NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
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.
Business
Sparta
Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada
corporation serving three markets. Sparta is a technology company that develops, markets and manages business mobile application
(mobile apps) for smartphones and tablets. The Company also owns and manages websites which sell on-demand motorcycle, recreational
vehicle, power-sport vehicle and truck title history reports for consumers, retail dealers, auction houses, insurance companies
and banks/finance companies. Notwithstanding our discontinuance of consumer financing, we continue to offer, on a pass through
basis, an equipment-leasing product for local and state agencies throughout the country seeking an alternative and economical
way to finance their essential equipment needs, including police motorcycles and cruisers, buses and EMS equipment. The Company
also introduced a new business line in the rapidly expanding Hemp-CBD (cannabidiol) market.
Our
roots are in the Powersports industry and our original focus was providing consumer and municipal financing to the powersports,
recreational vehicle, and automobile industries (see Discontinued Operations). Presently, through our subsidiary, iMobile Solutions,
Inc. (“IMS”), we offer mobile application development, sales, marketing and support, and Vehicle Title History Reports.
Our
mobile application (mobile app) offerings have broadened our base beyond vehicle dealers to a wide range of businesses including,
but not limited to, racetracks, private clubs, country clubs, restaurants and grocery stores. We also offer a private label version
of our mobile app framework to enable other businesses to offer custom apps to their customers.
The
Company also designs, launches, maintains, and hosts websites for businesses. We provide specific, tailored action plans for our
clients’ websites that include services such as eCommerce, CRM (Customer Relationship Management) development and integration,
ordering system creation and integration, SEO (search engine optimization), social media marketing, and online reviews to improve
their presence online. In addition, we offer text messaging services which are vital for businesses’ marketing, retention
and loyalty strategies. Our text messaging platform allows our clients to easily manage, schedule, and analyze text message performance.
Our
vehicle history reports include Cyclechex (Motorcycle History Reports at www.cyclechex.com); RVchecks (Recreational Vehicle
History Reports at www.rvchecks.com); CarVINreport (Automobile at www.carvinreport.com) and Truckchex (Heavy Duty
Truck History Reports at www.truckchex.com). Our Vehicle History Reports are designed for consumers, retail dealers, auction
houses, insurance companies and banks/finance companies.
New
World Health Brands, Inc. (NWHB) was formed in April 2019 as a subsidiary and new business line of Sparta Commercial Services,
Inc. While anticipating, and with the passing of the 2018 Farm Bill, which resulted in the removal of hemp (CBD) from Schedule
1 of the Controlled Substances Act. Sparta’s management recognized a substantial potential business opportunity in the rapidly
expanding Hemp-CBD (Cannabinol) market in the United States. During 2018-2019, management sourced, developed and tested 5 CBD
product categories totaling 31 products, procured product packaging, labeling, implemented fulfillment and launched an on-line
B to C website, www.newworldhealthcbd.com.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements as of October 31, 2019 and for the three and six month periods
ended October 31, 2019 and 2018 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, 2019 as disclosed in the Company’s Form 10-K for
that year as filed with the Securities and Exchange Commission. The results of operations for the six months ended October 31,
2019 are not necessarily indicative of the results to be expected for any other interim period or the full year ending April 30,
2019.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
The
condensed consolidated balance sheet as of April 30, 2019 contained herein has been derived from the audited consolidated financial
statements as of April 30, 2019, but do not include all disclosures required by the U.S. GAAP.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its majority owned subsidiary. 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.
Estimates
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. Included in these
estimates are assumptions about collection of accounts receivable, useful life of property and equipment, beneficial conversion
feature of convertible notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilities
Discontinued
Operations
As
discussed in Note C, in the second quarter of fiscal 2013 the Company’s Board of Directors approved management’s recommendation
to discontinue the Company’s consumer lease and loan lines of business and the sale of the Company’s entire portfolio
of performing RISCs, and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities
have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented.
The operating results related to these lines of business have been included in discontinued operations in the Company’s
consolidated statements of operations for all periods presented.
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 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.
