UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended October 31, 2019
|
[ ] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT |
For
the transition period from ________ to ___________.
Commission
file number: 0-9483
SPARTA COMMERCIAL SERVICES, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada |
|
30-0298178 |
|
(State
or other jurisdiction of
incorporation or
organization)
|
|
(IRS
Employer
Identification
No.)
|
555 Fifth Avenue, 14th Floor, New York, NY
10017
(Address
of principal executive offices) (Zip Code)
(212) 239-2666
(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 |
|
Common
stock, $.001 par value |
|
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. [X] 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). [X] Yes [ ]
No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
|
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
| Non-accelerated
filer [ ] |
Smaller
reporting company [X] |
| (Do
not check if a smaller reporting company) |
Emerging
growth company [ ] |
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 [X]
No
As of
July 8, 2020, we had 627,092,904 shares of common stock issued and
outstanding.
SPARTA
COMMERCIAL SERVICES, INC.
FORM
10-Q
FOR
THE QUARTER ENDED October 31, 2019
TABLE
OF CONTENTS
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
SPARTA COMMERCIAL SERVICES,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
|
October 31, 2019 |
|
|
April 30, 2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| ASSETS |
|
|
|
|
|
|
| Current
Assets |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
476 |
|
|
$ |
13 |
|
| Accounts
receivable |
|
|
9,501 |
|
|
|
3,048 |
|
| Inventory |
|
|
44,433 |
|
|
|
9,761 |
|
| Other
current assets |
|
|
11,805 |
|
|
|
1,827 |
|
| Total
Current Assets |
|
|
66,215 |
|
|
|
14,649 |
|
| Property and
equipment, net of accumulated depreciation and amortization of
$213,262 and $212,905, respectively |
|
|
- |
|
|
|
357 |
|
| Other assets |
|
|
9,628 |
|
|
|
9,628 |
|
| Deposits |
|
|
9,000 |
|
|
|
9,000 |
|
| |
|
|
|
|
|
|
|
|
| Total
assets |
|
$ |
84,843 |
|
|
$ |
33,634 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Liabilities: |
|
|
|
|
|
|
|
|
| Current
Liabilities |
|
|
|
|
|
|
|
|
| Bank
overdraft |
|
$ |
- |
|
|
$ |
11,496 |
|
| Accounts payable
and accrued expenses |
|
|
3,908,283 |
|
|
|
3,971,179 |
|
| Current portion
notes payable net of discount of $833 and $8,633, respectively |
|
|
4,138,469 |
|
|
|
4,106,169 |
|
| Deferred
revenue |
|
|
15,572 |
|
|
|
17,635 |
|
|
Derivative liabilities |
|
|
4,014,508 |
|
|
|
3,496,696 |
|
| Total
Current Liabilities |
|
|
12,076,832 |
|
|
|
11,603,175 |
|
| Loans
payable-related parties |
|
|
432,403 |
|
|
|
432,403 |
|
| Total
Long Term Liabilities |
|
|
432,403 |
|
|
|
432,403 |
|
| Total liabilities
from continuing operations |
|
|
12,509,235 |
|
|
|
12,035,578 |
|
|
LIABILITIES FROM DISCONTINUED OPERATIONS |
|
|
12,080 |
|
|
|
12,080 |
|
| Total
liabilities |
|
$ |
12,521,315 |
|
|
$ |
12,047,658 |
|
| |
|
|
|
|
|
|
|
|
| Deficit: |
|
|
|
|
|
|
|
|
| Preferred stock,
$0.001 par value; 10,000,000 shares authorized of which 35,850
shares have been designated as Series A convertible preferred
stock, with a stated value of $100 per share, 125 and 125 shares
issued and outstanding, respectively |
|
|
12,500 |
|
|
|
12,500 |
|
| Preferred stock B,
1,000 shares have been designated as Series B redeemable preferred
stock, $0.001 par value, with a liquidation and redemption value of
$10,000 per share, 0 and 0 shares issued and outstanding,
respectively |
|
|
- |
|
|
|
- |
|
| Preferred stock C,
