchange Commission, including our Annual Report
on Form 10-KSB, Quarterly Reports on Form 10-QSB and other periodic filings.
These forward-looking statements speak only as of the date hereof. We disclaim
any intent or obligation to update these forward-looking statements.
These statements relate to future events in future financial performance and
involve known and unknown risks, uncertainties and other factor's that may cause
our or our industry's actual results, performance or achievements to be
materially different from these expressed or implied by any forward-looking
statements. All of these matters are difficult or impossible to predict
accurately and may be beyond our control. Although we believe that the
assumptions underlying our forward-looking statements are reasonable, any of the
assumptions could be inaccurate, therefore, there can be no assurance that the
forward-looking statements included in this Form 10-QSB will prove to be
accurate. The following discussions should be read in conjunction with the
unaudited Financial Statements and notes thereto, appearing elsewhere herein.
Risk Factors Affecting Future Operating Results
The following important factors, among others, could cause actual results to
differ materially from those contained in the forward-looking statements in this
Form 10-QSB, or presented elsewhere by management from time to time. We wish to
caution stockholders and investors that the following important factors, among
others, in some cases have affected, and in the future could affect, our actual
results and could cause our actual results to differ materially, from those
expressed in any forward-looking statements made by us. These statements under
this caption are intended to serve as cautionary statements within the scope of
the Private Securities Litigation Reform Act of 1995. The following information
is not intended to limit in any way the characterization of other statements or
information under other caption as cautionary statements for such purpose. These
factors could have a material adverse effect on our non-operating business,
operating results and financial condition.
Our results of operations vary significantly from year to year and from quarter
to quarter. We have incurred net losses in prior years and can't assure future
profitability. At August 31, 2005, our accumulated deficit was approximately
$15,735,000.
11
The following are important factors that could cause actual results to differ
materially from those anticipated in any forward-looking statements made by or
on behalf of us.
We have incurred significant operating losses and may not be profitable in the
future or if we will be able to continue as a going concern.
We have discontinued all of our operations since May 2002, as we divested
substantially of our operating assets. We have incurred approximately
$15,735,000 in cumulative net losses from inception.
There is no significant trading market for our common stock
Our common stock is not eligible for trading on any national or regional
exchange as we were delisted from the OTC Bulletin Board on July 2001. Our
common stock has no trading activity on the non NASDAQ Other OTC (Pink Sheet
unqualified) pursuant to Rule 15c2-11 of the Securities Exchange Act of 1934.
Because our common stock is classified as "penny stock", trading is limited and
the common stock price declined to virtually no value and therefore is very
difficult to sell.
Because our common stock falls under the definition of "penny stock", the
trading in our common stock is limited because broker-dealers are required to
provide their customers with disclosure documents prior to allowing them to
participate in transactions involving our common stock.
We do not anticipate paying dividends.
We have not paid any cash dividend on our common stock since our inception and
we do not anticipate paying cash dividends in the foreseeable future.
One of our current stockholders has significant influence over our management
and directors and may take actions that may not be in the best interest of other
stockholders.
Our co-founder beneficially owns approximately 66% of our common stock.
Therefore, he will be able among other things, to elect directors.
12
Results of Operations
Three Months Ended August 31, 2005 as
Compared to Three Months Ended August 31, 2004.
We had no revenues for the Three Months Ended August 31, 2005 ("Three Months
Fiscal 2006") and no revenues for the Three Months Ended November 30, 2004
("Three Months Fiscal 2005") due to the Company divesting substantially all of
its assets and ceased operations on May 2, 2002.
As a result, we incurred no selling, general and administrative, depreciation
and amortization expenses for the Three Months Fiscal 2006 and for the Three
Months Fiscal 2005.
Total Other Expense for the Three Months Fiscal 2006 was $5,555, an increase of
$8 as compared to $5,547 for Three Months Fiscal 2005. The Total Other Expense
is attributed to our interest expenses relating to our Notes Payables.
As a result of the foregoing, the net loss for the Three Months Fiscal 2006 was
$5,555, an increase of $8 as compared to net loss of $5,547 for the Three Months
Fiscal 2005. The net loss for Three Months Fiscal 2006 is attributed interest
expenses.
Six Months Ended August 31, 2005 as
Compared to Six Months Ended August 31, 2004.
We had no revenues for the Six Month Ended August 31, 2005 ("Second Quarter
Fiscal 2006") and no revenues for the Six Months Ended August 31, 2004 ("Second
Quarter Fiscal 2005") due to the Company divesting substantially all of its
assets and ceased operations on May 2, 2002. Therefore, we incurred no selling,
general and administrative, depreciation and amortization expenses during these
periods.
Total Other Expense for the Second Quarter Fiscal 2006 was $11,111, an increase
of $16 as compared to $11,095 for the Second Quarter Fiscal 2005. Total Other
Expense is attributed to interest expense relating to our Notes Payable.
As a result of the foregoing, the net loss for the Second Quarter Fiscal 2006
was $11,911, an increase of $816 as compared to net loss of $11,095 for the
Second Quarter Fiscal 2005. The increase in net loss of $816 for the Second
Quarter Fiscal 2006 is attributed to interest and income tax expenses.
13
Liquidity and Capital Resources
Since inception, we have been undercapitalized and have experienced financial
difficulties. Our primary sources of working capital have been revenues from
operations, bank and private party loans and proceeds from the sale of
securities. Many of the bank and private party loans and certain of our other
obligations have required personal guarantees in order to continue to operate
our business. In May 2002, the Company divested substantially all of its assets
and ceased operations, and has performed only administrative duties as a
transitory, or shell, corporation.
Our working capital at August 31, 2005 was negative in deficit. As a
non-operating public company, or a shell entity, the Company's expenses, which
consists of primarily legal and accounting fees, were accrued and not paid as we
continue to suffer from a deficiency in available working capital.
On June 15, 2002, and March 2004, we issued various convertible secured
promissory notes (the "Notes") to LKDTBJP Living Trust, (the "Living Trust") in
the aggregate amount of $380,286 for assuming certain of our trade and notes
payable. The terms of the Notes are that both of the principal and accrued
interest are due on December 20, 2006. The Notes carry a 6% interest per annum
and the option of Living Trust the Notes are convertible at any time into
3,000,000 shares of the Company's common stock, valued at $300.00 to Living
Trust.
Item 3. Controls and Procedures
The Company maintains controls and procedures designed to ensure that the
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the Company's chief executive officer and the principal financial
officer (or persons performing similar functions) concluded that the Company's
disclosure controls and procedures were adequate.
As a result of its evaluation, the Company has been made no significant changes
in its internal controls or other factors that could significantly affect the
controls and other procedures already in place.
14
Part II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Number Description
- ------ --------------------------------------------------------------
31.1 Certification by Chief Executive and Chief Financial Officer
pursuant to Sarbanes-Oxley Section 302.
32.1 Certification by Chief Executive and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350.
b) Reports on Form 8K
None
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Sparta Surgical Corporation
(Registrant)
Date: June 29, 2006 By: /s/ Allan J. Korn
-------------------------------
Allan J. Korn
Chief Executive Officer
Chief Financial Officer
Director
16
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