UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended April 30, 2020
   
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  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)

 

(I.R.S. Employer

Identification No.)

     
555 Fifth Avenue, 14th Floor, New York, NY   10017
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (212) 239-2666

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class   Trading symbol(s)   Name of exchange on which registered
Common Stock, par value $0.001   SRCO   OTC:PINK

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Common Stock, par value $0.001
(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ] Yes [X] No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ] Yes [X] No

 

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 preceeding12 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 and posted every Interactive Data File required to be submitted and posted pursuant to Rule 405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

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 “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 [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]         
    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

 

The aggregate market value of voting and non-voting common equity of the issuer held by non-affiliates, on October 31, 2019, was $1,252,512.

 

As of August 13, 2020, we had 645,092,904 shares of common stock issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

 
 

 

SPARTA COMMERCIAL SERVICES, INC.

 

TABLE OF CONTENTS

 

    Page
     
PART I    
     
Item 1. Business 3
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 18
Item 2. Properties 18
Item 3. Legal Proceedings 19
     
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 20
Item 6. Selected Financial Data 21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 49
Item 9A. Controls and Procedures 49
Item 9B. Other Information 50
     
PART III    
     
Item 10. Directors, Executive Officers and Corporate Governance 51
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 54
Item 13. Certain Relationships and Related Transactions, and Director Independence 55
Item 14. Principal Accountant Fees and Services 56
Item 15. Exhibits, Financial Statement Schedules 56
     
Signatures 58

 

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PART I

 

ITEM 1. BUSINESS

 

General Overview

 

Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation serving four markets. Sparta is a technology company that develops, markets and manages business websites and mobile applications (mobile apps) for smartphones and tablets. The Company also owns and manages websites which sell on-demand motorcycle, recreational vehicle, automobiles, and truck title history reports for consumers, retail dealers, auction houses, insurance companies and banks/finance companies. Since 2007, Sparta has provided and administered leasing programs nationwide for local and/or state agencies seeking to finance essential municipal vehicles and equipment. Lastly the Company also introduced a new business line in the rapidly expanding Hemp-CBD (cannabidiol) market.

 

In 2016, 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 growing mobile application market domestically.

 

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, agriculture dealerships, 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.

 

The Company’s vehicle history reports include Cyclechex (Motorcycle History Reports at www.cyclechex.com); RVchecks (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, fire trucks, 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 2019-2020, management sourced, developed and tested 5 CBD product categories totaling 31 products, procured product packaging and labeling, implemented fulfillment, and launched an on-line B2C website, www.newworldhealthcbd.com.

 

We identify our ongoing information technology business in two reporting groups: mobile apps/websites and vehicle history reports, both of which operate under our wholly owned subsidiary, iMobile Solutions, Inc. The latest product offering, via www.newworldhealthcbd.com, offering a full array of hemp-derived CBD products, is contained in our subsidiary, New World Health Brands, Inc.

 

MOBILE APPS

 

Sparta creates mobile applications (mobile apps) for small and medium-size businesses under the tradename iMobileApp. iMobileApp employs a subscription business model and is positioned as a fast and affordable way for businesses to develop and launch a mobile app. The iMobileApp platform allows businesses to have a high-quality, fully functioning custom mobile app often at a lower cost than traditional marketing efforts, and typically at a significantly lower cost than a commercial quality website.

 

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The Company has developed and managed mobile apps since 2011, creating hundreds of mobile apps for a wide variety of businesses for customers in 49 states and Canada. Today, iMobileApp is the largest provider of mobile app technology to the Harley-Davidson dealership network in the United States.

 

Mobile apps are becoming one of the most important digital tools that a consumer-facing business can employ. Smartphones and tablets are now the leading devices for accessing the internet, and it is estimated that upwards of 80% of mobile use time is dedicated to utilizing mobile apps. As consumers become more mobile, businesses are increasingly seeing the need to as well. Currently, the mobile app development industry serving small to medium-sized businesses is fragmented, and the Company believes that iMobileApp can become a brand leader in this category.

 

An iMobileApp provides consumers easy access to a business website simply by touching the Company’s application icon. There is no need to search for or type in a web address. iMobileApp has dozens of basic and advanced functions, including providing businesses the ability to send a segmented promotional message that appears on the consumer’s mobile device front page, rather than in an email or text message. “Geo-fencing” is a feature that allows businesses to message customers who are in the vicinity of their store or event, or even when visiting a competitor.

 

The iMobileApp pricing model includes a modest up-front development fee, and an auto-renewing monthly subscription. Once a business launches an iMobileApp, the Company provides them with marketing tools to assist their customers in downloading the mobile app from the Apple and Android app stores. The Company offers two levels of on-going maintenance and support. The basic subscription provides training, technical support and software updates. The premium-priced program adds a fully managed feature, allowing businesses to contact iMobileApp Customer Service who will initiate campaigns, promotional messaging, and other iMobileApp features on behalf of the client.

 

A partial listing of iMobileApp features includes:

 

Mobile Client Framework (“MCF”) - Our mobile framework software allows us to provide customized apps that can be installed on the individual mobile devices and deployed through the Apple and Android app stores.

 

Content Management System (CMS) -iMobileApp customers can use our web-based content management system to upload images to their mobile app, change text content, change colors, organize the order of tabs, and publish updates to the app.

 

Customized Registration System - iMobileApp customers can elect to present their users with a registration screen on startup that collects information such as first name, last name, email address and telephone number in order to track marketing information and push individual notification messages for future functionality.

 

Push Notification System – A direct communication channel between businesses and their mobile app users. Allows brands to socialize directly with their very best customers, anytime, anywhere, to build a relationship at a one-to-one level.

 

Geo-Fencing Feature – Allows businesses to create an invisible “message fence” around a specific geographic area. When their app users are within the fenced area, the user receives a pre-programmed message on their device. This is especially useful when businesses have special promotions or events they would like to advertise to nearby users who are most likely to take advantage of them. Businesses can also “geo-fence” around a competitor, offering their users special promotions before they enter the competitor’s venue.

 

Inventory Display Manager – Business can manage, display and sell from their inventory on their mobile app. Inventory can be integrated through web link, hand-key, or inventory management data feed.

 

Event Manager – Business can manage and display upcoming events on their mobile app. Customers can view the event calendar, RSVP and Inventory can be integrated through web link, hand-key, or inventory management data feed.

