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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 9/19/22 Sparta Commercial Services, Inc. 10-Q 7/31/22 48:3.2M M2 Compliance LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 747K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 17K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 17K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 15K
10: R1 Cover HTML 67K
11: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 138K
12: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 51K
(Parenthetical)
13: R4 Condensed Consolidated Statements of Operations HTML 88K
(Unaudited)
14: R5 Condensed Consolidated Statements Deficits HTML 98K
15: R6 Condensed Consolidated Statements Cash Flows HTML 90K
(Unaudited)
16: R7 Summary of Significant Accounting Policies HTML 70K
17: R8 Going Concern Matters HTML 21K
18: R9 Notes Payable and Derivatives HTML 49K
19: R10 Loans Payable to Related Parties HTML 19K
20: R11 Equity Transactions HTML 37K
21: R12 Fair Value Measurements HTML 31K
22: R13 Property and Equipment HTML 23K
23: R14 Warrants HTML 18K
24: R15 Commitments and Contingencies HTML 28K
25: R16 Subsequent Events HTML 18K
26: R17 Summary of Significant Accounting Policies HTML 113K
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27: R18 Summary of Significant Accounting Policies HTML 20K
(Tables)
28: R19 Notes Payable and Derivatives (Tables) HTML 46K
29: R20 Fair Value Measurements (Tables) HTML 25K
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31: R22 Schedule of Estimated Useful Life of Property and HTML 24K
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(Details Narrative)
33: R24 Going Concern Matters (Details Narrative) HTML 20K
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35: R26 Schedule of Derivative Liabilities Assumptions HTML 31K
Using Black-Scholes Option (Details)
36: R27 Schedule of Changes in Derivative Liabilities HTML 25K
(Details)
37: R28 Notes Payable and Derivatives (Details Narrative) HTML 19K
38: R29 Loans Payable to Related Parties (Details HTML 18K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i July 31, 2022
| i ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ________ to ___________.
Commission file number: i 0-9483
i SPARTA COMMERCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
| i Nevada | i 30-0298178 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
i 555 Fifth Avenue, i 14th Floor, i New York, i NY i 10017
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| i Common stock, $.001 par value | i SRCO | Pink Open Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ i Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 504 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to file such files). ☒ i Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| i Non-accelerated filer ☐ | Smaller reporting company i ☒ | |
| (Do not check if a smaller reporting company) | Emerging growth company i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ i No
As of September 19, 2022, we had shares of common stock issued and outstanding.
C:
SPARTA COMMERCIAL SERVICES, INC.
FORM 10-Q
FOR THE QUARTER ENDED July 31, 2022
TABLE OF CONTENTS
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| C: 2 |
SPARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2022, AND APRIL 30, 2022
(Unaudited)
| July 31, 2022 | April 30, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | i 870 | $ | i 317 | ||||
| Accounts receivable | i 3,351 | - | ||||||
| Inventory | i 8,116 | i 8,422 | ||||||
| Other current assets | - | |||||||
| Total Current Assets | i 12,337 | i 8,739 | ||||||
| Property and equipment, net of accumulated depreciation and amortization of $ i 213,262 and $ i 213,262, respectively | - | |||||||
| Other assets | - | |||||||
| Deposits | i 9,000 | i 9,000 | ||||||
| Total assets | $ | i 21,337 | $ | i 17,739 | ||||
| LIABILITIES AND DEFICIT | ||||||||
| Liabilities: | ||||||||
| Current Liabilities | ||||||||
| Bank overdraft | $ | i 63,784 | $ | i 27,202 | ||||
| Accounts payable and accrued expenses | i 4,430,181 | i 4,354,129 | ||||||
| Short Term Loan | i 141,585 | i 141,585 | ||||||
| Current portion notes payable | i 5,310,084 | i 5,250,084 | ||||||
| Deferred revenue | i 12,566 | i 13,385 | ||||||
| Derivative liabilities | i 7,873,782 | i 9,549,640 | ||||||
| Total Current Liabilities | i 17,831,982 | i 19,336,025 | ||||||
| Loans payable-related parties | i 439,803 | i 432,403 | ||||||
| Total Long Term Liabilities | i 439,803 | i 432,403 | ||||||
| Total liabilities | $ | i 18,271,785 | $ | i 19,768,428 | ||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value; shares authorized of which shares have been designated as Series A convertible preferred stock, with a stated value of $ per share, and shares issued and outstanding, respectively | i 12,500 | i 12,500 | ||||||
| Preferred stock B, shares have been designated as Series B redeemable preferred stock, $ par value, with a liquidation and redemption value of $ i i 10,000 / per share, and shares issued and outstanding, respectively | - | - | ||||||
| Preferred stock C, shares have been designated as Series C redeemable, convertible preferred, $ par value, with a liquidation and redemption value of $ i i 10 / per share, and shares issued and outstanding, respectively | i 2,303 | i 2,363 | ||||||
| Preferred stock D, shares have been designated as Series D redeemable, convertible preferred, $ par value, with a liquidation and redemption value of $ i i 1.00 / per share, and shares issued and outstanding as of April 30, 2022 and 2021, respectively | i 618 | i 618 | ||||||
| Preferred stock value | ||||||||
| Common stock, $ par value; shares authorized, and and shares issued and outstanding, respectively | i 17,301 | i 15,128 | ||||||
| Common stock to be issued and respectively | i 10,116 | i 8,292 | ||||||
| Additional paid-in-capital | i 53,601,950 | i 53,210,921 | ||||||
| Accumulated deficit | ( i 72,883,335 | ) | ( i 73,984,686 | ) | ||||
| Total deficiency in stockholders’ equity | ( i 19,238,547 | ) | ( i 20,734,864 | ) | ||||
| Non-controlling interest | i 988,099 | i 984,175 | ||||||
| Total Deficit | ( i 18,250,448 | ) | ( i 19,750,689 | ) | ||||
| Total Liabilities and Deficit | $ | i 21,337 | $ | i 17,739 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