Cash
Equivalents
For
the purpose of the accompanying unaudited condensed consolidated financial statements, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
Fair
Value Measurements
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.
|
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
·
|
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.
Income
Taxes
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.
Stock
Based Compensation
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.
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 business.
Concentrations
of Credit Risk
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.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
Net
Loss Per Share
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.
At
October 31, 2019 and 2018, approximately 4.280 billion potential shares (including 81,786,511 shares to be issued on the balance
sheet) and 1.728 billion potential shares (including 78,786,511 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.
Derivative
Liabilities
The
Company assessed the classification of its derivative financial instruments as of October 31, 2019 and April 30, 2019, 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.
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”.
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.
Reclassifications
Certain
reclassifications have been made to conform to prior periods’ data to the current presentation. These reclassifications
had no effect on reported losses.
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 will not restate comparative periods. Adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
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 unaudited condensed consolidated financial statements.
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 October 31, 2019, the Company had an accumulated deficit of $62,790,069 and
a working capital deficit (total current liabilities exceeded total current assets) of $12,010,426. 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 reasonable period of time.
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.
NOTE
C – DISCONTINUED OPERATIONS
In
the second quarter of fiscal 2013, the Company’s Board of Directors approved management’s recommendation to discontinue
the Company’s consumer lease and loan lines of business and the sale of all of the Company’s portfolio of performing
RISCs and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been
accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented.
The
operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated
statements of operations for all periods presented. The following table presents summarized operating results for the discontinued
operations.
|
|
Three Months Ended October 31,
|
|
|
Six Months Ended October 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
463
|
|
|
$
|
-
|
|
|
$
|
463
|
|
Net gain (loss)
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
LIABILITIES
INCLUDED IN DISCONTINUED OPERATIONS
Included
in liabilities from discontinued operations are the following:
SECURED
NOTE PAYABLE
|
|
October 31,
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2019
|
|
Secured, subordinated individual lender
|
|
$
|
12,080
|
|
|
$
|
12,080
|
|
Total
|
|
$
|
12,080
|
|
|
$
|
12,080
|
|
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
At
October 31, 2019 and April 30, 2019, the note has a maturity due within one year. We make payments on the note as we collect on
the underlying leases and loans.
NOTE
D – NOTES PAYABLE AND DERIVATIVES
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
|
|
October 31,
2019
|
|
|
April 30,
2019
|
|
Notes convertible at holder’s option
|
|
$
|
1,901,866
|
|
|
$
|
1,901,866
|
|
Notes convertible at Company’s option
|
|
|
75,700
|
|
|
|
75,700
|
|
Non-convertible notes payable
|
|
|
2,161,736
|
|
|
|
2,137,236
|
|
Subtotal
|
|
|
4,139,302
|
|
|
|
4,114,802
|
|
Less debt discount
|
|
|
(833
|
)
|
|
|
(8,633
|
)
|
Total
|
|
$
|
4,138,469
|
|
|
$
|
4,106,169
|
|
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 30% - 48% to market value.
At October 31, 2019, the Company has reserved 238,630,500 shares of its common stock for issuance upon the conversion of debentures.
Amortization
of debt discount for the three month periods ended October 31, 2019 and 2018 was $975 and $22,552, respectively.
Amortization
of debt discount for the six month periods ended October 31, 2019 and 2018 was $7,800 and $50,685, respectively.
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.
The
change in fair value of the derivative liabilities at October 31, 2019 was calculated with the following average assumptions,
using a Black-Scholes option pricing model are as follows:
Significant Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
Ranging from
|
|
|
1.52 % to 1.53
|
%
|
Expected stock price volatility
|
|
Ranging from
|
|
|
130% to 221
|
%
|
Expected dividend payout
|
|
|
|
|
0
|
%
|
Expected life in years
|
|
Ranging from
|
|
|
0.07 year to 2.0
|
Years
|
The
change in fair value of the derivative liabilities at October 31, 2018 was calculated with the following average assumptions,
using a Black-Scholes option-pricing model are as follows:
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
Significant Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
Ranging from
|
|
|
2.20% to 2.86
|
%
|
Expected stock price volatility
|
|
|
|
|
71% to 103
|
%
|
Expected dividend payout
|
|
|
|
|
0
|
%
|
Expected life in years
|
|
Ranging from
|
|
|
0.07 years to 1.5
|
years
|
During
the three months ended October 31, 2019 and 2018, the Company recorded an income from continuing operations of $877,688 and a
loss of $1,534,954, respectively. The $2,412,642 (157.2%) change is related to the change in value of the derivative liabilities.