 

Quick Dial Feature – Users tap the Quick Dial option to get a list of the business phone numbers on their mobile phones. The user selects the number to dial by putting their finger on the number. The business can add, remove, and edit phone numbers that appear in the Quick Dial screen from their CMS.

 

Multi-Location Management – Business can add and manage multiple locations on their app, each with distinct hours of operations, user database and notification segmentation. Businesses pay subscription fees for each location they wish to include in their app. Customers can use the client customization portal to add locations to their mobile app.

 

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Marketing and Branding of iMobileApp

 

Marketing Materials - We provide customized marketing materials that app customers can download and display digitally or physically.

 

Embedded Product Developer and SRI Branding - The “about” screen of the application contains information useful to the support of the product. It also contains a powered-by-the-product-developer logo and text. iMS can choose to use a different logo, but the powered-by-the-product-developer text remains on the “about” screen.

 

App store and Google Android Distribution - All native applications are deployed through the product developer’s App store and Android Market Place online accounts.

 

Marketing information - If an app customer has enabled first-time user data collection then that information will be available to the app customer on their portal.

 

WEBSITES

 

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.

 

VEHICLE HISTORY REPORTS

 

The vehicle history report group is currently marketing through its websites: Cyclechex Motorcycle History Reports© (www.cyclechex.com), RVchex™ RV History Reports (www.rvchex.com), CarVinReport Car History Reports (www.carvinreports.com) and Truckchex Heavy Duty Truck History Reports (www.truckchex.com). These reports contain valuable information for consumers, dealers, insurers, auction houses, and lenders. The information includes a vehicle’s history, such as disclosed damage, salvaged or rebuilt title brands, the number of previous owners, the last recorded odometer reading, the manufacturer’s original equipment, and OEM recall data. We assemble the data for these reports from multiple sources, including, but not limited to, governmental agencies, in order to provide the most current information available for the benefit of all interested parties. We believe our products offer a compelling value because they are priced modestly and we provide a no-hassle, 90-day and 100% money-back guarantee. We are confident that our Specialty Reports provide buyers and sellers the peace of mind that comes from being able to make an informed decision.

 

In June 2010, iMobile Solutions, Inc. entered into an exclusive five-year agreement with a U.S. government authorized third-party distributor of on-line data from National Motor Vehicle Title System (NMVTIS) for NMVTIS data on motorcycles, scooters, ATVs and recreational vehicles. This agreement has been renewed on a year to year basis.

 

NMVTIS is an information system that federal law required the United States Department of Justice to establish and to provide an electronic means to verify vehicle title, brand, and theft data among motor vehicle administrators, law enforcement officials, prospective purchasers and insurance carriers. NMVTIS was initially authorized in the Anti-Car Theft Act of 1992 and reauthorized by the Anti-Car Theft Improvements Act of 1996. After passage of the 1996 reauthorization, responsibility was transferred from the U.S. Department of Transportation to the U.S. Department of Justice. The NMVTIS system is a Department of Justice program currently operated by the American Association of Motor Vehicle Administrators (AAMVA). The system also provides a means for states to share title information in order to prevent fraud and other crime.

 

NMVTIS was created to:

 

Prevent the introduction or reintroduction of stolen motor vehicles into interstate commerce
   
Protect states, consumers (both individual and commercial), and other entities from fraud
   
Reduce the use of stolen vehicles for illicit purposes including funding of criminal enterprises
   
Provide consumer protection from unsafe vehicles

 

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NMVTIS information is supplied by state motor vehicle agency records and entire sectors (e.g., insurance, auto recyclers/junk/salvage, etc.) addressed by the Anti-Car Theft Act. As opposed to purchasing information from specific businesses or companies, entities are required to provide specific information to NMVTIS in a specific format. NMVTIS is intended to serve as a reliable source of title and brand history for automobiles, motorcycles and other vehicles. However, there are certain pieces of vehicle history data that NMVTIS’ database does not contain; for example, a vehicle’s repair history. Currently the data provided to NMVTIS by states is provided in a variety of time frames; while some report and update NVMTIS data in real-time (as title transactions occur) others send updates less frequently, such as once every 24 hours or within a period of days.

 

Vehicle History Reports benefit consumers:

 

Consumers can purchase reports directly from the Cyclechex, RVchex, Truckchex or CarVinReport website
   
Consumers can purchase reports via an Affiliate website

 

Vehicle History Reports benefit dealers:

 

Dealers can purchase a block of history reports from Cyclechex, RVchex, Truckchex or CarVinReport (with pricing incentives to purchase a larger quantity of reports)
   
Reports facilitate acceptance of trade-in vehicles and add value to the purchase of any pre-owned motorcycle, RV, automobile, light truck or heavy-duty truck
   
Dealers can provide reports to customers

 

Vehicle History Reports Affiliate Program:

 

Dealers and other industry sources can incorporate the Cyclechex, RVchex, Truckchex or CarVinReport website linking their sales and marketing strategies
   
Affiliates earn commission on Cyclechex, RVchex, Truckchex or CarVinReport history reports generated from their sites

 

Cyclechex Motorcycle History Reports®

 

Cyclechex Motorcycle History Reports (Cyclechex.com) contain valuable information for consumers, motorcycle dealers, insurers, auction houses, and lenders including whether a pre-owned motorcycle is a specific model year, make and model, if it has reported damage, its title history including the last recorded odometer reading, any salvage or damaged titles, the manufacturer’s original equipment, and OEM recall data.

 

For consumers looking to buy a pre-owned motorcycle or a retail motorcycle dealer considering a trade-in or the purchase of other used motorcycles, a Cyclechex Motorcycle History Report can be invaluable. Moreover, for those dealers who want to provide a higher level of confidence to a potential buyer about the true history of the motorcycle being considered for purchase, the Cyclechex Motorcycle History Report is an outstanding sales support tool.

 

Our system extracts information from multiple sources, including, but not limited to, governmental agencies, in order to provide the most current information available for the benefit of all interested parties. With a no-hassle, 90-day, 100% money-back guarantee, and at a modest cost, a Cyclechex Motorcycle History Report provide buyers and sellers peace of mind for decision-making. This critical information is available to any interested party by entering a seventeen digit Vehicle Identification Number (VIN), which covers vehicles dating back to 1981, on our website.

 

In February 2014, we announced a reciprocal marketing agreement with Allstate insurance company that makes Cyclechex Motorcycle History Reports a recommended tool for Allstate customers. The Company also enjoys reciprocal marketing agreements with Kelley Blue Book and AutoTrader and others.