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| 3 |
SPARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2022 AND 2021
(Unaudited)
| July 31, 2022 | July 31, 2021 | |||||||
| Revenue | ||||||||
| Information technology | $ | i 63,467 | $ | i 56,557 | ||||
| New World Health Brands | i 5,486 | i 4,128 | ||||||
| Total Revenue | i 68,953 | i 60,685 | ||||||
| Less Cost of goods sold | i 11,043 | i 10,177 | ||||||
| Gross profit | $ | i 57,910 | $ | i 50,508 | ||||
| Operating expenses: | ||||||||
| General and administrative | i 530,913 | i 250,024 | ||||||
| Research and Development | i 41,969 | |||||||
| Total operating expenses | $ | i 572,882 | $ | i 250,024 | ||||
| Loss from operations | $ | ( i 514,972 | ) | $ | ( i 199,516 | ) | ||
| Other (income) expense: | ||||||||
| Other income | $ | $ | - | |||||
| Forgiveness of debt | - | |||||||
| Financing cost | i 1,025 | i 180,750 | ||||||
| Amortization of debt discount | - | |||||||
| Loss (gain) in changes in fair value of derivative liability | ( i 1,621,272 | ) | ( i 760,068 | ) | ||||
| Total other (income) expense | $ | ( i 1,620,247 | ) | $ | ( i 579,318 | ) | ||
| Net income (loss) | i 1,105,275 | i 379,802 | ||||||
| Net profit attributable to minority shareholder | ( i 3,924 | ) | i 338 | |||||
| Preferred dividend | - | |||||||
| Net income (loss) attributed to common stockholders | $ | i 1,101,351 | $ | i 380,140 | ||||
| Basic and diluted loss per share: | ||||||||
| Loss from continuing operations attributable to Sparta Commercial Services, Inc. common stockholders | ||||||||
| Net income (loss) attributable to Sparta Commercial Services, Inc. common stockholders | $ | i 0.07 | $ | i 0.03 | ||||
| Weighted average shares outstanding | i 16,340,345 | i 10,912,112 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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| 4 |
SPARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS DEFICITS
FOR THE THREE MONTHS ENDED JULY 31, 2022 AND 2021
| Series A | Series C | Series D | Common Stock | Additional | Non | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | to be issued | Paid in | Accumulated | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance April 30, 2022 | i 125 | $ | i 12,500 | i 2,163,000 | $ | i 2,363 | i 618,411 | $ | i 618 | i 15,128,005 | $ | i 15,128 | i 8,916,805 | $ | i 8,292 | $ | i 53,210,921 | $ | ( i 73,984,686 | ) | $ | i 984,175 | $ | ( i 19,750,689 | ) | |||||||||||||||||||||||||||||||
| Conversion of Preferred to common shares | ( i 60,000 | ) | ( i 60 | ) | i 60,000 | i 60 | i 9,940 | i 9,940 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Preferred and Common Stock for Cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Preferred and Common Stock for Cash, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of notes to common shares | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of notes to common shares, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred shares | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for cash | i 1,824,771 | i 1,824 | i 93,175 | i 94,999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares for services | i 1,594,960 | i 1,595 | i 243,786 | i 245,381 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stocks issued for equity | i 518,333 | i 518 | i 44,128 | i 44,647 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividend | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income for the quarter | - | - | - | - | - | - | - | - | - | - | - | i 1,101,351 | i 3,924 | i 1,105,275 | ||||||||||||||||||||||||||||||||||||||||||
| Balance July 31, 2022 | i 125 | $ | i 12,500 | i 2,103,000 | $ | i 2,303 | i 618,411 | $ | i 618 | i 17,301,298 | $ | i 17,301 | i 10,741,576 | $ | i 10,116 | $ | i 53,601,950 | $ | ( i 72,883,335 | ) | $ | i 988,099 | $ | ( i 18,250,448 | ) | |||||||||||||||||||||||||||||||
| Balance April 30, 2021 | i 125 | $ | i 12,500 | i 4,132,269 | $ | i 4,145 | i 1,494,962 | $ | i 1,494 | i 9,809,877 | $ | i 9,810 | i 1,214,528 | $ | i 1,215 | $ | i 51,351,156 | $ | ( i 64,993,250 | ) | $ | i 986,999 | ( i 12,625,931 | ) | ||||||||||||||||||||||||||||||||
| Beginning Balance | i 125 | $ | i 12,500 | i 4,132,269 | $ | i 4,145 | i 1,494,962 | $ | i 1,494 | i 9,809,877 | $ | i 9,810 | i 1,214,528 | $ | i 1,215 | $ | i 51,351,156 | $ | ( i 64,993,250 | ) | $ | i 986,999 | ( i 12,625,931 | ) | ||||||||||||||||||||||||||||||||
| Issuance of Preferred and Common Stock for Cash | ( i 704,300 | ) | ( i 704 | ) | ( i 1,303,551 | ) | ( i 303 | ) | i 1,574,001 | i 1,574 | i 373,234 | i 373,801 | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of notes to common shares | i 125,000 | i 125 | i 24,875 | i 25,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for cash | i 1,134,697 | i 1,135 | i 98,183 | i 99,318 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividend | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | i 379,802 | i 338 | i 380,140 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance July 31, 2021 | i 125 | $ | i 12,500 | i 3,427,969 | $ | i 3,441 | i 191,411 | $ | i 1,191 | i 11,508,878 | $ | i 11,509 | i 2,349,225 | $ | i 2,350 | $ | i 51,847,448 | $ | ( i 64,613,448 | ) | $ | i 987,337 | $ | ( i 11,747,672 | ) | |||||||||||||||||||||||||||||||
| Ending Balance | i 125 | $ | i 12,500 | i 3,427,969 | $ | i 3,441 | i 191,411 | $ | i 1,191 | i 11,508,878 | $ | i 11,509 | i 2,349,225 | $ | i 2,350 | $ | i 51,847,448 | $ | ( i 64,613,448 | ) | $ | i 987,337 | $ | ( i 11,747,672 | ) | |||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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SPARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE THREE ENDED JULY 31, 2022 AND 2021
(UNAUDITED)
See accompanying notes to unaudited condensed consolidated financial statements.
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| 6 |
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
i
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.
i
General Overview
Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation with headquarters in New York City, www.spartacommercial.com. We are a multi-disciplined parent corporation operating across three business sectors – Financial Services, E-Commerce & Mobile Technology, and Health and Wellness, (www.spartacommercial.com).