200,000 shares have been designated as Series C redeemable,
convertible preferred, $0.001 par value, with a liquidation and
redemption value of $10 per share, 3,650 and 2,960 shares issued
and outstanding, respectively |
|
|
3,650 |
|
|
|
2,960 |
|
| Preferred stock D,
2,000,000 shares have been designated as Series D redeemable,
convertible preferred, $0.001 par value, with a liquidation and
redemption value of $1.00 per share, 750 and 580 shares issued and
outstanding, respectively |
|
|
720 |
|
|
|
580 |
|
| Common stock,
$0.001 par value; 750,000,000 shares authorized, 627,092,904 and
627,092,904 shares issued and outstanding, respectively |
|
|
627,093 |
|
|
|
627,093 |
|
| Common stock to be
issued 81,786,511 and 80,786,511, respectively |
|
|
81,787 |
|
|
|
80,787 |
|
| Additional
paid-in-capital |
|
|
48,658,994 |
|
|
|
48,215,855 |
|
|
Accumulated deficit |
|
|
(62,790,260 |
) |
|
|
(61,915,119 |
) |
| Total
deficiency in stockholders’ equity |
|
|
(13,405,516 |
) |
|
|
(12,975,344 |
) |
|
Non-controlling interest |
|
|
969,044 |
|
|
|
961,320 |
|
| Total
Deficit |
|
|
(12,436,472 |
) |
|
|
(12,014,024 |
) |
| Total
Liabilities and Deficit |
|
$ |
84,843 |
|
|
$ |
33,634 |
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
SPARTA COMMERCIAL SERVICES,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2019
(Unaudited)
| |
|
Three
Months Ended |
|
|
Six
Months Ended |
|
| |
|
October 31, |
|
|
October 31, |
|
| |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
| Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Information
technology |
|
$ |
77,674 |
|
|
$ |
106,325 |
|
|
$ |
150,641 |
|
|
$ |
209,992 |
|
| New World
Health Brands |
|
|
17,114 |
|
|
|
- |
|
|
|
29,376 |
|
|
|
- |
|
| Total Revenue |
|
|
94,788 |
|
|
|
106,325 |
|
|
|
180,017 |
|
|
|
209,992 |
|
| Less Cost of
goods sold |
|
|
16,884 |
|
|
|
5,938 |
|
|
|
31,671 |
|
|
|
17,699 |
|
| Gross profit |
|
|
77,904 |
|
|
|
100,387 |
|
|
|
148,346 |
|
|
|
192,293 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General and
administrative |
|
|
279,006 |
|
|
|
304,915 |
|
|
|
503,715 |
|
|
|
619,281 |
|
|
Depreciation and amortization |
|
|
- |
|
|
|
619 |
|
|
|
357 |
|
|
|
1,237 |
|
| Total
operating expenses |
|
|
279,006 |
|
|
|
305,534 |
|
|
|
504,072 |
|
|
|
620,518 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss
from operations |
|
|
(201,102 |
) |
|
|
(205,147 |
) |
|
|
(355,726 |
) |
|
|
(428,225 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other (income)
expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income |
|
|
(1,093 |
) |
|
|
(5,767 |
) |
|
|
(2,293 |
) |
|
|
(7,617 |
) |
| Forgiveness of debt |
|
|
- |
|
|
|
- |
|
|
|
(311,127 |
) |
|
|
- |
|
| Financing
cost |
|
|
311,626 |
|
|
|
829,366 |
|
|
|
524,258 |
|
|
|
1,333,281 |
|
| Amortization of
debt discount |
|
|
975 |
|
|
|
22,552 |
|
|
|
7,800 |
|
|
|
50,685 |
|
| Loss
(gain) in changes in fair value of derivative liability |
|
|
(1,390,298 |
) |
|
|
483,656 |
|
|
|
292,697 |
|
|
|
(715,050 |
) |
| Total other
(income) expense |
|
|
(1,078,790 |
) |
|
|
1,329,807 |
|
|
|
511,335 |
|
|
|
661,299 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from
continuing operations |
|
$ |
877,688 |
|
|
$ |
(1,534,954 |
) |
|
$ |
(867,061 |
) |
|
$ |
(1,089,524 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from
discontinued operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income
(loss) |
|
|
877,688 |
|
|
|
(1,534,954 |
) |
|
|
(867,061 |
) |
|
|
(1,089,524 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income attributed to
non-controlling interest |
|
|
(4,481 |
) |
|
|
(6,199 |