 

RVchex™ Recreational Vehicle History Reports

 

RV History Reports (RVchex.com) contains important and valuable information about any reported damage, salvage, and other relevant data concerning a particular pre-owned RV. Our system extracts information from multiple data sources, including, but not limited to, government agencies throughout the United States. RVchex.com delivers up-to-date, accurate information to consumers, RV dealers, lenders, insurers, and other interested parties, and we offer a no-hassle, 100% money-back guarantee. This critical information is available to any interested party by entering a seventeen digit Vehicle Identification Number (VIN) on our website.

 

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Truckchex Heavy Duty Truck History Reports

 

The Truckchex Heavy Duty Truck History Report (Truckchex.com) contains valuable information for truck drivers, trucking companies, dealers, insurers, auction houses, and lenders, including whether a specific pre-owned commercial truck has reported damage, recorded accidents, post-accident inspections, inspection violations, the last recorded odometer reading, any salvage or damaged titles, the manufacturer’s original equipment, and OEM recall data. Our system extracts information from multiple data sources, including, but not limited to, governmental agencies throughout the United States. Truckchecks.com delivers up-to-date, accurate to consumers, truck dealers, lenders, insurers, and other interested parties, and we offer a no-hassle, 100% money-back guarantee. This critical information is available to any interested party by entering a seventeen digit Vehicle Identification Number (VIN) on our website.

 

CarVin Reports

 

CarVINreport.com is an online provider of Automobile History Reports. The CarVinReport Car History Report (CarVINreport.com) contains extremely valuable information for consumers, dealers, insurers, auction houses, and lenders, including whether a specific pre-owned automobile has Salvage or Rebuilt Title status or has sustained Flood Damage, the last recorded odometer reading, the manufacturer’s original equipment, and OEM recall data. For consumers looking to buy a pre-owned automobile or a retail automobile dealer considering a trade-in or the purchase of other used automobiles, a CarVinReport Car History Report can be invaluable. Moreover, for those dealers who want to provide a higher level of confidence to a potential buyer about the true condition of the automobile being considered for purchase, the CarVinReport Car History Report is an outstanding sales support tool.

 

The following websites are among those affiliated with iMobile Solutions, Inc. used to appropriately direct customer inquiries to our history report products:

 

www.autotrader.com

www.kbb.com

https://www.nationalpowersports.net/

www.motorcycle-histories.com

www.motorcycleshippers.jcmotors.com

www.cyclepedia.com

http://www.allstateridernews.com/offers

 

Each of our four-vehicle history reports search government databases for over 90 types of vehicle title problems and over 28 million Salvage or Loss title records. Our reports provide some, if not all, of the following information:

 

Crushed Vehicles

Disclosed Damage

Last Recorded Odometer Reading

Manufacturers’ Recall History

Manufacturers’ Specifications

Multi-State Searches

Rebuilt Titles

Salvage-Stolen Titles

Salvaged or Damaged Titles

VIN Decoding

Crash Data

Inspection Data

 

MUNICIPAL LEASING OF ESSENTIAL EQUIPMENT

 

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 a better and more economical way to finance their essential equipment needs, including, but not limited to, police motorcycles, cruisers, buses, fire trucks, and EMS equipment. We are continuing to expand our roster of equipment manufacturers and the types of equipment we lease to agencies.

 

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NEW WORLD HEALTH BRANDS CBD

 

During 2019-2020, management sourced, developed and tested 5 CBD product categories totaling 31 products, procured product packaging, created clear-transparency labeling, implemented fulfillment and launched an on-line B2C website, www.newworldhealthcbd.com.

 

Sourcing CBD Products

 

All of our CBD products are sourced through third party suppliers in Arizona, Colorado, Wyoming, Oregon, Nevada and Washington State. NWHB carries single compound isolates, as well as products made from high quality, whole-plant, industrial hemp extracts, containing a full-spectrum of phytocannabinoids, including CBD, terpenes, flavonoids, and other minor, but valuable hemp compounds. Hemp extracts from Industrial Hemp are generally cannabis with less than 0.3% tetrahydrocannabinol (“THC”). Cannabis, which contains THC, causes psychoactive effects when consumed. NWHB does not produce or sell any products derived from high-THC cannabis/marijuana plants.

 

NWHB manages risks that are associated with third-party suppliers and manufacturers by identifying and qualifying alternative providers. NWHB regularly assess its supply chain for any threats to business continuity. None of the third party suppliers are considered to be material to the business on a standalone basis and if any given supplier is lost in a specific region, NWHB believes they could be replaced without material disruption as it could contract with multiple alternative suppliers and manufacturers.

 

All of our product providers are licensed by their respective departments of Agriculture and represent that they are compliant with applicable state laws relating to their products. Our products come from domestic seed, have clean label transparency and are third party tested for CBD potency, heavy metals, pesticides, microbials, and more, by ISO/IEC 17025 accredited labs.

 

CBD Product Categories

 

Our product line consists of only industrial hemp-based CBD containing zero or less than 0.03% THC. We do not manufacture or market edibles. We do not manufacture or market CBD vapes. Our present product base consists of products in 5 categories: tinctures, capsules & tablets, topicals, Zero THC and tinctures for pets. The per serving dosage of CBD products ranges from 3.3mg to 50mg, depending on the dose. Our product line includes: tinctures of various sizes and flavors: capsules of differing potency and quantity; tablets of differing potency and quantity; salve of differing potency and quantity; creams and lotions of differing potency and quantity; and pet tinctures.

 

Strategic Advantage

 

NWHB benefits from the parent Company’s vertical integration of supply and service chains providing support of its on demand web/mobile application development/maintenance, accounting, corporate governance, and real time customer support across the NWHB product line. This relationship results in significant time and cost efficiencies and fosters a mutually beneficial parent/subsidiary relationship.

 

As the NWHB subsidiary grows, the Company will help NWHB develop its own managerial control group at such time as the subsidiary can afford an incremental building of a dedicated management team.

 

MARKETING AND SALES

 

Our marketing starts with product development. We create compelling products that; (i) in the case of iMobile Solutions, Inc. and iMobileApp, provide a variety of small to mid-sized businesses with a state-of-the-art website and mobile application solutions, and (ii) in the case of our four vehicle history report products, provide historical title information that assists consumers in purchase decision-making and dealers, auction houses, or other entities in making a sale or evaluating a vehicle.