Sparta’s roots are in the Powersports industry. The Company provided retail installment loans and leases through authorized motorcycle dealerships in 33 states, with financing provided by institutional lenders. The Company also maintained a full underwriting and servicing platform for its portfolio. Notwithstanding the discontinuance of our initial focus on consumer loans and leases post Lehman and during the 2008 financial crisis; in 2007, the Company had introduced a new initiative, Municipal Financing, (www.spartamunicipal.com), which has financed over 100 jurisdictions to date. Sparta’s Municipal Finance program is also currently available to all nonprofit organizations, institutions and entities. All nonprofit organizations which adhere to IRS guidelines, including 501 (c) 3 of the Internal Revenue Code, are eligible. Both public nonprofits, also known as public charities supported with publicly collected funds, and private nonprofits, also known as private foundations supported by an individual or business entity, qualify for the program.
Vehicle History Reports are a staple of Sparta’s E-Commerce Technology subsidiary iMobile Solutions, Inc. Whether a vehicle is intended for business or recreational use, Sparta’s Vehicle History Reports are highly regarded for accuracy and completeness and have been sold across all 50 states and in 62 countries worldwide. They provide a trusted layer of assurance to vehicle buyers and are available on Kelley Blue Book, AllState Insurance and a range of various dealership websites. They include Cyclechex (Motorcycle History Reports at www.cyclechex.com), RVchex (Recreational Vehicle History Reports at www.rvchex.com), and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Consumers, retailers, municipals, nonprofits, auction houses, banks and insurance companies alike scrutinize title history reports for the vital information needed and factored into crucial business decisions that affect the bottom line.
The Company’s E-Commerce and Mobile Technology subsidiary name change to iMobile Solutions, Inc., from Specialty Reports, Inc., in 2016, signifies its ever-broadening service offerings in the evolving technology landscape. With iMobile App (www.imobileapp.com), the Company provides mobile technology services, including web and mobile application creation, development and management for a wide range of businesses to increase revenue, build brand recognition, and improve customer engagement. Our ever-broadening business base of mobile application includes vehicle dealerships and racetracks, private clubs and country clubs, schools and entertainment venues, restaurants and grocery stores, as well as various other merchant types. (www.imobileapp.com/app-gallery). The Company also designs, launches, maintains and hosts websites for businesses incorporating SEO (search engine optimization), social media marketing, and online reviews to improve their presence online. We provide specific, tailored action plans for our clients’ websites that include services such as eCommerce, CRM (Customer Relationship Management) development and integration. This custom software not only helps businesses communicate with customers but can also be used for employees to communicate internally. The CRM software can be web based, integrated with a mobile app, or both. We work with clients to understand their unique needs and incorporate the features and requirements that are most important to them and will facilitate their business growth and success. Correspondingly, the Company designs and builds custom kitchen ordering software for independent grocery stores, delicatessens, and other food service businesses. The software can be designed for use in a combination of ways including mobile devices and in-store ordering. The kitchen ordering software is enabled with payment integration, text messaging notification, wireless printing, and other features. iMobile Solutions, Inc. provides a turn-key solution for any business looking to simplify or streamline their kitchen ordering process. Additionally, we offer text messaging services, which supplement business marketing strategies both to gain and retain brand loyalty among its clients, customers and investors. Our text messaging platform allows our clients to easily manage, schedule and analyze text message performance.
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Sparta created its subsidiary, New World Health Brands, Inc., in April 2019, on the heels of the Agriculture Improvement Act (also known as the Farm Bill), which was signed into law the previous December 20, 2018. Consequently, hemp (CBD) was removed from Schedule 1 of the Controlled Substances Act. Company management recognized the substantial business opportunity that lay ahead in the rapidly expanding hemp-CBD (cannabidiol) market in the United States. During 2019-2020, we sourced, developed and tested 5 CBD product categories totaling 31 products. We procured premium, domestic-grade, full-spectrum, broad-spectrum, and THC free hemp, created product packaging and labelling, and implemented fulfilment to launch an online B to C website: www.newworldhealthcbd.com on December 21, 2019. The Company has since curated its products and currently offers 15 products with plans to add complementary products to our product line. Our CBD products are available in full spectrum, broad spectrum and non-detectable below the legal limit of .3 THC (ND-THC) and come in capsules, oils, tablets, gel caps, tinctures, salves, creams, lotions, as well as pet chews and tinctures. We remain watchful of consumer needs, adjusting our product line offerings either by adding new products, adjusting the potency levels of existing products or discontinuing still others, as warranted. To ensure the safety and quality of our products, all CBD product offerings are exclusively sourced, manufactured and tested at highly accredited testing facilities in the United States and adhere to strict U.S. standards and guidelines. Because of our high standards, in-depth quality testing and label transparency, consumers know they can trust us.
Sparta’s response to the onset of the COVID 19 pandemic in early 2020 quickly took shape with thorough investigations into evolving customer trends in health and wellness. As a result, we expanded New World Health Brands and developed a new product line of natural dietary supplements. In August 2020, we launched an online B to C website: www.newworldhealthbrands.com, featuring high quality dietary supplements, including vitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Beetroot Extract, Selenium, Vitamin B Complex, Vitamin C and PQQ. To ensure the safety and quality of our products, all health and wellness offerings are exclusively sourced and manufactured in the United States and adhere to strict U.S. standards and guidelines. Sparta’s commitment to high standards and transparency are tantamount to being a trusted brand.
Sparta’s newest subsidiary, Sparta Crypto, Inc., www.SpartaCrypto.com, was established September 25, 2020 and is in the process of completing a proprietary state-of-the-art platform designed to connect users of widely adopted digital currencies with sellers of various goods and services. The platform has not launched and the Company can make no assurances that the described plan will reach implementation. In addition, the Company has completed and tested a cryptocurrency payment gateway called SpartaPayIQ, www.SpartaPayIQ.com, which is functional and was formally announced on March 3, 2022.
i
The accompanying unaudited condensed consolidated financial statements as of July 31, 2022 and for the three months ended July 31, 2022 and 2021 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and explanatory notes for the year ended April 30, 2022 as disclosed in the Company’s Form 10-K for that year as filed with the Securities and Exchange Commission on August 15, 2022. The results of operations for the three months ended July 31, 2022 are not necessarily indicative of the results to be expected for any other interim period or the full year ending April 30, 2023.
