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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 150(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING: May 31, 2007
( ) 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 (I) 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 on
Title of Class 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 $3,129 in revenue during the quarter ended May 31, 2007.
As of May 31, 2007, 9,973,830 shares of Registrant's Common Stock, 82,533 shares
of Redeemable Convertible Preferred Stock, and 27,818 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)
Balance Sheet 1
As of May 31, 2007
(Unaudited)
Statements of Operations 2
for the three months ended
May 31, 2007 and 2006
(Unaudited)
Statements of Cash Flows 3
for the three months ended
May 31, 2007 and 2006
(Unaudited)
Item 2. Management's Discussion and 12
Analysis of Financial Condition and
Results of Operations
(Unaudited)
Item 3. Controls and Procedures 15
Part II. Other Information and Change in Securities
Item 1. Legal Proceedings 16
Item 2. Change in Securities 16
Item 3. Default upon Senior Securities 16
Item 4. Submission of Matters to Vote of 16
Security Holders
Item 5. Other Information 16
Item 6. Exhibits and Signatures 17
Sparta Surgical Corporation
(Debtor-In-Possession)
Balance Sheet
May 31, 2007
(unaudited)
ASSETS
Accounts Receivable $ 9,907
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TOTAL ASSETS $ 9,907
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Accrued Taxes Payable $ 95,512
TOTAL CURRENT LIABILITIES $ 95,512
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LIABILITIES SUBJECT TO COMPROMISE
Accounts Payable 82,752
Accrued Interest for Notes Payable 92,656
Notes Payable to Trust 198,718
Notes Payable to Trust 181,568
Notes Payable to Credit Facility 48,542
Dividend Payable on Preferred Stock 135,658
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TOTAL LIABILITIES $ 835,406
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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 (15,768,567)
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TOTAL STOCKHOLDERS' EQUITY (825,499)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,907
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See accompanying notes to financial statements
1
Sparta Surgical Corporation
(Debtor-In-Possession)
Statement of Operations
(unaudited)
For the Three Months Ended:
----------------------------
May 31, May 31,
2007 2006
------------ -------------
Revenue $ 3,129 $ -
------------ -------------
Gross Profit 3,129 -
------------ -------------
Selling, General and Administrative
Expenses 1,443 3,484
------------ -------------
Income (Loss) Before Reorganization Expenses 1,686 (3,484)
------------ -------------
Reorganization Expenses (7,240) -
------------ -------------
Other Income (Expense):
Interest Expense (6,306) (5,677)
Gain on Extinguishment of Debt - -
------------ -------------
Total Other Income (Expense) (6,306) (5,677)
------------ -------------
Net Loss (11,860) (9,161)
Cumulative Preferred Dividends (10,432) (4,656)
------------ -------------
Net Loss to Common Shareholders $ (22,292) $ (13,817)
============ =============
Weighted Average Shares 9,973,830 9,973,830
============ =============
Basic and Diluted Earning per Share
Net Loss per share $ 0.00 $ 0.00
============ =============
See accompanying notes to financial statement
2
Sparta Surgical Corporation
(Debtor-In-Possession)
Statements of Cash Flows
(unaudited)
For the Three Months Ended:
----------------------------
May 31, May 31,
2007 2006
------------ -------------
Cash flows from operating activities
Net Loss $ (22,292) (13,817)
------------ -------------
Adjustments to reconcile operating loss
to net cash used in operating activities:
Preferred dividends 10,432 4,656
Change in operating assets and liabilities:
Accounts receivable (3,129) -
Accounts payable 7,240 -
Accrued expenses 6,306 5,678
------------ -------------
Net cash used in operating activities (1,443) (3,483)
------------ -------------
Cash flows from financing activities
Proceeds from note payable 1,443 3,483
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Net cash provided by financing activities 1,443 3,483
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Net change in cash and cash equivalents - -
Cash and cash equivalents at
beginning of period - -
------------ -------------
Cash and cash equivalent at
end of period $ - $ -
============ =============
See accompanying notes to financial statements
3
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
since May 2002, 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 May 2002,
the Company divested substantially all of its assets and ceased operations. As a
result, the Company retained no assets after ceasing operations, and has
performed only administrative duties as a transitory, or shell, corporation.