During the six months ended October 31, 2019 and 2018, the Company recorded a loss from continuing operations of $867,061 and
$1,089,524, respectively, related to the change in value of the derivative liabilities.
Changes
in derivative liability during the six months ended October 31, 2019 and 2018 were:
|
|
October 31,
|
|
|
|
2019
|
|
|
2018
|
|
Balance, beginning of year
|
|
$
|
3,496,696
|
|
|
$
|
2,681,102
|
|
Derivative liability extinguished
|
|
|
-
|
|
|
|
(58,650
|
)
|
Derivative financial liability arising on the issuance of convertible notes and warrants
|
|
|
435,229
|
|
|
|
980,531
|
|
Fair value adjustments
|
|
|
(82,588
|
)
|
|
|
(715,050
|
)
|
Balance, end of period
|
|
$
|
4,014,508
|
|
|
$
|
3,709,497
|
|
NOTE
E – LOANS PAYABLE TO RELATED PARTIES
As
of October 31, 2019 and April 30, 2019, aggregated loans and notes payable, without demand and with no interest, to officers and
directors were $432,403 and $432,403, respectively.
NOTE
F – EQUITY TRANSACTIONS
The
Company is authorized to issue 10,000,000 shares of preferred stock with $0.001 par value per share, of which 35,850 shares have
been designated as Series A convertible preferred stock with a $100 stated value per share, 1,000 shares have been designated
as Series B Preferred Stock with a $10,000 per share liquidation value, 200,000 shares have been designated as Series C Preferred
Stock with a $10 per share liquidation value, and 2,000,000 shares have been designated as Series D Preferred Stock with a $1.00
per share liquidating value The Company is authorized to issue 750,000,000 shares of common stock with $0.001 par value per share.
The Company had 125 shares of Series A preferred stock issued and outstanding as of October 31, 2019 and April 30, 2019. The Company
had no shares of Series B preferred stock issued and outstanding as of October 31, 2019 and April 30, 2019. The Company had 3,650
and 2,960 shares of Series C preferred stock issued and outstanding as of October 31, 2019 and April 30, 2019. The Company had
720 and 580 shares of Series D preferred stock issued and outstanding as of October 31, 2019 and April 30, 2019, respectively.
The Company had 627,092,904 shares of common stock issued and outstanding as of October 31, 2019 and April 30, 2019, respectively.
Preferred
Stock
During
the six months ended October 31, 2019, the Company:
|
●
|
sold
598 Units C Convertible Preferred stock for $299,000. Each Unit consists of 1 share of
Series C Preferred stock (convertible at any time into 300 shares of the Company’s
common stock) and 150 two year Warrants to purchase one share of the Company’s
common stock at $0.005 per share,
|
|
●
|
issued
92 Units of the Company’s Series C Convertible Preferred stock upon conversion
of $45,829 of notes payable and accrued interest thereon. Each Unit consists of 1 share
of Series C Preferred stock (convertible at any time into 300 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.005 per share,
|
|
●
|
issued
140 Units of the Company’s Series D Convertible Preferred stock in exchange for
$140,000 worth of the Company’s subsidiary’s preferred stock. Each Unit consists
of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the
Company’s common stock (subject to certain percentage ownership provisions) and
150 two year Warrants to purchase one share of the Company’s common stock at $0.01
per share.
|
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
Common
Stock
During
the six months ended October 31, 2019, the Company:
Accrued
as to be issued 1,000,000 shares of the Company’s common stock valued at $100,000 upon the forgiveness of accounts payable.