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The condensed consolidated balance sheet as of April 30, 2022 contained herein has been derived from the audited consolidated financial statements as of April 30, 2022, but do not include all disclosures required by the U.S. GAAP.
i
The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The third-party ownership of the Company’s subsidiary is accounted for as noncontrolling interest in the consolidated financial statements. Changes in the noncontrolling interest are reported in the statement of changes in deficit.
i
These financial statements have been prepared in accordance with accounting principles generally accepted in United States of America which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of revenues and expenses for the reported period. Accordingly, actual results could differ from those estimates.
i
During the first quarter of 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the cumulative-effect method. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption did not have an impact in our consolidated financial statements, other than the enhancement of our disclosures related to our revenue-generating activities.
The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.
Revenues from mobile app products and New World Health Brands products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery. The Company records deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.
i
For the purpose of the accompanying financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents.
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The Company has adopted ASC 820, “Fair Value Measurements (“ASC 820”).” ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets the lowest priority to unobservable inputs to fair value measurements of certain assets and Liabilities. The three levels of the fair value hierarchy under ASC 820 are described below:
| ● | Level 1 — Quoted prices for identical instruments in active markets. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain securities that are highly liquid and are actively traded in over-the-counter markets. |
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| ● | Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurements. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques based on significant unobservable inputs, as well as management judgments or estimates that are significant to valuation. |
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not always be available.
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We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
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We account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
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The Company’s inventories represent finished goods, consist of products available for sale and are accounted for using the first-in, first-out (FIFO) method and valued at the lower of cost or net realizable value. Inventory consists of finished goods for the Company’s New World Health business.
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Property and equipment are recorded at cost. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives. Depreciation is calculated using the straight-line method over the estimated useful lives. Estimated useful lives of major depreciable assets are as follows:
iSCHEDULE OF ESTIMATED USEFUL LIFE OF PROPERTY AND EQUIPMENT
| Leasehold improvements | i 3 years |
| Furniture and fixtures | i 7 years |
| Website costs | i 3 years |
| Computer Equipment | i 5 years |
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Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.
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The Company uses ASC 260-10, “Earnings Per Share” for calculating the basic and diluted loss per share. The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.
As of July 31, 2022 and 2021, approximately potential shares (including and shares to be issued on the balance sheet), respectively, were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.
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The Company assessed the classification of its derivative financial instruments as of July 31, 2022 and April 30, 2022, which consist of convertible instruments and rights to shares of the Company’s common stock and determined that such derivatives meet the criteria for liability classification under ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
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The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
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Certain reclassifications have been made to conform to prior periods’ data to the current presentation. These reclassifications had no effect on reported losses.
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Recent Accounting Pronouncements-
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, “Leases.” Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. The Company adopted Topic 842 effective May 1, 2019 using a modified retrospective method and elected not to recognize leases with terms of 12 months or less. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our consolidated financial statements.
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NOTE B – GOING CONCERN MATTERS
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred recurring losses and generated negative cash flows from operating activities since inception. As of July 31, 2022, the Company had an accumulated deficit of $ i 72,883,335 and a working capital deficit (total current liabilities exceeded total current assets) of $ i 17,819,645. The Company’s cash balance and revenues generated are not currently sufficient and cannot be projected to cover its operating expenses for the next twelve months from the filing date of this report. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.
The Company’s existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that the Company’s efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the resolution of its liquidity problems. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
In order to improve the Company’s liquidity, the Company’s management is actively pursuing additional equity financing through discussions with investment bankers and private investors. There can be no assurance that the Company will be successful in its effort to secure additional equity financing.
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NOTE C – NOTES PAYABLE AND DERIVATIVES
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The Company has outstanding numerous notes payable to various parties. The notes bear interest at rates of 5% - 20% per year and are summarized as follows:
| Notes Payable | July 31, 2022 | April 30, 2022 | ||||||
| Notes convertible at holder’s option | $ | i 3,112,734 | $ | i 2,980,848 | ||||
| Notes convertible at Company’s option | i 335,700 | i 335,700 | ||||||
| Non-convertible notes payable | i 1,861,650 | i 1,933,536 | ||||||
| Subtotal | i 5,310,084 | i 5,250,084 | ||||||
| Debt discount | - | |||||||
| Total | $ | i 5,310,084 | $ | i 5,250,084 | ||||
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Certain of the notes payable contain variable conversion rates and the conversion features are classified as derivative liabilities. The conversion prices are based on the market price of the Company’s common stock, at discounts of i 30% - i 48% to market value.
The Company’s derivative financial instruments consist of embedded derivatives related to the outstanding short term Convertible Notes Payable. These embedded derivatives include certain conversion features indexed to the Company’s common stock. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related items at their fair values as of the inception date of the Convertible Notes Payable and at fair value as of each subsequent balance sheet date. In addition, under the provisions of Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”), as a result of entering into the Convertible Notes Payable, the Company is required to classify all other non-employee stock options and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.
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The change in fair value of the derivative liabilities at July 31, 2022 was calculated with the following average assumptions, using a Black-Scholes option pricing model are as follows:
SCHEDULE OF DERIVATIVE LIABILITIES ASSUMPTIONS USING BLACK-SCHOLES OPTION
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Changes in derivative liability during the three months ended July 31, 2022 and 2021 were:
SCHEDULE OF CHANGES IN DERIVATIVE LIABILITIES
| July 31, | ||||||||
| 2022 | 2021 | |||||||
| Balance, beginning of year | $ | i 9,549,640 | $ | i 3,446,738 | ||||
| Derivative liability extinguished | ( i 54,586 | ) | ( i 385,257 | ) | ||||
| Derivative financial liability arising on the issuance of convertible notes and warrants | - | |||||||
| Fair value adjustments | ( i 1,621,272 | ) | ( i 760,068 | ) | ||||
| Balance, end of period | $ | i 7,873,782 | $ | i 2,301,413 | ||||
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NOTE D – LOANS PAYABLE TO RELATED PARTIES
As of July 31, 2022, and April 30, 2022, aggregated loans and notes payable, without demand and with no interest, to officers and directors were $ i 432,403 and $ i 432,403, respectively.