) |
|
|
(7,864 |
) |
|
|
(11,841 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred
dividend |
|
|
(191 |
) |
|
|
(191 |
) |
|
|
(382 |
) |
|
|
(382 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) attributed to common stockholders |
|
$ |
873,016 |
|
|
$ |
(1,541,344 |
) |
|
$ |
(875,307 |
) |
|
$ |
(1,101,747 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from continuing operations
attributable to Sparta Commercial Services, Inc. common
stockholders |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
| Loss from
discontinued operations attributable to Sparta Commercial Services,
Inc. common stockholders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Net loss
attributable to Sparta Commercial Services, Inc. common
stockholders |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding |
|
|
627,092,904 |
|
|
|
627,092,904 |
|
|
|
627,092,904 |
|
|
|
625,349,006 |
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
SPARTA COMMERCIAL SERVICES,
INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT
FOR
THE SIX MONTHS ENDED OCTOBER 31, 2019
(Unaudited)
| |
|
Series A |
|
|
Series B |
|
|
Series C |
|
|
Series D |
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
Non- |
|
|
|
|
| |
|
Preferred
Stock |
|
|
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 |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interest |
|
|
Total |
|
| Balance April 30,
2019 |
|
|
125 |
|
|
$ |
12,500 |
|
|
|
- |
|
|
$ |
- |
|
|
|
2,960 |
|
|
$ |
2,960 |
|
|
|
580 |
|
|
$ |
580 |
|
|
|
627,092,904 |
|
|
$ |
627,093 |
|
|
|
80,826,511 |
|
|
$ |
80,787 |
|
|
$ |
48,215,855 |
|
|
|
(61,915,119 |
) |
|
$ |
961,320 |
|
|
|
(12,014,024 |
) |
| Sale of preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,794 |
|
|
|
|
|
|
|
|
|
|
|
103,000 |
|
| Shares issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
| Shares issued for financing cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
| Shares issued for conversion of notes
and interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,737 |
|
|
|
|
|
|
|
|
|
|
|
45,829 |
|
| Shares issued for settlement of
accounts payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
99,000 |
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
| Shares issued for conversion of
subsidiary preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125 |
) |
|
|
- |
|
| Preferred dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,747,966 |
) |
|
|
3,383 |
|
|
|
(1,744,583 |
) |
| Balance July 31, 2019 |
|
|
125 |
|
|
$ |
12,500 |
|
|
|
- |
|
|
$ |
- |
|
|
|
3,258 |
|
|
$ |
3,258 |
|
|
|
705 |
|
|
$ |
705 |
|
|
|
627,092,904 |
|
|
$ |
627,093 |
|
|
|
81,826,511 |
|
|
$ |
81,787 |
|
|
$ |
48,463,386 |
|
|
|
(63,663,085 |
) |
|
$ |
964,578 |
|
|
|
(13,509,778 |
) |
| Sale of preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
392 |
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,608 |
|
|
|
|
|
|
|
|
|
|
|
196,000 |
|
| Shares issued for conversion of
subsidiary preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
- |
|
| Preferred dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191
|
) |
|
|
|
|
|
|
(191 |
) |
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873,016 |
|
|
|
4,481 |
|
|
|
877,497 |
|
| Balance
October 31, 2019 |
|
|
125 |
|
|
$ |
12,500 |
|
|
|
- |
|
|
$ |
- |
|
|
|
3,650 |
|
|
$ |
3,650 |
|
|
|
720 |
|
|
$ |
720 |
|
|
|
627,092,904 |
|
|
$ |
627,093 |
|
|
|
81,826,511 |
|
|
$ |
81,787 |
|
|
$ |
48,658,994 |
|
|
$ |
(62,790,260 |
) |
|
$ |
969,044 |
|
|
$ |
(12,436,472 |
) |
See
accompanying notes to unaudited condensed consolidated financial
statements.