 

iMobile Solutions, Inc. (iMS)

 

The primary marketing objective for iMS is to continue penetrating new business verticals and to be the leader is mobile app development for growing businesses. While an iMobileApp can benefit any business, the Company identifies and focuses marketing efforts on specific verticals, currently comprised of vehicle dealers, country clubs, racetracks, restaurants, etc., to build a presence in certain industries and become the “go-to” mobile app developer for those markets. As we continue to target franchised vehicle dealers by type of product and manufacturer by specifically approaching each dealership in their dealer network to promote our iMS mobile application we are gaining market share of the vehicle dealer marketplace. By selling our mobile applications throughout one manufacturer’s dealer network, we benefit from “word of mouth” referrals while building a recognizable presence in that particular market. For example, a leading motorcycle manufacturer has over 1,400 authorized dealers worldwide. By penetrating this market, we significantly improve our credibility with their entire dealer network, resulting in the individual dealers being more receptive to our sales call, and making them more likely to purchase an iMobileApp and refer us to other dealers.

 

Additional marketing has been done through targeted advertising as well as news stories in relevant trade publications.

 

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iMobileApp (iMA)

 

There are two primary areas of focus to continue gaining market share for iMA – digital marketing and targeted sales efforts.

 

The digital marketing strategy is predicated on the fact that the business mobile app marketplace is emerging and highly fragmented. In parallel, the web is not yet dominated by any one business mobile app competitor. Our strategy is to build a strong digital web presence that will help grow our business in the short term, and establish iMA as the market leader in web search as the industry consolidates. The cornerstone of our digital strategy is a state-of-the-art web management platform (see www.iMobileApp.com) that is highly search engine optimized (SEO) in structure and content. Page rank and traffic will increase over time as we support the website with traffic building efforts through blogging, social networking, ad-clicks, remarketing, and continual technical and content optimization. The goal is to have a leadership market share in organic and accidental search for businesses seeking mobile application solutions.

 

Traditional sales and marketing efforts will be employed against key categories that have an established high level of acceptance for mobile apps and/or in which iMA has already established market share. Efforts will include inside sales calls, email campaigns, category trade association marketing, and customer referrals.

 

Vehicle History Reports

 

The vehicle categories that we are targeting - motorcycles, recreational vehicles and commercial trucks – are not the focus of our largest competitors (CARFAX®, AutoCheck®). Distribution in the vehicle history reports industry is web-based, and digital competition in our targeted categories is relatively weak and fragmented. Our digital strategy is to become the leading search result for consumers seeking information on used powersports vehicles RV’s, and heavy-duty trucks. We employ an advanced web management platform that is highly search engine optimized (SEO). Page rank and traffic will increase over time as we support the website with traffic building efforts through blogging, social networking, ad-clicks, remarketing, and continual technical and content optimization.

 

An equally important digital strategy is our affiliate and cross-marketing programs. By working with leading companies that serve this category – like AutoTrader®, National Powersports Distributors, Kelley Blue Book®, and AllState® Insurance – we are able to cross-promote our powersports and RV history reporting products on their websites. Consumers who are on affiliate or marketing partner sites can become aware of our reporting services and click through to our websites. If a purchase is completed, the referring affiliate receives a commission on the sale or in some cases may extend a discount to their customers.

 

In December 2010, Powersports Business chose Cyclechex as one of their “Nifty 50” winners, recognizing it as one of the top 50 new powersports products introduced during the year.

 

SRI has considerable opportunity to increase brand awareness and grow traffic through product development, targeted marketing programs and strategic partnerships.

 

Municipal Leasing

 

In 2011, the Company launched a website (www.spartamunicipal.com) exclusively dedicated to the Company’s municipal business line that began in 2007. With this site, agency heads, police and fire department chiefs, dealerships, and other municipal financing decision makers have direct online access to information about the Municipal Lease Program, including how it benefits governmental agency economic interests, and specifics about terms and options. Marketing efforts, when budgets allow, include attending tradeshows, advertising in industry publication, direct mail/email campaigns, and indirect marketing such as referrals by prior municipal customers or dealerships. Sparta’s municipal program is also included in the corporate sites of Harley-Davidson© and BMW Motorrad USA Police Motors for government fleet leasing which results in direct inquiries from municipalities.

 

New World Health Brands CBD

 

Our initial marketing strategy has been a direct to consumer online sales approach via our website www.newworldhealthcbd.com within the United States, by using e-commerce to reach consumers to introduce and guide them through the CBD buying process. Starting with a solid foundation of content and robust product offerings, our marketing strategy will continue to be supplemented with social media exposure, (Facebook and Instagram) and ultimately retail distribution as the strategy evolves. At present, NWHB has developed preliminary distribution within the New York City metro area within independent pharmacies, medical supply stores, smoke shops, spas, and independent retail food stores. Using data collection and customer analysis from e-commerce sales will continue to be a significant component of NWHB’s marketing strategy. Direct-to-consumer e-commerce sales give an unprecedented opportunity to gain significant insight into how to better support the customer based on data, including buying habits, purchase frequency, and in many cases, how the product is being used, whether it be general wellness, health conditions, etc. By building customer trust with a focus on premium, quality products and live customer service, we expect to build a well-recognized brand. Through our own social media and blogging platforms, management expects New World Health Brands will continue to grow CBD organic sales and revenue by promoting our products as trusted brands for consumers who desire premium CBD products.

 

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Sales and Customer Support

 

An internal team is responsible for closing sales on leads generated from web inquires, email responses, inside sales calls and customer referrals. A future sales team will target businesses, trade associations, national chains, manufacturers, vehicle dealers and vehicle auction houses.

 

Customer service is based in our New York City office.

 

Competition

 

While there are numerous entities offering customized mobile apps, we believe that iMobileApp is a leading pre-packaged customizable mobile app for small to medium sized business, such as restaurants, country clubs, social clubs, racetracks, grocery stores, agriculture dealers, vehicle dealers, and more, at a price point significantly below other vendors of customized apps for the vehicle dealer industry.

 

Because of our strong commitment to customer service and our compelling product, we believe that our iMobileApp product can be effectively and competitively marketed.

 

The two major providers of used automobile history reports, CARFAX® and AutoCheck® do not provide motorcycle, recreational vehicle or heavy duty truck history reports. In fact, CARFAX® states on their website FAQ’s that their database contains records primarily of cars and light trucks and “for heavy trucks, RVs, or motorcycles, CARFAX® recommends checking with your DMV, enthusiast forums, and of course a pre-purchase vehicle inspection.” AutoCheck® states on its web site “AutoCheck® only reports on information for cars and light trucks.” We have not identified direct competition of the RV space and do not intend to compete directly with either CarFax® or AutoCheck®.