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Preferred Stock
The Company is authorized to issue shares of preferred stock with $ par value per share, of which shares have been designated as Series A convertible preferred stock with a $ stated value per share; shares have been designated as Series B Preferred Stock with a $ i 10,000 per share liquidation value; shares have been designated as Series C Preferred Stock with a $ i 10 per share liquidation value, and shares have been designated as Series D Preferred Stock with a $ i 1 per share liquidation value.
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Common Stock
The Company is authorized to issue shares of common stock, $ par value. As of July 31 and April 30, 2022 the Company’s issued and outstanding shares are and respectively.
During the three months ended July 31, 2022, the Company:
During the three months ended July 31, 2021, the Company:
Sold to four accredited investors shares of common stock for cash of $ i 70,000 and notes payable and accrued expenses settlement of $ i 29,317.81 actual shares were not issued yet and recorded as commons stocks to be issued.
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NOTE F – FAIR VALUE MEASUREMENTS
The Company follows the guidance established pursuant to ASC 820 which established a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.
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The table below summarizes the fair values of financial liabilities as of July 31, 2022:
SCHEDULE OF FAIR VALUES OF FINANCIAL LIABILITIES
| Fair Value at | Fair Value Measurement Using | |||||||||||||||
| July 31, 2022 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liabilities | $ | i 7,873,782 | - | - | $ | i 7,873,782 | ||||||||||
Fair values of financial liabilities as of April 30, 2022 are as follows:
| Fair Value at | Fair Value Measurement Using | |||||||||||||||
| April 30, 2022 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liabilities | $ | i 9,549,640 | - | - | $ | i 9,549,640 | ||||||||||
The following is a description of the valuation methodologies used for these items:
Derivative liabilities — these instruments consist of certain variable conversion features related to notes payable obligations and certain outstanding warrants. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.
The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with ASC Topic 825 “The Fair Value Option for Financial Issuances”.
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NOTE G – PROPERTY AND EQUIPMENT
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Major classes of property and equipment at July 30, 2022 and April 30, 2022 consist of the followings:
SCHEDULE OF PROPERTY AND EQUIPMENT
| July 31, 2022 | April 30, 2022 | |||||||
| Computer equipment, software and furniture | $ | i 213,262 | $ | i 213,262 | ||||
| Less: accumulated depreciation | ( i 213,262 | ) | ( i 213,262 | ) | ||||
| Net property and equipment | $ | - | $ | - | ||||
All equipment are fully depreciated as of July 30, 2022 and 2021. No additional investment in equipment for both fiscal year.
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No warrants were issued to employees and/ or service. As of July 31, 2022, warrants were vested. Computed fair value was $ i 228,099.
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NOTE I – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
Our executive offices are located in New York, NY. We have an agreement for use of office space at this location under a sub-lease which expired on i July 31, 2018 and continues a month-to-month basis thereafter. The monthly base rent is $ i 5,100.
Rent expense was $ i 16,250 and i 16,200 for the Three months period ending July 31, 2022 and 2021, respectively.
Litigation
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Sparta can make no representations about the potential outcome of such proceedings.
As of July 31, 2022, we have not been named as parties to any further legal proceedings except as those disclosed prior and as updated below. From time to time, of course, we may become involved in further legal proceedings, which sometimes arise due to the very nature of and in the ordinary course of this business.
By way of background, the Company had received notices dated April 1, 2016, May 13, 2016 and July 22, 2016 from two lenders claiming defaults relating to conversion requests of $ i 8,365.00 in principal plus interest, attorney fees and $ i 5,000.00 in principal plus interest also seeking stock conversions aside from the stated principal and interest with regard to notes in the total amounts of $ i 55,125.00 and $ i 27,500.00, respectively, which the Company has declined to process and believes it has valid, meritorious defenses in that regard. The Company believes these claims are contingent, unliquidated and disputes same. While there can be no assurances that the Company would prevail in any potential litigation with regard to claims brought against the Company, these potential liabilities have been recorded in the unaudited condensed consolidated financial statements.
With respect to the above claims, on September 22, 2016, a motion for summary judgment in lieu of complaint was filed in the Supreme Court in the State of New York: County of Kings, against the Company by a lender for the amount of $ i 102,170.82 in principal and stock conversion interest, plus fees and costs. The Plaintiff’s motion for summary judgment in lieu of complaint was denied on May 5, 2017. On August 22, 2018, Plaintiff thereafter brought a second motion seeking summary judgment on the issue of liability which was, again, denied by the Court on March 14, 2019. The most recent appearance in this matter had been scheduled for March 13, 2020, at which time, the Court marked the case “adjourned without a date”, due to the restrictions imposed on the Courts arising from the COVID-19 pandemic. No further Court appearances have been scheduled, to date, in this matter. However, most notably, a favorable decision from the New York State Court of Appeals regarding the very same types of transactions have since been determined to be criminally usurious and, therefore, unenforceable. These were the very same defenses raised on behalf of the Company.
On October 26, 2018, a second lender commenced an action in the Supreme Court of the State of New York: New York County alleging damages from unpaid principal arising from a promissory note dated February 26, 2015 in the amount of $ i 50,000.00 plus damages including interest and stock conversions, costs and fees. There are cross dispositive motions pending which are scheduled to be heard in September, 2022. The Company disputes the enforceability of such claims for the similar reasons, as stated above, based on the Court of Appeals ruling as to the unenforceable nature of such claims demanding usurious interest rates.
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The Company has evaluated subsequent events for recognition and disclosure as of September 19, 2022 which is the date the financial statements were available to be issued. No other matters were identified affecting the accompanying financial statements and related disclosures.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion of our financial condition and results of operations should be read in conjunction with (1) our interim unaudited condensed consolidated financial statements and their explanatory notes included as part of this quarterly report, and (2) our annual audited consolidated financial statements and explanatory notes for the year ended April 30, 2022 as disclosed in our annual report on Form 10-K for that year as filed with the SEC.
“Forward-Looking” Information
This report on Form 10-Q contains various statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder which represent our expectations and beliefs, including, but not limited to statements concerning the Company’s business and financial plans and prospects and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” and other similar expressions can, but not always, identify forward-looking statements, which speak only as of the date such statement was made. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), including Item 1A of the Company’s Annual Report of Form 10-K for the year ended April 30, 2022. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward-looking statements in light of this explanation, and we caution you about relying on forward-looking statements.