SPARTA COMMERCIAL
SERVICES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED OCTOBER 31, 2019
(Unaudited)
| |
|
Six
Months Ended
|
| |
|
October
31,
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(867,061 |
) |
|
$ |
(1,089,524 |
) |
|
Adjustments
to reconcile net loss to net cash used in |
|
|
|
|
|
|
|
|
|
operating
activities: |
|
|
|
|
|
|
|
|
| Depreciation
and amortization |
|
|
357 |
|
|
|
1,237 |
|
| Gain
from change in fair value of derivative liabilities |
|
|
292,697 |
|
|
|
(715,050 |
) |
| Amortization
of debt discount |
|
|
7,800 |
|
|
|
50,685 |
|
| Non-cash
financing cost |
|
|
225,115 |
|
|
|
1,027,564 |
|
| Forgiveness
of debt |
|
|
(311,127 |
) |
|
|
- |
|
|
Changes
in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(6,453 |
) |
|
|
(1,845 |
) |
| Inventory |
|
|
(34,672 |
) |
|
|
- |
|
| Other
assets |
|
|
(9,978 |
) |
|
|
|
|
| Accounts
payable and accrued expenses |
|
|
373,844 |
|
|
|
330,332 |
|
|
Deferred
revenue |
|
|
(2,063 |
) |
|
|
(1,424 |
) |
|
Net
cash used in operating activities |
|
|
(331,541 |
) |
|
|
(398,025 |
) |
| CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Purchase
of equipment |
|
|
- |
|
|
|
- |
|
|
Net
cash (used in) investing activities |
|
|
- |
|
|
|
- |
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
| Bank
overdraft |
|
|
(11,496 |
) |
|
|
(6 |
) |
| Proceeds
from sale of stock |
|
|
299,000 |
|
|
|
376,000 |
|
| Proceeds
from notes payable |
|
|
50,000 |
|
|
|
20,800 |
|
| Payments
on notes payable |
|
|
(5,500 |
) |
|
|
(6,450 |
) |
| Proceeds
from related party notes |
|
|
- |
|
|
|
12,000 |
|
|
Payments
on related party notes |
|
|
- |
|
|
|
(3,952 |
) |
| Net
cash provided by financing activities |
|
|
332,004 |
|
|
|
398,392 |
|
| |
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations: |
|
|
|
|
|
|
|
|
| Cash
used in operating activities of discontinued operations |
|
|
- |
|
|
|
- |
|
| Net
cash flow from discontinued operation |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net
(decrease) increase in cash |
|
$ |
463 |
|
|
$ |
367 |
|
| |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period |
|
|
13 |
|
|
|
998 |
|
|
Cash
and cash equivalents , end of period |
|
$ |
476 |
|
|
$ |
1,365 |
|
| |
|
|
|
|
|
|
|
|
| Cash
paid for: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
- |
|
|
$ |
97 |
|
|
Income
taxes |
|
$ |
- |
|
|
$ |
- |
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
SPARTA
COMMERCIAL SERVICES, INC.
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.
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, 2019 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, 2016. 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 serving three markets. Sparta is a
technology company that develops, markets and manages business
mobile applications (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. Lastly,
since 2007, Sparta has administered leasing programs for local
and/or state agencies seeking to finance municipal vehicles and
essential equipment. The Company also introduced a new business
line in the rapidly expanding Hemp-CBD (cannabidiol)
market.
In
2019, the Company changed the name of its majority-owned subsidiary
Specialty Reports, Inc., to iMobile Solutions, Inc. The new name
reflects the Company’s strategic evolution and focus on the
fast-growing mobile application market.
Sparta’s
mobile application (mobile app) offerings have broadened our base
beyond our original base of vehicle dealers to include 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
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.
The
Company’s vehicle history reports include Cyclechex (Motorcycle
History Reports at www.cyclechex.com); RVchex (Recreational
Vehicle History Reports at www.rvchecks.com); CarVINreport
(Automobile Reports 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.
Sparta also administers a Municipal Leasing Program for local
and/or state agencies throughout the country who are seeking a
better and more economical way to finance their essential equipment
needs, including police motorcycles, cruisers, buses, and EMS
equipment. We are continuing to expand our roster of equipment
manufacturers and the types of equipment we lease.
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.
RESULTS
OF OPERATIONS
Comparison
of the Three Months Ended October 31, 2019 to the Three Months
Ended October 31, 2018
For
the three months ended October 31, 2019 and 2018, we have generated
limited sales revenues, have incurred significant expenses, and
have sustained significant losses.
Revenues
Revenues
totaled $94,788 during the three months ended October 31, 2019 as
compared to $106,325 during the three months ended October 31,
2018, an $11,537 or 10.8% decrease. Revenues from continuing
operations in both periods were from the sale of Information
technology products. NWHB products were not offered in the prior
year. Information technology product revenues declined $28,651 or
26.9% while NWHB revenues were $17,144 for the current period.
Other income in the 2019 and 2018 three month periods was comprised
primarily of municipal lease fee income.
Cost of Revenue
Cost
of revenue consists of costs and fees incurred to third parties to
construct and maintain mobile apps, as well as fees for
subscription services related to vehicle history reports and costs
of NWHB products inventoried for resale. Cost of revenue was
$16,884 during the three months ended October 31, 2019 as compared
to $5,938 during the three months ended October 31, 2018. This
$10,946 or 184.3% increase was due to a decrease in third party
costs incurred for Information technology products and the cost of
NWHB inventory.