 

Competition within the CBD-based hemp products industry is very fragmented and highly competitive. The competition is comprised of publically and privately-owned companies and tend to be diverse in terms of geographic market coverage and variety of product mix offered. The “CBD industry” includes tinctures, capsules and tablets, topicals, patches, edibles, vapes, smokables and drinkables all based on pure CBD, defined as containing less than 0.3% THC; blended CBD and THC. NWHB is focused on marketing only hemp-based CBD products. To our knowledge there are only four public companies selling only CBD products. Because of this fragmented market where there is not one sole widely recognized brand, we believe that by focusing on high quality, gluten free, non-GMO, pure CBD products using targeted brand marketing programs we can make New World Health Brands initially a regionally recognized brand and then a nationally recognized brand.

 

DISCONTINUED OPERATIONS

 

As discussed in NOTE C to the consolidated financial statements, in August 2012, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan business segments and the sale of all of the Company’s portfolio of Retail Installment Sales Contracts (RISCs), and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets, liabilities and results of operations have been accounted for as discontinued operations in the Company’s consolidated financial statements for all periods presented.

 

As the Company sold all of its portfolio of RISCs, and a portion of its portfolio of leases with the remaining leases in final run-off mode (paying-off and terminating as agreed or by repossession), therefore no portfolio performance measures were calculated for the years ended April 30, 2020 and 2019 and the Company has discontinued segment reporting.

 

Regulation

 

Our prior financing operations were and are subject to regulation, supervision, and licensing under various federal, state, and local statutes and ordinances. Additionally, the procedures that we must follow in connection with the repossession of vehicles securing contracts are regulated by each of the states in which we do business. Accordingly, the laws of such states, as well as applicable federal law, govern our operations. Compliance with existing laws and regulations has not had a material adverse effect on our operations to date. Our management believes that we maintain all requisite licenses and permits and are in material compliance with all applicable local, state, and federal laws and regulations. We periodically review our office practices in an effort to ensure such compliance.

 

The following constitute certain of the federal, state, and local statutes and ordinances with which we must comply:

 

Fair Debt Collection Practices Act. The Fair Debt Collection Practices Act and applicable state law counterparts prohibit us from contacting customers during certain times and at certain places, from using certain threatening practices and from making false implications when attempting to collect a debt.
   
Truth in Lending Act. The Truth in Lending Act requires us and the dealers we do business with to make certain disclosures to customers, including the terms of repayment, the total finance charge, and the annual percentage rate charged on each contract.
   
Consumer Leasing Act. The Consumer Leasing Act applies to any lease of consumer goods for more than four months. The law requires the seller to disclose information such as the amount of initial payment, number of monthly payments, total amount for fees, penalties for default, and other information before a lease is signed.
   
The Consumer Credit Protection Act of 1968. The Act required creditors to state the cost of borrowing in a common language so that the consumer can figure out what the charges are, compare costs, and shop for the best credit deal.

 

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Equal Credit Opportunity Act. The Equal Credit Opportunity Act prohibits creditors from discriminating against loan applicants based on race, color, sex, age, or marital status. Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection.
   
Fair Credit Reporting Act. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency.
   
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act requires us to maintain privacy with respect to certain consumer data in our possession and to periodically communicate with consumers on privacy matters.
   
Soldiers’ and Sailors’ Civil Relief Act. The Soldiers’ and Sailor’s Civil Relief Act requires us to reduce the interest rate charged on each loan to customers who have subsequently joined, enlisted, been inducted or called to active military duty, if requested to do so.
   
Electronic Funds Transfer Act. The Electronic Funds Transfer Act prohibits us from requiring our customers to repay a loan or other credit by electronic funds transfer (“EFT”), except in limited situations that do not apply to us. We are also required to provide certain documentation to our customers when an EFT is initiated and to provide certain notifications to our customers with regard to preauthorized payments.
   
Telephone Consumer Protection Act. The Telephone Consumer Protection Act prohibits telephone solicitation calls to a customer’s home before 8 a.m. or after 9 p.m. In addition, if we make a telephone solicitation call to a customer’s home, the representative making the call must provide his or her name, our name, and a telephone number or address at which our representative may be contacted. The Telephone Consumer Protection Act also requires that we maintain a record of any requests by customers not to receive future telephone solicitations, which must be maintained for five years.
   
Bankruptcy. Federal bankruptcy and related state laws may interfere with or affect our ability to recover collateral or enforce a deficiency judgment.
   
Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the creation of a Bureau of Consumer Financial Protection. The impact on the Company of the newly created agency is unknown at this time as the agency is yet to be formed.

 

Employees

 

As of April 30, 2020, we had 6 full-time employees.

 

ITEM 1A. RISK FACTORS

 

We are subject to certain risks and uncertainties in our business operations that are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not presently known or that are currently deemed immaterial may also impair our business operations.

 

Risks Related To Our Financial Condition

 

We have a history of operating losses.

 

Through our fiscal year ended April 30, 2020, we have incurred significant expenses and have sustained significant losses. We have an accumulated deficit of $62,702,339 at April 30, 2020. Our net loss attributed to common stockholders for the year ended April 30, 2020 was $787,220. As of April 30, 2020, we had a deficit of $11,591,617 and a negative working capital of $11,165,762.

 

Our business requires additional amounts of capital and we will need to obtain additional financing in the near future.

 

In order to expand our business, we need raise additional capital to support our operations until we become cash flow positive. We will have to raise approximately $1 million over the next twelve months to support our business. As our business grows, we will need to seek additional financing to fund growth. There can be no assurance that we will have sufficient capital or be able to secure credit facilities when needed. The failure to obtain additional funds, when required, on satisfactory terms and conditions, would have a material and adverse effect on our business, operating results and financial condition, and ultimately could result in the cessation of our business.

 

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To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. In addition, any new equity securities may have greater rights, preferences or privileges than our existing common stock. A material shortage of capital will require us to take drastic steps such as reducing our level of operations, disposing of selected assets or seeking an acquisition partner. If cash is insufficient, we will not be able to continue operations.

 

We have a significant amount of debt which could impact our ability to continue to implement our business plan.

 

We have incurred total liabilities of $11,656,716 as of April 30, 2020. Unless we are able to restructure some or all of this outstanding debt, and raise sufficient capital to fund our continued development, we will be unable to pay these obligations as our current operations do not generate significant revenue.