Since May 2002, the Company has sought to acquire a new business opportunity. In
September 2006, the Company was appointed as an exclusive independent sales
representative to market certain surgical, medical devices and accessories. In
addition, the Company's affiliate was appointed to market exclusively certain
electrotherapy product lines. Accordingly, the Company and its affiliate intends
to utilize this new relationship to form a basis for its future activities and
attempt to produce income. However, there can be no assurance that the Company
will succeed with this new business strategy and or produce any future income.
On November 6, 2006, the Company filed a Voluntary Petition for relief under
Chapter 11 of the United States Code Bankruptcy in the United States Bankruptcy
Court in the State of Colorado in order to facilitate the restructuring of our
debt, trade payables, and other obligations. On the Petition date, the Company
filed its proposed Plan of Reorganization (the" Plan") and accompanying
Disclosure Statement (the"Disclosure") and throughout the bankruptcy proceedings
the Company will continue to operate the business manage the properties as
"debtors-in-possession" and the Company is authorized under Chapter 11 to
continue to operate as an ongoing business, but may not engage in transaction
outside the ordinary course of business without the prior approval of the
Bankruptcy Court.
On December 19, 2006, the Court denied confirmation of the Plan and the final
approval of the Disclosure. On December 27, 2006, the Company filed a Notice of
Appeal on the basis of: (i) the Bankruptcy Court erred in Denying Final Approval
of the Disclosure, (ii) the Bankruptcy Court findings of the facts constituted
an abuse of discretion, and (iii) that all classes under the Plan voted to
accept the Plan. We put on evidence establishing the Plan and Disclosure
satisfied all the requirements of the Bankruptcy Code 1129(a). On August 21,
2007, A Bruce Campbell, United States Bankruptcy Judge, issued an order to
recuse himself from hearing this case. As of January 9, 2008, the District Court
of Appeals has not yet ruled on our Notice of Appeal.
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 amount of $380,286 for assuming certain of the Company's debt and
notes payable. The Convertible Notes, both principal and accrued interest, were
4
due on June 15, 2006 and May 17, 2006, at 6% interest per annum. On May 12,
2006, Living Trust agreed to extend payments on both principal and accrued
interest under the Convertible Notes until February 28, 2008. 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.
In September 2005, the Company entered into a Revolving Credit Facility
Agreement (the "Agreement"), by and between Gary A. Agron (the "Agron") and
Living Trust (collectively the "Lender"). This Agreement allows the Company to
borrow up to $100,000 with interest charged at 6.0% per annum, and both
principal and accrued interest is due on February 28, 2008. The Company further
agreed not to issue any additional equity or any other type of security without
the written consent of the Lender. In consideration of the Lender providing a
revolving credit, the Company has agreed to issue each of Agron and Living Trust
46,269,023 shares for a total of 92,538,046 shares of the Company's Common Stock
(the "Loan Shares"). Subsequently, on October 6, 2006, the Agreement was amended
to issue a total of 10,000,000 shares of the Company's Common Stock. The Company
has valued these shares at approximately $1,000.
The Company further acknowledged that it currently does not have sufficient
shares of common stock authorized for the issuance of the Loan Shares, however,
the Company shall take all reasonable actions necessary, including the holding
of a shareholder meeting to amend the Company's Certificate of Incorporation to
authorize shares of the Company's common stock so that Loan Shares may be
issued.
In September 2005, the Company did not have sufficient funds to pay Allan J.
Korn, its President, for his past services. Therefore the Company authorized
issuance of 5,443,415 shares of its Common Stock valued at $544.34 to Mr. Korn,
who has acted as the Company's sole officer and director without compensation
for the past four years. Subsequently, the Company and Mr. Korn agreed to reduce
the number of shares to 50,000. In November 2006, the Company's affiliate did
not have sufficient funds to pay Mr. Korn for assuming the position of
President, sole officer and director. Therefore, the affiliate agreed to
authorize to issue 25,000 shares of its Common Stock valued at approximately $3.
In November 2006, the Company's affiliate entered into a $100,000 Credit
Facility Agreement by and between the Lender, Under the agreement, the interest
charged is 6% per annum, and both principal and accrued interest is due on
February 28, 2008. As a consideration for the Credit Facility, the affiliate
authorized to issue 420,000 shares of its Common Stock to the Lender valued at
approximately $84.
5
Significant Accounting Policies
There have been no significant changes in Company's significant accounting
policies during the three months ended May 31, 2007 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 May 31, 2007. 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.
Basic and Diluted Earnings Per Common Shares
In accordance with Financial Accounting Standards Boards ("FASB") No. 128, basic
earnings per share is 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. For the three months ended May 31, 2007 and 2006
there is no difference between the basic and diluted loss per share, as there
were no dilutive stock options.