Operating Expenses
General
and administrative expenses were $279,006 during the three months
ended October 31, 2019, compared to $304,915 during the three
months ended October 31, 2019, a decrease of $25,909 or 8.5%,
primarily due to overall reductions in expense due to management’s
efforts to reduce overhead. Expenses incurred during the current
three month period consisted primarily of the following expenses:
Compensation and related costs, $146,512; Accounting, audit and
professional fees, $6,947; Consulting fees, $32,899; and Rent,
utilities and telecommunication expenses $19,924. Expenses incurred
during the comparative three month period in 2018 consisted
primarily of the following expenses: Compensation and related
costs, $162,680; Accounting, audit and professional fees, $34,040;
Consulting fees, $39,118; Rent, utilities and telecommunication
expenses $24,852.
Other (income) expense
Other
(income) expense is comprised primarily of interest and financing
costs and expense related to the change in fair value of our
derivative liabilities. Other income was $1,078,790 for the three
months ended October 31, 2019, compared to a loss of $1,329,807 for
the three months ended October 31, 2018, a decrease in other
expense of $2,408,597 or 181.1%. The decrease results from our
borrowing activities and the related costs, primarily an increase
in gain from the change in fair value of our derivative instruments
of $1,873,954, or 387.5%. The change in the fair value of our
derivative liabilities resulted primarily from our borrowing
activities and the changes in our stock price and the volatility of
our common stock during the reported periods.
Discontinued Operations
As
discussed in NOTE C to the unaudited condensed consolidated
financial statements, in August 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 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 loss for all periods presented. The following table
presents summarized operating results for those discontinued
operations.
| |
|
Three Month Periods Ended |
|
| |
|
October 31, |
|
|
October 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| Revenues |
|
$ |
- |
|
|
$ |
- |
|
| Net loss |
|
$ |
- |
|
|
$ |
- |
|
Net income (loss)
Our
net income attributable to common stockholders for the three months
ended October 31, 2019 increased by $2,414,360 or 156.6% to
$873,016 from a loss of $1,541,344 for the three months ended
October 31, 2018. This increase attributable to common stockholders
for the three months ended October 31, 2019 was primarily due to
the factors discussed above.
Comparison
of the Six Months Ended October 31, 2019 to the Six Months Ended
October 31, 2018
For
the six months ended October 31, 2019 and 2018, we have generated
limited sales revenues, have incurred significant expenses, and
have sustained significant losses.
Revenues
Revenues
totaled $180,017 during the six months ended October 31, 2019 as
compared to $209,992 during the six months ended October 31, 2018,
a decrease of $29,975 or 14.3%. Revenues from continuing operations
in both periods were from the sale of Information technology
products while the current period includes revenues from NWHB
products. Revenues Information technology revenue declined $59,351,
28.3% from $209,992 to $150,641. NWHB revenues were $29,376. Other
income in the 2019 and 2018 six month periods was comprised
primarily of municipal lease fee income.
Cost of Revenue
Cost
of revenue consists of costs and fees incurred to third parties to
construct and maintain mobile apps, as well as fees for
subscription services related to vehicle history reports and costs
of NWHB products inventoried for resale. Cost of revenue was
$31,671 during the six months ended October 31, 2019 as compared to
$17,699 during the six months ended October 31, 2018. This $13,972
or 78.9% increase was due to an increase in third party costs
incurred and the cost of NWHB inventory.
Operating Expenses
General
and administrative expenses were $503,715 during the six months
ended October 31, 2019, compared to $619,281 during the six months
ended October 31, 2018, a decrease of $115,566 or 18.7%, primarily
due to overall reductions in expense due to management’s efforts to
reduce overhead. Expenses incurred during the current six month
period consisted primarily of the following expenses: Compensation
and related costs, $297,943; Accounting, audit and professional
fees, $24,078; Consulting fees, $40,034; and Rent, utilities and
telecommunication expenses $42,168. Expenses incurred during the
comparative six month period in 2018 consisted primarily of the
following expenses: Compensation and related costs, $333,871;
Accounting, audit and professional fees, $41,680; Consulting fees,
$103,119; Rent, utilities and telecommunication expenses
$43,013.