General Overview
Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation with headquarters in New York City, www.spartacommercial.com. We are a multi-disciplined parent corporation operating across three business sectors – Financial Services, E-Commerce & Mobile Technology, and Health and Wellness, (www.spartacommercial.com).
Sparta’s roots are in the Powersports industry. The Company provided retail installment loans and leases through authorized motorcycle dealerships in 33 states, with financing provided by institutional lenders. The Company also maintained a full underwriting and servicing platform for its portfolio. Notwithstanding the discontinuance of our initial focus on consumer loans and leases post Lehman and during the 2008 financial crisis; in 2007, the Company had introduced a new initiative, Municipal Financing, (www.spartamunicipal.com), which has financed over 100 jurisdictions to date. Sparta’s Municipal Finance program is also currently available to all nonprofit organizations, institutions and entities. All nonprofit organizations which adhere to IRS guidelines, including 501 (c) 3 of the Internal Revenue Code, are eligible. Both public nonprofits, also known as public charities supported with publicly collected funds, and private nonprofits, also known as private foundations supported by an individual or business entity, qualify for the program.
Vehicle History Reports are a staple of Sparta’s E-Commerce Technology subsidiary iMobile Solutions, Inc. Whether a vehicle is intended for business or recreational use, Sparta’s Vehicle History Reports are highly regarded for accuracy and completeness and have been sold across all 50 states and in 62 countries worldwide. They provide a trusted layer of assurance to vehicle buyers and are available on Kelley Blue Book, AllState Insurance and a range of various dealership websites. They include Cyclechex (Motorcycle History Reports at www.cyclechex.com), RVchex (Recreational Vehicle History Reports at www.rvchex.com), and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Consumers, retailers, municipals, nonprofits, auction houses, banks and insurance companies alike scrutinize title history reports for the vital information needed and factored into crucial business decisions that affect the bottom line.
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The Company’s E-Commerce and Mobile Technology subsidiary name change to iMobile Solutions, Inc., from Specialty Reports, Inc., in 2016, signifies its ever-broadening service offerings in the evolving technology landscape. With iMobile App (www.imobileapp.com), the Company provides mobile technology services, including web and mobile application creation, development and management for a wide range of businesses to increase revenue, build brand recognition, and improve customer engagement. Our ever-broadening business base of mobile application includes vehicle dealerships and racetracks, private clubs and country clubs, schools and entertainment venues, restaurants and grocery stores, as well as various other merchant types. (www.imobileapp.com/app-gallery). The Company also designs, launches, maintains and hosts websites for businesses incorporating SEO (search engine optimization), social media marketing, and online reviews to improve their presence online. We provide specific, tailored action plans for our clients’ websites that include services such as eCommerce, CRM (Customer Relationship Management) development and integration. This custom software not only helps businesses communicate with customers but can also be used for employees to communicate internally. The CRM software can be web based, integrated with a mobile app, or both. We work with clients to understand their unique needs and incorporate the features and requirements that are most important to them and will facilitate their business growth and success. Correspondingly, the Company designs and builds custom kitchen ordering software for independent grocery stores, delicatessens, and other food service businesses. The software can be designed for use in a combination of ways including mobile devices and in-store ordering. The kitchen ordering software is enabled with payment integration, text messaging notification, wireless printing, and other features. iMobile Solutions, Inc. provides a turn-key solution for any business looking to simplify or streamline their kitchen ordering process. Additionally, we offer text messaging services, which supplement business marketing strategies both to gain and retain brand loyalty among its clients, customers and investors. Our text messaging platform allows our clients to easily manage, schedule and analyze text message performance.
Sparta created its subsidiary, New World Health Brands, Inc., in April 2019, on the heels of the Agriculture Improvement Act (also known as the Farm Bill), which was signed into law the previous December 20, 2018. Consequently, hemp (CBD) was removed from Schedule 1 of the Controlled Substances Act. Company management recognized the substantial business opportunity that lay ahead in the rapidly expanding hemp-CBD (cannabidiol) market in the United States. During 2019-2020, we sourced, developed and tested 5 CBD product categories totalling 31 products. We procured premium, domestic-grade, full-spectrum, broad-spectrum, and THC free hemp, created product packaging and labelling, and implemented fulfilment to launch an online B to C website: www.newworldhealthcbd.com on December 21, 2019. The Company has since curated its products and currently offers 15 products with plans to add complementary products to our product line. Our CBD products are available in full spectrum, broad spectrum and non-detectable below the legal limit of .3 THC (ND-THC) and come in capsules, oils, tablets, gel caps, tinctures, salves, creams, lotions, as well as pet chews and tinctures. We remain watchful of consumer needs, adjusting our product line offerings either by adding new products, adjusting the potency levels of existing products or discontinuing still others, as warranted. To ensure the safety and quality of our products, all CBD product offerings are exclusively sourced, manufactured and tested at highly accredited testing facilities in the United States and adhere to strict U.S standards and guidelines. Because of our high standards, in-depth quality testing and label transparency, consumers know they can trust us.
Sparta’s response to the onset of the COVID 19 pandemic in early 2020 quickly took shape with thorough investigations into evolving customer trends in health and wellness. As a result, we expanded New World Health Brands and developed a new product line of natural dietary supplements. In August 2020, we launched an online B to C website: www.newworldhealthbrands.com, featuring high quality dietary supplements, including vitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Beetroot Extract, Selenium, Vitamin B Complex, Vitamin C and PQQ. To ensure the safety and quality of our products, all health and wellness offerings are exclusively sourced and manufactured in the United States and adhere to strict U.S standards and guidelines. Sparta’s commitment to high standards and transparency are tantamount to being a trusted brand.
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Sparta’s newest subsidiary, Sparta Crypto, Inc., www.SpartaCrypto.com, was established September 25, 2020 and is in the process of completing a proprietary state-of-the-art platform designed to connect users of widely adopted digital currencies with sellers of various goods and services. The platform has not launched and the Company can make no assurances that the described plan will reach implementation. In addition, the Company has completed and tested a cryptocurrency payment gateway called SpartaPayIQ, www.SpartaPayIQ.com, which is functional and was formally announced on March 3, 2022.