 

Our auditor’s opinion expresses doubt about our ability to continue as a “going concern”.

 

The independent auditor’s report on our April 30, 2020 and April 30, 2019 consolidated financial statements state that our historical losses raise substantial doubts about our ability to continue as a going concern. We cannot assure you that we will be able to generate revenues or maintain any line of business that might prove to be profitable. Our ability to continue as a going concern is subject to our ability to generate a profit or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining credit lines or loans from various financial institutions where possible. If we are unable to develop our business, we may have to discontinue operations or cease to exist, which would be detrimental to the value of our common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.

 

Risks Related to the Company

 

We are a small company in the information technology business.

 

We are a relatively new entrant into the businesses of providing vehicle history reports and building mobile apps. We indirectly compete with major, well capitalized, suppliers of automobile history reports. While these companies do not presently offer motorcycle or RV history reports, there is no guaranty they will not do so in the future. Many small “players” characterize the mobile app development business. While we believe we are better suited to build, service, and market mobile apps than our competitors, there is no assurance that we can continue to do so.

 

We will require additional capital to implement our business plan and marketing strategies which we may be unable to secure.

 

Under our business plan, we intend to build and expand our operations substantially over the next several years. Our cash on hand is insufficient for our operational needs. We therefore need additional financing for working capital purposes and to grow our business. There is no assurance that additional financing will available on acceptable terms, or at all. If we fail to obtain additional financing as needed, we may be required to reduce or halt our anticipated expansion plans and our business and results of operations could be materially, adversely affected. There can be no assurance that additional financing will be available on terms deemed to be acceptable by us, and in our stockholders’ interests.

 

We face security risks related to our electronic processing of sensitive and confidential customer and associate data.

 

Given the nature of our business, we and/or our service providers collect process and retain sensitive and confidential customer data, including credit card information. Despite our current security measures, our facilities and systems, and those of our third-party service providers, may be vulnerable to information security breaches, acts of vandalism, computer viruses or other similar attacks. An information security breach involving the disclosure of confidential data could damage our reputation and our customers’ willingness to shop on our websites, and subject us to possible legal liability. In addition, we may incur material remediation costs as a result of an information security breach, including liability for stolen customer or associate data, repairing system damage or providing credit monitoring or other benefits to customers or associates affected by the breach.

 

We could be harmed by data loss or other security breaches

 

As a result of our services being web-based and the fact that we process and/or our service providers, store and transmit large amounts of data, including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches, including breaches of our vendors’ technology and systems, could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for us and otherwise harm our business. We use third party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support and other functions. Although we and our service providers have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, such measures cannot provide absolute security.

 

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A variety of factors and economic forces may affect our operating results.

 

Our operating results may differ from current forecasts and projections significantly in the future because of a variety of factors, many of which are outside our control. These factors include, without limitation, the receipt of revenues, which is difficult to forecast accurately, the amount and timing of capital expenditures and other costs relating to the expansion of our operations, the introduction of new products or services by us or our competitors, borrowing costs, pricing changes in the industry, technical difficulties, general economic conditions and economic conditions specific our market place. The success of an investment in a vehicle history report and mobile app based venture is dependent, at least, in part, on extrinsic economic forces, including the supply of and demand for such services. No assurance can be given that we will be able to generate sufficient revenue to cover our cost of doing business. Furthermore, our revenues and results of operations will be subject to fluctuations based upon general economic conditions. Economic factors like unemployment, interest rates, and the availability of credit generally, municipal government and corporate budget constraints affecting equipment and technology purchases, the rate of inflation, and consumer perceptions of the economy may affect the volume of history report purchases.

 

We are dependent on our management and the loss of any officer could hinder our implementation of our business plan.

 

We are heavily dependent upon management, the loss of any one of whom could have a material adverse effect on our ability to implement our business plan. While we have entered into an employment agreement with our Chief Executive Officer, this employment agreement could be terminated for a variety of reasons. We do not presently carry key man insurance on the life of any employee. If, for some reason, the services of management, or of any member of management, were no longer available to us, our operations and proposed businesses and endeavors may be materially adversely affected. Any failure of management to implement and manage our business strategy may have a material adverse effect on us. There can be no assurance that our operating and financial control systems will be adequate to support our future operations. Furthermore, the inability to continue to upgrade the operating and financial control systems, the inability to recruit and hire necessary personnel or the emergence of unexpected expansion difficulties could have a material adverse effect on our business, financial condition or results of operations.

 

Our business is dependent on intellectual property rights and we may not be able to protect such rights successfully.

 

Our intellectual property, including our license agreements and other agreements, which establish our rights to proprietary intellectual property, our Cyclechex, RVchex, CarVin , and Truckchex vehicle history reports and our SMA and iMA mobile apps are of great value to our business operations. Infringement or misappropriation of our intellectual property could materially harm our business. We rely on a combination of trade secret, copyright, trademark, and other proprietary rights laws to protect our rights to this valuable intellectual property. Third parties may try to challenge our intellectual property rights. In addition, our business is subject to the risk of third parties infringing or circumventing our intellectual property rights. We may need to resort to litigation in the future to protect our intellectual property rights, which could result in substantial costs and diversion of resources. Our failure to protect our intellectual property rights could have a material adverse effect on our business and competitive position.

 

Our business is subject to various government regulations.

 

While we have sold our consumer loan portfolio, we retain a small and declining lease portfolio. Therefore, we are subject to numerous federal and state consumer protection laws and regulations and licensing requirements, which, among other things, may affect: (i) the interest rates, fees and other charges we impose; (ii) the terms and conditions of the contracts; (iii) the disclosures we must make to obligors; and (iv) the collection, repossession and foreclosure rights with respect to delinquent obligors. The extent and nature of such laws and regulations vary from state to state. Federal bankruptcy laws limit our ability to collect defaulted receivables from obligors who seek bankruptcy protection. Prospective changes in any such laws or the enactment of new laws may have an adverse effect on our business or the results of operations. Compliance with existing laws and regulations has not had a material adverse effect on our operations to date. We will need to periodically review our office practices in an effort to ensure such compliance, the failure of which may have a material adverse effect on our operations and our ability to conduct business activities.

 

COVID-19.

 

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the HOW characterized COVID-19 as a pandemic.