During
the six months ended October 31, 2018, the Company:
|
●
|
issued
40 Units of the Company’s Series D Convertible Preferred stock in settlement of
$40,000 of accounts payable. Each Unit consists of 1 share of Series D Convertible Preferred
stock (convertible at any time into 400 shares of the Company’s common stock (subject
to certain percentage ownership provisions) and 150 two year Warrants to purchase one
share of the Company’s common stock at $0.01 per share,
|
|
●
|
issued
220 Units of the Company’s Series C Convertible Preferred stock upon conversion
of $143,144 of notes payable and accrued interest thereon. Each Unit consists of 1 share
of Series C Preferred stock (convertible at any time into 300 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.005 per share,
|
|
●
|
issued
30 Units of the Company’s Series D Convertible Preferred stock in payment of $15,000
of the Company’s subsidiary’s promissory notes. Each Unit consists of 1 share
of Series D Preferred stock (convertible at any time into 400 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.01 per share,
|
|
●
|
Issued
142.83 Units of the Company’s Series D Convertible Preferred stock upon conversion
of $142,825 of notes payable and accrued interest thereon. Each Unit consists of 1 share
of Series D Preferred stock (convertible at any time into 400 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.01 per share.
|
Common
Stock
During
the six months ended October 31, 2018, the Company:
|
●
|
pursuant
to terms of agreements, issued 6,230,217 shares of restricted common stock, valued at
$30,000,
|
|
●
|
pursuant
to terms of agreements, accrued as to be issued 3,000,000 shares of restricted common
stock, valued at $12,000.
|
NOTE
G – 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.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
The
table below summarizes the fair values of financial liabilities as of October 31, 2019:
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
Fair
Value at
October 31, 2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
4,014,508
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4,014,508
|
|
Fair
values of financial liabilities as of April 30, 2019 are as follows:
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
Fair
Value at
April 30, 2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
3,496,696
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,496,696
|
|
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”.
NOTE
H – NON-CASH INVESTING AND FINANCING INFORMATION
During
the six months ended October 31, 2019, the Company:
|
●
|
issued
92 Units of the Company’s Series C Convertible Preferred stock upon conversion
of $45,829 of notes payable and accrued interest thereon. Each Unit consists of 1 share
of Series C Preferred stock (convertible at any time into 300 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.005 per share,
|
|
●
|
issued
140 Units of the Company’s Series D Convertible Preferred stock in exchange for
$140,000 worth of the Company’s subsidiary’s preferred stock. Each Unit consists
of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the
Company’s common stock (subject to certain percentage ownership provisions) and
150 two year Warrants to purchase one share of the Company’s common stock at $0.01
per share,
|
|
●
|
accrued
as to be issued 1,000,000 shares of the Company’s common stock valued at $100,000
upon the forgiveness of accounts payable.
|
During
the six months ended October 31, 2018, the Company:
|
●
|
pursuant
to terms of agreements, issued 6,230,217 shares of restricted common stock, valued at
$30,000,
|
|
●
|
pursuant
to terms of agreements, accrued as to be issued 3,000,000 shares of restricted common
stock, valued at $12,000,
|
|
●
|
issued
40 Units of the Company’s Series D Convertible Preferred stock in settlement of
$39,960 of accounts payable. Each Unit consists of 1 share of Series D Preferred stock
(convertible at any time into 400 shares of the Company’s common stock (subject
to certain percentage ownership provisions) and 150 two year Warrants to purchase one
share of the Company’s common stock at $0.01 per share,
|
|
●
|
issued
220 Units of the Company’s Series D Convertible Preferred stock upon conversion
of $143 ,144 of notes payable and accrued interest thereon. Each Unit consists of 1 share
of Series D Preferred stock (convertible at any time into 400 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.01 per share,
|
|
●
|
issued
30 Units of the Company’s Series D Convertible Preferred stock in payment of $15,000
of the Company’s subsidiary’s promissory notes. Each Unit consists of 1 share
of Series D Preferred stock (convertible at any time into 400 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.01 per share,
|
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
(Unaudited)
|
●
|
issued
142.83 Units of the Company’s Series D Convertible Preferred stock upon conversion
of $142,825 of notes payable and accrued interest thereon. Each Unit consists of 1 share
of Series D Preferred stock (convertible at any time into 400 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants
to purchase one share of the Company’s common stock at $0.01 per share.
|
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 July 31, 2018, and continues on a month-to-month basis thereafter. The monthly base rent is $4,800.