RESULTS OF OPERATIONS
Comparison of the three Months Ended July 31, 2022 and 2021
For the three months ended July 31, 2022 and 2021, we have generated limited sales revenues, have incurred significant expenses, and have sustained significant losses.
Revenues
Revenues totaled $68,953 during the three months ended July 31, 2022 as compared to $60,685 during the three months ended July 31, 2021, an increase of $8,268 or 13.62%, primarily due to increased Revenues from our Information Technology products.
Cost of Revenue
Cost of revenue consists of costs and fees paid to third parties to construct and maintain mobile apps, as well as fees for subscription services related to vehicle history reports.
Operating Expenses
Operating expenses were $572,882 during the three months ended July 31, 2022, compared to $250,024 during the three months ended July 31, 2021, an increase of $322,858 or 129.13%, primarily due to increased legal and professional fees and stock based compensation in the current period.
Expenses incurred during the current three months period consisted primarily of the following expenses:
| 2022 | 2021 |
Increase (Decrease) |
% | |||||||||||||
| Salaries and related Expenses | 167,830 | 133,615 | 34,215 | 25.61 | % | |||||||||||
| Advertising and Marketing | 3,431 | - | 3,431 | 100.00 | % | |||||||||||
| General office Expenses | 41,788 | 48,764 | (6,976 | ) | -14.31 | % | ||||||||||
| Legal and Professional Fees | 289,907 | 49,560 | 240,347 | 484.96 | % | |||||||||||
| Taxes and Licenses | 4,692 | - | 4,962 | 100.00 | % | |||||||||||
| SEC related Expenses | 5,515 | - | 5,515 | 100.00 | % | |||||||||||
| Office Rent | 16,250 | 18,085 | (1,835 | ) | 10.15 | % | ||||||||||
| Software Development Cost | 1,500 | - | 1,500 | 100.00 | % | |||||||||||
| Bad Debts | 41,969 | - | 41,969 | 100 | % | |||||||||||
| Non cash expenses | - | - | % | |||||||||||||
| 572,882 | 250,024 | |||||||||||||||
Other (income) expense
Other (income) expense is comprised primarily of interest and financing costs $1,025 and $180,750 and income related to the change in fair value of our derivative liabilities $1,621,272 and $760,068 for the three months ended July 31, 2022 and 2021, respectively. The decrease results were from the change in the fair value of our derivative liabilities.
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Net income (loss)
Our net income attributable to common stockholders for the three months ended July 31, 2022 $1,105,275 compared to income of $379,802 primarily due to gain valuation of derivative liabilities .
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2022, we had an accumulated deficit of $72,883,335 and an operating loss for the three months of $514,972. We generated a deficit in cash flow from operations of $248,029 for the three months ended July 31, 2022. This deficit results primarily from our net income of $1,105,275, offset by a gain in fair value valuation of derivative liabilities of $1,675,858, stock based compensation of $242,448 and an increase of $83,452 in accounts payables and accrued expenses.
We met our cash requirements during the period through proceeds from the sale of stock $95,000, promissory notes of $60,000 and bank overdraft $63,784.
We do not anticipate incurring significant research and development expenditures, and we do not anticipate the sale or acquisition of any significant property, plant or equipment, during the next twelve months. At July 31, 2022, we had 5 full-time employees, 4 part-time employees, and 3 interns. If we fully implement our business plan, we anticipate our employment base may increase during the next twelve months. As we continue to expand, we will incur additional cost for personnel. This potential increase in personnel is dependent upon our generating increased revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the potential increase in the number of employees. Our employees are not represented by a union.
While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and potential future cash flow deficits from operations.
We continue to seek additional financing, which may be in the form of senior debt, subordinated debt or equity. We currently have no commitments for financing that are not at the investor’s election. There is no guarantee that we will be successful in raising the funds required to support our operations.
We estimate that we will need approximately $1,000,000 in addition to our normal operating cash flow to conduct operations during the next twelve months. However, there can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common or preferred stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. However, if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition, and we will have to adjust our planned operations and development on a more limited scale.
The effect of inflation on our revenue and operating results was not significant. Our operations are located in North America and there are no seasonal aspects that would have a material effect on our financial condition or results of operations.
GOING CONCERN ISSUES
The Company’s historical losses and the lack of revenues raise substantial doubts about the Company’s ability to continue as a going concern. If we are unable to develop our business, we have to discontinue operations or cease to exist, which would be detrimental to the value of the Company’s common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.
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In order to improve the Company’s liquidity, the Company’s management is actively pursuing additional financing through discussions with investment bankers, financial institutions and private investors. There can be no assurance the Company will be successful in its effort to secure additional financing.
We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to develop profitable operations. We are devoting substantially all of our efforts to developing our business and raising capital. Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
The primary issues management will focus on in the immediate future to address this matter include: seeking additional credit facilities from institutional lenders; seeking institutional investors for debt or equity investments in our Company; short term interim debt financing: and private placements of debt and equity securities with accredited investors.
To address these issues, we have engaged a financial advisory firm to advise and assist us in negotiating and raising capital.
INFLATION
The impact of inflation on the costs of the Company, and the ability to pass on cost increases to its customers over time is dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact on the Company’s operations over the past quarter, and the Company does not anticipate that inflationary factors will have a significant impact on future operations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not maintain off-balance sheet arrangements, nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions, we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our financial statements, we believe the following critical accounting policy involves the most complex, difficult and subjective estimates and judgments.
Revenue Recognition
During the first quarter of 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the cumulative-effect method. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption did not have an impact in our consolidated financial statements, other than the enhancement of our disclosures related to our revenue-generating activities.
The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.
Revenues from mobile app products and New World Health Brands products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery. The Company records deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.
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Information Technology:
The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured, and the fees are fixed or determinable. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.
Revenues from mobile app products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery.
New World Health Brands:
Revenues from New World Health Brands products are generally recognized upon delivery.
Stock-Based Compensation
The Company adopted Financial Accounting Standards Board Accounting Standard Codification Topic 718 (“ASC 718-10”), which records compensation expense on a straight-line basis, generally over the explicit service period of three to five years.
ASC 718-10 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. The Company is using the Black-Scholes option-pricing model as its method of valuation for share-based awards. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.