 

The extent to which COVID-19 will impact our customers, business, results and financial condition will depend on current and future developments, which are highly uncertain and cannot be predicted at this time. While the Company’s day-to-day operations beginning March 2020 have been impacted, we have suffered less immediate impact as most staff can work remotely and can work remotely and can continue to develop our product offerings.

 

Risks Related to our Subsidiary, New World Health Brands, Inc. (NWHB)

 

The Subsidiary has limited operating history.

 

The Subsidiary is still in an early phase, and is just beginning to implement its business plan. There can be no assurance that it will ever operate profitably. The likelihood of its success should be considered in light of the problems, expenses, difficulties, complications and delays usually encountered by companies in their early stages of development, with low barriers to entry. The Subsidiary may not be successful in attaining the objectives necessary for it to overcome these risks and uncertainties.

 

We need to raise additional capital to meet our future business requirements and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.

 

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At this time, we have not secured or identified any additional financing to support NWHB. We do not have any firm commitments or other identified sources of additional capital from third parties or from our officers and directors or from other shareholders. There can be no assurance that additional capital will be available to us, or that, if available, it will be on terms satisfactory to us. Any additional financing will involve dilution to our existing shareholders. If we do not obtain additional capital on terms satisfactory to us, or at all, it may cause us to delay, curtail, scale back or forgo some or all of our business operations, which could have a material adverse effect on our business and financial results and investors would be at risk to lose all or a part of any investment in our Company.

 

Our future success will depend on our ability to increase revenues.

 

NWHB is in a highly fragmented market for the delivery CBD based products and faces numerous risks and uncertainties in achieving sustainable revenues and positive cash flow. We launched our website, located at www.newworldhealthcbd.com, in November 2018. We have engaged in identifying reliable sources of quality inventory, package design, launched a business to consumer website, implemented affiliate software, and designed brochures and other such marketing materials to enable us to carry out our business plan. These expenditures have resulted in operating losses. In order to be successful, we must increase our revenues from the sale of our products to individuals and marketing affiliates. In order to increase our revenues, we must successfully:

 

  create and implement a marketing plan to attract individuals and retailers to our CBD products;
  increase traffic to our website by developing relationships with popular websites ;
  convert online visitors to clients;
  attract, retain and motivate qualified personnel with marketing and product development experience to serve in various capacities, including sales and marketing positions;
  respond effectively to competitive pressures from other providers of CBD products;

 

If we are not successful in the execution of these strategies, our business, results of operations and financial condition will be materially adversely affected.

 

NWHB has losses which we expect to continue into the future and there is no assurance our future operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably or we are unable to raise additional funds, we may enter into a business combination which may ultimately decrease shareholder value or cause us to cease operations.

 

We expect to incur operating losses in future periods due to expenses associated with NWHB’s business, a planned Offering, and current revenues and expenses. Management may consider a merger, acquisition, joint venture, strategic alliance, a roll-up, or other business combination to increase business and potentially increase the liquidity of the Company.

 

We face intense competition from within the hemp based CBD industry.

 

NWHB competes with many providers of hemp based CBD products because our market poses no substantial barriers to entry. We expect this competition to continue to intensify. The types of companies with which we compete include:

 

  fully integrated companies such as Aphria Inc., Charlotte’s Web™ and Curaleaf Holdings Inc.; and
  start-up companies entering the market

 

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Our future success will depend on our ability to increase and enhance our market position by: (1) maintaining the quality of our product offerings, (2) developing new products, (3) keeping our pricing models on par with those of our competitors, (4) increasing our online visibility, and (5) developing a nationally recognized and respected brand.

 

Many of our existing competitors, as well as a number of potential competitors, may have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. This may enable them to respond more quickly to new or emerging consumer demands, or to devote greater resources to the development, promotion and sale of their products than we can. These competitors and potential competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees. In addition, current and prospective competitors may establish cooperative relationships among themselves or with third parties to improve their ability to address the needs of our existing and prospective customers. If these events occur, they could have a materially adverse effect on our revenue. Increased competition could also result in price reductions, reduced margins or loss of market share, any of which would adversely affect our business, results of operations and financial condition. See “Description of Business” and “Competition.”

 

We also believe our ability to compete depends on a number of factors outside of our control, including:

 

  the prices at which others offer competitive products, including aggressive price competition and discounting;
  the ability of our competitors to undertake more extensive marketing campaigns than we can; and
  the extent of our competitors’ responsiveness to customer needs.

 

In order to be competitive, we must have the ability to respond promptly and efficiently to the ever-changing marketplace. We must establish our name as a reliable and constant source of the highest quality products.

 

We may not be successful in increasing our brand awareness which would adversely affect our business, result of operations, and financial condition.

 

Our future success will depend, in part, on our ability to increase the brand awareness of our website and the products we offer. If our marketing efforts are unsuccessful or if we cannot increase our brand awareness, our business, financial condition, and results of operations would be materially adversely affected. In order to build our brand awareness, we must succeed in our marketing efforts, provide high quality products and increase traffic to our website.

 

We may not be able to successfully manage our growth.

 

For NWHB to succeed, it needs to experience significant expansion. There can be no assurance that it will achieve this expansion. This expansion, if accomplished, may place a significant strain on the Company’s management, operational and financial resources. To manage any material growth, the Company will be required to implement operational and financial systems, procedures and controls. It also will be required to expand its finance, administrative and operations staff. There can be no assurance that the Company’s current and planned personnel, systems, procedures and controls will be adequate to support its future operations at any increased level. The Company’s failure to manage growth effectively could have a material adverse effect on its business, results of operations and financial condition.

 

If we do not successfully establish and maintain our brand as highly trusted and respected or are unable to attract and retain clients, we could sustain loss of revenues, which could significantly affect our business, financial condition, and results of operations.

 

In order to attract and retain a client base and increase business, we must establish, maintain and strengthen our name and the products we provide. In order to be successful in establishing our reputation, clients must perceive us as a trusted source for quality products and customer service. If we are unable to attract and retain clients with our current marketing plans, we may not be able to successfully establish our name and reputation, which could significantly affect our business, financial condition and results of operations.

 

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Uninsured Losses.

 

NWHB may obtain comprehensive insurance, including liability, fire and extended coverage, as is customarily obtained by business entities. Certain types of losses of a catastrophic nature, however, such as losses from floods, tornados, thunder storms, hurricanes and earthquakes, are uninsurable or not economically insurable to the full extent of potential loss. Other uninsurable events such as “Acts of God”, work stoppages, pandemics, regulatory actions or other causes, could interrupt operations and adversely affect NWHB’s results of operations.