Rent
expense was $13,650 and $9,000 for the three month periods ended October 31, 2019 and 2018, respectively. Rent expense was $27,200
and $22,250 for the six month periods ended October 31, 2019 and 2018, 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 October 31, 2019, we were not a party to any material pending legal proceeding except as stated below. From time to time, we
may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
The
Company has 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 principal and $643 interest and $5,000 principal, with regard to notes in the total amounts of $55,125
and $27,500, respectively, which the Company has refused to process and believes it has defenses in that regard. The company believes
these claims are contingent, unliquidated and disputed. There can be no assurance that the Company would prevail should litigation
with regard to any of these requests occur. These liabilities have been recorded in the unaudited condensed consolidated financial
statements.
On
September 22, 2016, a motion for summary judgment in lieu of complaint was filed in the Supreme Court of The State of New York
County of Kings, against the Company by a lender for the amount of $102,170.82 in principal and interest; accrued and unpaid interest
thereupon in the amount from the date of filing to entry of judgment herein; lender’s reasonable attorney’s fees,
costs, and expenses; and any such other relief as the Court deems just and proper. Plaintiff’s motion for summary judgment
in lieu of complaint was denied on May 5, 2017. On August 22, 2018, Plaintiff brought a second motion seeking summary judgment
on the issue of liability which was denied on March 14, 2019. The Court found that there existed issues of fact warranting a trial.
The Company believes the claim is contingent, unliquidated and disputed. There is no assurance that the Company will prevail in
this litigation. These liabilities have been recorded in the unaudited condensed consolidated financial statements.
On
October 26, 2018, a lender commenced an action in the Supreme Court of the State of New York in New York County alleging damages
from unpaid principal and interest, attorney’s fees, costs, and expenses arising from a promissory note dated February 26,
2015 in the amount of $50,000.00. The case is presently in the discovery phase of the litigation. The Company believes the claim
is contingent, unliquidated and disputed.
NOTE
J – SUBSEQUENT EVENTS
Subsequent
to October 31, 2019 the Company:
Sold 250 Units of Series C Convertible
Preferred stock for $125,000. Each Unit consists of 1 share of Series C Preferred stock convertible at any time into 300 shares
of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase
one share of the Company’s common stock at $0.005 per share.
Issued
50 Units of the Company’s Series D Convertible common stock in exchange for $50,000 of the Company’s
subsidiary’s Convertible Preferred stock. Each Unit consists of 1 share of Series D Preferred stock, convertible at any
time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year
Warrants to purchase one share of the Company’s common stock at $0.01 per share.
Subsequent to January 31, 2020 the Company:
Sold 105 Units of Series C Convertible
Preferred stock for $52,500. Each Unit consists of 1 share of Series C Preferred stock convertible at any time into 300 shares
of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase
one share of the Company’s common stock at $0.005 per share.
Issued 145 Units of the Company’s
Series D Convertible Preferred stock in exchange for $145,000 of the Company’s subsidiary’s Convertible Preferred
stock. Each Unit consists of 1 share of Series D Preferred stock convertible at any time into 400 shares of the Company’s
common stock (subject to certain percentage ownership provisions) and 150 two year Warrants to purchase one share of the Company’s
common stock at $0.01 per share.
Issued 222.22 Units of the Company’s Series D Convertible
Preferred stock upon conversion of $222,250 of accounts payable. Each Unit consists of 1 share of Series D Preferred stock convertible
at any time into 400 shares of the Company’s common stock (subject to certain percentage ownership provisions) and 150 two
year Warrants to purchase one share of the Company’s common stock at $0.01 per share.