Three Months Three Months
Ended May 31, Ended May 31,
2007 2006
------------ ------------
Numerator:
Net Loss applicable to common stockholders $ (22,292) $ (13,817)
Denominator
Weighted average shares outstanding during
the period 9,973,830 9,973,830
Basic and diluted loss per common share $ (0.00) $ (0.00)
Revenue Recognition
The Company recognizes revenue when commissions are earned under the Exclusive
Sales Representative Agreement. Provision for allowances, and other adjustments
are provided for in the same period the related revenues are recorded.
6
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.
Recently Issued Accounting Pronouncements
In September 2006, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements," ("SAB No. 108"). SAB No. 108, which is effective for fiscal years
ending after November 15, 2006, provides guidance on how the effects of prior
year uncorrected misstatements, previously deemed to be immaterial, must be
considered and adjusted during the current year. The Company does not anticipate
that the adoption of SAB 108 will have a material effect on its statements of
operations in future periods.
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 approximates 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.
7
Note 2 - Going Concern
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. The Financial Statements have
also been prepared in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code ("SOP 90-7"). Accordingly,
all pre-bankruptcy petition ("pre-petition") liabilities believed to be subject
to compromise have been segregated in the Balance Sheet (the "Balance Sheet")
and classified as "liabilities subject to compromise" at the estimated amount of
allowable claim under the Chapter 11 cases. Liabilities not believed to subject
to compromise in the bankruptcy proceedings are separately classified as
"current" and "non-current" as appropriate. Expenses (including professional
fees), realized gain and losses, and the provisions for losses resulting from
the reorganization are reported only to the extent that is to be paid during the
Chapter 11 case.
On November 6, 2006, the Company filed a Voluntary Petition for relief under
Chapter 11 in order to facilitate the restructuring of debt, trade payables, and
other obligations.
During 2001 and 2002, the Company entered into and completed an agreement to
sell all of its operating assets.
In September 2005, the Company entered into a Revolving Credit Facility. This
Revolving Credit Facility allows the Company to borrow up to $100,000 with
interest charged at 6.0% per annum.
The Company intends to enter into an Agreement and Plan of Merger with an
agreeable party, at which point the Company will merge with that company.
However, there can be no assurance that the Company will finalize any agreement
and/or plan of merger in the near future.
Note 3- Related Party Transactions
Office Space
The Company's uses office space located in its Chief Executive Officer's office.
The Company estimates the fair value of these services to be $1,200 per year and
these amounts have not been recorded in the financial statements.
8
Amounts Due to Related Parties
As of May 31, 2007, the Company had amounts due, including accrued interest, to
the Lender in the amount of $48,542 in connection with the $100,000 Revolving
Credit Facility Agreement dated September 9, 2005.
As of May 31, 2007, in connection with the Company's Convertible Notes, the
Company had amounts due, including accrued interest, to Living Trust in the
amount of $472,942.
Current Notes payable consists of the following:
Credit Facility dated 9/9/05 for $100,000
at 6% due February, 2008 $ 48,542
6% note due in February 2008, collateralized
by substantially all assets of the Company
and convertible into 7,500,000 shares of the
Company's Common Stock, $0.002 par value. 198,718
6% note due in February 2008, collateralized
by substantially all assets of the Company
and convertible into 7,500,000 shares of the
Company's Common Stock, $0.002 par value. 181,568
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$ 428,828
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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.
9
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 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 the 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.
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 the Series AA
Preferred Stock receive cumulative dividends at the annual rate of $0.28 per
share, payable semi-annually. 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 for 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
10
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 senior to the Series AA Preferred
Stock.
As of May 31, 2007, the Company has accrued $135,658 for cumulative preferred
dividends.
Note 5 - Stock Options and Warrants
As May 31, 2007, there are no Options and Warrants outstanding as the Company's
1987 Stock Option Plan expired on October 1, 2007.
Note 6- Restatement of Financial Statements
The Company is filing this Form 10-QSB/A for the three months ending May 31,
2007 to amend and restate the following:
1. Item 1. Financial Statement to reflect reorganization under
provision of the Bankruptcy Code SOP 90-7;
2. Note 1. Notes to the Financial Statement;
3. Note 2. Going Concern;
4. Item 2. Liquidity and Capital Resources
11
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 May 31,
2007, our accumulated deficit was approximately $15,768,567.