Other (income) expense
Other
(income) expense is comprised primarily of interest and financing
costs and expense related to the change in fair value of our
derivative liabilities. We also reported other income of $311,127
of debt forgiveness. Net other expense was $511,335 for the six
months ended October 31, 2019, compared to $661,299 for the six
months ended October 31, 2018, a decrease in net other expense of
$149,964 or 22.68%. The decrease results from our borrowing
activities and the related costs. The change in the fair value of
our derivative liabilities resulted primarily from our borrowing
activities and the changes in our stock price and the volatility of
our common stock during the reported periods and the addition of
derivative warrant liabilities.
Discontinued Operations
As
discussed in NOTE C to the unaudited condensed consolidated
financial statements, in August 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 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 loss for all periods presented. The following table
presents summarized operating results for those discontinued
operations.
| |
|
Six Month Periods Ended |
|
| |
|
October 31, |
|
|
October 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
| Revenues |
|
$ |
- |
|
|
$ |
- |
|
| Net (loss) gain |
|
$ |
- |
|
|
$ |
- |
|
Net loss
Our
net loss attributable to common stockholders for the six months
ended October 31, 2019 decreased by $226,440 or 20.6% to $875,307
from a loss of $1,101,747 for the six months ended October 31,
2018. This decrease in net loss attributable to common stockholders
for the six months ended October 31, 2019 was primarily due to the
factors discussed above.
LIQUIDITY
AND CAPITAL RESOURCES
As of
October 31, 2019, we had an accumulated deficit of $62,790,069 and
a total deficit of $12,436,281. We generated a deficit in cash flow
from operations of $331,541 for the six months ended October 31,
2019. This deficit results primarily from our net loss of $867,061,
partially offset by noncash net expense of $525,069 and an increase
of $373,844 in accounts payables and accrued expenses.
We
met our cash requirements during the period through proceeds from
the issuances of convertible and other notes of $50,000, and we
sold preferred stock for proceeds of $299,000, we repaid notes in
the amount of $5,500.
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 October 31, 2019, we had 7 full time employees.
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
independent auditors report on our April 30, 2019 and 2018
consolidated financial statements included in the Company’s Annual
Report states that the Company’s historical losses and the lack of
revenues raise substantial doubts about the Company’s ability to
continue as a going concern, due to the losses incurred and its
lack of significant operations. 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.
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, the Company has, from time to time, engage
a financial advisory firms 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
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.
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.
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.
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.
RECENT
ACCOUNTING PRONOUNCEMENTS
See
Note A to the unaudited condensed consolidated financial statements
for a description of recent accounting pronouncements, including
the expected dates of adoption and estimated effects on our
unaudited condensed consolidated financial statements, which is
incorporated herein by reference.
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 such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of October 31, 2019. 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 as of the end
of the period covered by this report were not effective.
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 October 31, 2019, 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. |
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. 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 October 31, 2019 based on criteria
established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In
light of these significant deficiencies, we performed additional
analyses and procedures in order to conclude that our consolidated
financial statements for the six months ended October 31, 2019
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 six months ended October 31, 2019 are fairly
stated, in all material respects, in accordance with U.S.
GAAP.
There
was no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) of the Exchange Act) that occurred during
the fiscal quarter to which this report relates that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Management
does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect
all error and fraud. Any control system, no matter how well
designed and operated, is based upon certain assumptions and can
provide only reasonable, not absolute, assurance that its
objectives will be met. Further, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud,
if any, within the Company have been detected.
PART II. OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
As at
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.
ITEM 1A. RISK FACTORS
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, 2019, 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 1933fro, 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.
Issuance
of preferred shares:
During
the three months ended October 31, 2019, the Company:
|
|
● |
sold
392 Units of Series C Convertible Preferred stock for $196,000.
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
15 Units of the Company’s Series D Convertible common stock in
exchange for $15,000 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. |
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER
INFORMATION
Not
applicable.
ITEM
6. EXHIBITS
The
following exhibits are filed with this report:
SIGNATURES
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. |
|
|
|
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|
Date:
July 9, 2020 |
By: |
/s/
Anthony L. Havens |
|
|
|
Anthony
L. Havens, Chief Executive Officer, |
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Principal
financial and accounting officer |
Sparta Commercial Services (PK) (USOTC:SRCO)
Historical Stock Chart
From Dec 2020 to Jan 2021
Sparta Commercial Services (PK) (USOTC:SRCO)
Historical Stock Chart
From Jan 2020 to Jan 2021