Inventories
The Company’s inventories represent finished goods, consist of products available for sale and are accounted for using the first-in, first-out (FIFO) method and valued at the lower of cost or net realizable value. Inventory consists of finished goods for the Company’s New World Health Brands business.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815-40”).
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
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Derivative Liabilities
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
RECENT ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting pronouncements and their effect on the Company, see “Recent Accounting Pronouncements” in Note A of the Notes to Consolidated Financial Statements contained herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of July 31, 2022. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls, the Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2022 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting. In our assessment of the effectiveness of internal control over financial reporting as of April 30, 2022, we determined that control deficiencies existed that constituted material weaknesses, as described below:
| ● | lack of documented policies and procedures; |
| ● | we have no audit committee; |
| ● | there is a risk of management override given that our officers have a high degree of involvement in our day-to-day operations; |
| ● | there is no effective separation of duties, which includes monitoring controls, between the members of management. |
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Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the year ended April 30, 2022. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. Management is currently evaluating what steps can be taken in order to address these material weaknesses.
Accordingly, we concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.
As a result of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of July 31, 2022 based on criteria established in Internal Control—Integrated Framework issued by COSO.
In light of these significant deficiencies, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended July 31, 2022 included in this quarterly report on Form 10-Q were fairly stated in accordance with U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the three months ended July 31, 2022 are fairly stated, in all material respects, in accordance with U.S. GAAP.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit a smaller reporting company to provide only management’s report in its annual report.
As of July 31, 2022, we have not been named as parties to any further legal proceedings except as those disclosed prior and as updated below. From time to time, of course, we may become involved in further legal proceedings, which sometimes arise due to the very nature of and in the ordinary course of this business.
By way of background, the Company had received notices dated April 1, 2016, May 13, 2016 and July 22, 2016 from two lenders claiming defaults relating to conversion requests of $8,365.00 in principal plus interest, attorney fees and $5,000.00 in principal plus interest also seeking stock conversions aside from the stated principal and interest with regard to notes in the total amounts of $55,125.00 and $27,500.00, respectively, which the Company has declined to process and believes it has valid, meritorious defenses in that regard. The Company believes these claims are contingent, unliquidated and disputes same. While there can be no assurances that the Company would prevail in any potential litigation with regard to claims brought against the Company, these potential liabilities have been recorded in the unaudited condensed consolidated financial statements.
With respect to the above claims, on September 22, 2016, a motion for summary judgment in lieu of complaint was filed in the Supreme Court in the State of New York: County of Kings, against the Company by a lender for the amount of $102,170.82 in principal and stock conversion interest, plus fees and costs. The Plaintiff’s motion for summary judgment in lieu of complaint was denied on May 5, 2017. On August 22, 2018, Plaintiff thereafter brought a second motion seeking summary judgment on the issue of liability which was, again, denied by the Court on March 14, 2019. The most recent appearance in this matter had been scheduled for March 13, 2020, at which time, the Court marked the case “adjourned without a date”, due to the restrictions imposed on the Courts arising from the COVID-19 pandemic. No further Court appearances have been scheduled, to date, in this matter. However, most notably, a favorable decision from the New York State Court of Appeals regarding the very same types of transactions have since been determined to be criminally usurious and, therefore, unenforceable. These were the very same defenses raised on behalf of the Company.
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On October 26, 2018, a second lender commenced an action in the Supreme Court of the State of New York: New York County alleging damages from unpaid principal arising from a promissory note dated February 26, 2015 in the amount of $50,000.00 plus damages including interest and stock conversions, costs and fees. There are cross dispositive motions pending which are scheduled to be heard in September 20, 2022. The Company disputes the enforceability of such claims for the similar reasons, as stated above, based on the Court of Appeals ruling as to the unenforceable nature of such claims demanding usurious interest rates.
We are subject to certain risks and uncertainties in our business operations including those which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not presently known or which are currently deemed immaterial may also impair our business operations. A description of factors that could materially affect our business, financial condition or operating results were included in Item 1A “Risk Factors” of our Form 10-K for the year ended April 30, 2021, and is incorporated herein by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Each of the issuance and sale of securities described below was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving a public offering. No advertising or general solicitation was employed in offering the securities. Each purchaser is a sophisticated investor (as described in Rule 506(b) (2) (ii) of Regulation D) or an accredited investor (as defined in Rule 501 of Regulation D), and each received adequate information about the Company or had access to such information, through employment or other relationships, to such information.
Sales of Preferred Stock, Common Stock and Warrants:
During the three months ended July 31, 2022 the Company:
| ● | Sold to four accredited investors 1,824,771 shares of common stock for cash of $95,000 and a $57,000 conversion of prior equity investments in iMobile Solutions, Inc., actual shares were not issued yet and recorded as common stock to be issued. | |
| ● | Entered into two promissory notes with accredited investors totaling $60,000 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
Not applicable.
The following exhibits are filed with this report:
| Exhibit No. | Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) | |
| 31.2* | Certification of Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) | |
| 32.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
| *Filed herewith | ||
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SPARTA COMMERCIAL SERVICES, INC. | ||
| Date: September 19, 2022 | By: | /s/ Anthony L. Havens |
| Anthony L. Havens, Chief Executive Officer, | ||
| Principal financial and accounting officer | ||
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 4/30/23 | ||||
| 9/20/22 | ||||
| Filed on: | 9/19/22 | |||
| 8/15/22 | 10-K | |||
| For Period end: | 7/31/22 | NT 10-Q | ||
| 7/30/22 | ||||
| 4/30/22 | 10-K, NT 10-K | |||
| 3/3/22 | ||||
| 7/31/21 | 10-Q, NT 10-Q | |||
| 7/30/21 | NT 10-K | |||
| 4/30/21 | 10-K, NT 10-K | |||
| 9/25/20 | ||||
| 3/13/20 | ||||
| 12/21/19 | ||||
| 5/1/19 | ||||
| 3/14/19 | ||||
| 12/20/18 | ||||
| 10/26/18 | ||||
| 8/22/18 | ||||
| 7/31/18 | 10-Q | |||
| 5/5/17 | ||||
| 9/22/16 | ||||
| 7/22/16 | ||||
| 5/13/16 | ||||
| 4/1/16 | ||||
| 2/26/15 | ||||
| List all Filings | ||||