12
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 will not be profitable in the
future as the Company has experienced circumstances which raise substantial
doubt about its ability 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
$15,768,567 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- 1 1 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 and since
2001 we have not paid any dividends to the holders of the Company's preferred
stocks.
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.
We filed for protection under Chapter 11 in the District Court of Colorado.
13
Results of Operations
Three Months Ended May 31, 2007 as Compared to Three Months Ended May 31, 2006.
We had $3,129 in revenues for the Three Months Ended May 31, 2007 ("First
Quarter Ended Fiscal 2008") and no revenues for the Three Months Ended May 31,
2007 ("First Quarter Ended Fiscal 2007") due to the Company divesting
substantially all of its assets and as a result ceased operations on May 2,
2002. The increase in revenues is attributed to the Company generating sales
commissions relating to its appointment of being an exclusive independent sales
representative for a certain medical product line.
Selling, general and administrative ("SG&A") expenses for the First Quarter
Ended Fiscal 2008 were $1,443, a decrease of $2,041 as compared to $3,484 in
expenses for the First Quarter Ended Fiscal 2007. The decrease in SG&A expenses
for the First Quarter Ended Fiscal 2008 is attributed to the reduction of
administrative expenses. For the First Quarter Ended Fiscal 2009, $7,240 is
attributed to the Reorganization Expenses in connection with Professional Fees
relating to the filing of the Chapter 11 Bankruptcy.
Total Other Expense for the First Quarter Ended Fiscal 2008 were $6,306, an
increase of $629 as compared to $5,677 for First Quarter Ended Fiscal 2008. The
Total Other Expense increase is attributed to additional interest expenses
relating to Notes Payables and Credit Facility.
As a result of the foregoing, the net loss for the First Quarter Ended Fiscal
2008 was $22,292 an increase of $8,475 as compared to net loss of $13,817 for
the First Quarter Ended Fiscal 2007. The net loss for the First Quarter Ended
Fiscal 2008 is attributed to increases in legal and accounting fees, and other
related administrative obligations.
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 through September 2006. In October 2006,, the Company started
14
to generate commission on revenues in connection with the Company being
appointed as an exclusive independent sales representatives for certain medical
and surgical product line. On November 6, 2006, we filed a Voluntary Petition
for relief under Chapter 11 of the United States Bankruptcy Code in order to
reorganize and work out our debt arrangements. Therefore, since we filed for
Chapter 11 protection, it will be extremely difficult for us to raise additional
financing in the future. Our working capital at May 31, 2007 was negative in
deficit.
In June, 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 February 28, 2008. The Notes carry a 6% interest per annum.
The Notes are convertible at any time into 15,000,000 shares of the Company's
common stock at the option of the Lender. The value of these shares is
approximately $1,500.
In September 5, 2005, the Company entered into a Revolving Credit Facility
Agreement (the"Agreement"), by and between Gary A Agron and LKDTBJP Living
Trust, (collectively (the "Lender"). This Agreement allows the Company to borrow
up to $100,000 with interest charged at 6.0% per annum, and both principal and
accrued interest is due on February 28, 2008. The Company further agreed not to
issue any additional equity or any other type of security without the written
consent of the Lender. In consideration of the Lender providing this Agreement,
the Company has agreed to issue each of Agron and LKDTBJP Living Trust
46,269,023 shares of its Common Stock. On October 6, 2006, the Agreement was
amended to issue a total of 10,000,000 shares of its Common Stock to the Lender.
The value of these shares is approximately $1,000. As of May 31, 2007, the
principal and accrued interest balance is $48,542.
In November 2006, the Company's affiliate entered into a Credit Facility
Agreement by and between the Lender. Under the terms of the Credit Facility the
affiliate can borrow up to $100,000 with interest charged at 6% per annum,
principal and accrued interest is due on February 28, 2008.
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
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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.
Part II. Other Information
Item 1. Legal Proceedings.
On November 6, 2006, the Company filed its Voluntary Petition under Chapter 11
of the Title 1 of the United States Code Bankruptcy for District of Colorado
under Case#06-18117-ABC. On this petition date, the Company its Proposed Plan of
Reorganization and accompanying Disclosure Statement. As of October 30, 2007,
the District Court of Appeals has not yet ruled on the confirmation of such
Plan. See Note 1. Business and Summary of Significant Accounting Policies.
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.
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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
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: Janaury 9, 2008 By: /s/ Allan J. Korn
Allan J. Korn
Chief Executive Officer and
Chief Financial Officer
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