 

RISKS RELATED TO OUR INDUSTRY

 

We are dependent on third party merchant credit card processors.

 

Our future success will depend, in significant part, upon third party credit card processing firms. Loss of our merchant services credit card processing firm and the inability to rapidly replace that firm could have a substantial negative effect on our business.

 

We are dependent on the Internet infrastructure.

 

Our future success will depend, in significant part, upon the maintenance of the various components of the Internet infrastructure, such as a reliable backbone network with the necessary speed, data capacity and security, and the timely development of enabling products, such as high-speed modems, which provide reliable and timely Internet access and services. To the extent that the Internet continues to experience increased numbers of users, frequency of use or increased user bandwidth requirements, we cannot be sure that the Internet infrastructure will continue to be able to support the demands placed on it or that the performance or reliability of the Internet will not be adversely affected. Furthermore, the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure or otherwise, and such outages or delays could adversely affect our website and the websites of our co-branded partners, as well as the Internet service providers and online service providers our customers use to access our services. In addition, the Internet could lose its viability as a commercial medium due to delays in the development or adoption of new standards and protocols that can handle increased levels of activity. We cannot predict whether the infrastructure and complementary products and services necessary to maintain the Internet as a viable commercial medium will be developed or maintained. The threat of hacking is an ongoing one and to the best of our ability we will monitor our servers, maintain up-to-date anti-virus and anti-malware programs and keep our employees advised as to proper computer security.

 

Cannabis and hemp are subject to government regulation at the federal, state, and local level.

 

The passage of the 2018 farm bill or Agricultural Improvement Act of 2018, resulted in the removal of hemp (CBD) from Schedule 1 of the Controlled Substances Act, the most tightly restricted category reserved for drugs that have “no currently accepted medical use”. Marijuana (cannabis) remains a federally controlled substance. The farming of hemp is now legal and CBD is readily obtainable in most parts of the United States. As of January 2020, 33 states and Washington, DC have passed Legal Medical Marijuana Laws and 11 states and Washington DC have passed Legal Recreational Marijuana Laws. In December 2015, the FDA eased the regulatory requirements to allow researchers to conduct CBD trials. While the trend toward continued legalization of industrial hemp based CBD products is favorable, there is no guarantee that this trend will continue.

 

Risks Related to Investment in our Company

 

The market for our common stock could be volatile and could decline when you want to sell your holdings.

 

Our common stock trades on the OTC Pink under the symbol SRCO. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include but are not limited to: (i) actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investor; (ii) changes in financial estimates by us or by any securities analysts who might cover our stock; (iii) speculation about our business in the press or the investment community; (iv) stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; (v) our potential inability to pay back outstanding notes or debentures, or contractual obligations related to the cancellation thereof; (vi) investor perceptions of our respective industries in general and our company in particular; (vii) the operating and stock performance of comparable companies; (viii) general economic conditions and trends; (ix) major catastrophic events; (x) announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; (xi) changes in accounting standards, policies, guidance, interpretation or principles; (xii) sales of our common stock, including sales by our directors, officers or significant stockholders; and (xiii) additions or departures of key personnel.

 

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Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.

 

Our common stock will be subject to the “penny stock” rules of the SEC, which may make it more difficult for stockholders to sell our common stock.

 

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require (i) that a broker or dealer approve a person’s account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit an investor’s ability to sell our common stock in the secondary market.

 

We are subject to variable conversion prices and adjustments related to certain of our convertible notes and our common stock purchase warrants which could cause significant dilution to stockholders and adversely impact the price of our common stock.

 

Certain of our securities are subject to variable conversion prices and adjustments. As a result, future conversion of debt into shares of common stock or issuance of new convertible debt may result in significant dilution to our shareholders. There were approximately 4.2 billion potential shares at April 30, 2020. The number of potential shares will likely vary based on fluctuations in the trading price of our stock. We are negotiating potential settlements of debt to reduce the number of potential shares. (SEE ITEM # 3 LEGAL PROCEEDINGS).

 

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results and stockholders could lose confidence in our financial reporting.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Failure to achieve and maintain an effective internal control environment, regardless of whether we are required to maintain such controls, could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Furthermore, we have not obtained an independent audit of our internal controls and, as a result, we are not aware of any deficiencies which would result from such an audit. Further, at such time as we are required to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may incur significant expenses in having our internal controls audited and in implementing any changes which are required.

 

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We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.

 

No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates.

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

 

We are a public company and are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent auditors attest to, the effectiveness of our internal controls structure and procedures for financial reporting. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the time we will be required to do so. If we fail to do so, or if in the future our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our common stock. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, which will increase costs. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

 

Future sales of our equity securities could result in downward selling pressure on our securities, and may adversely affect the stock price.

 

In the event that our equity securities are sold or convertible debt is converted into equity securities, there is a risk of downward pressure may result, making it difficult for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.

 

We have authorized a class of preferred stock that may alter the rights of common stockholders by giving preferred stock holders greater dividend rights, liquidation rights and voting rights than our common stockholders have.

 

Our board is empowered to issue, without stockholder approval, preferred stock, on one or more series, with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of common stock. From time to time, we have designated, and may in the future designate, series of preferred stock carrying various preferences and rights different from, and greater than, our common stock. As of April 30, 2019, we have three series of preferred stock outstanding. Preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the company.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

Our executive offices are located at 555 Fifth Avenue, 14th Floor, New York, NY 10017. We had an agreement for use of office space at this location under a sub-lease which expired July 31, 2018, and continues on a month-to-month basis thereafter. For the year ending April 30, 2020, the rent was $62,186.

 

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ITEM 3. LEGAL PROCEEDINGS

 

As at April 30, 2020, 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.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is currently quoted on the OTC Bulletin Board under the symbol “SRCO”. The following table sets forth, for the calendar periods indicated, the range of the high and low closing prices of our common stock, as reported by the OTCBB. The quotations represent inter-dealer prices without retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions.

 

    High     Low  
Fiscal Year 2020                
First quarter (May 1, 2019 – July 31, 2019)   $ 0.0039     $ 0.0020  
Second quarter (August 1, 2019 – October 31, 2019)   $ 0.0028     $ 0.0018  
Third quarter (November 1, 2019 – January 31, 2020)   $ 0.0040     $ 0.0017  
Fourth quarter (February 1, 2020 – April 30, 2020)   $ 0.0028     $ 0.0011  
Fiscal Year 2019                
First quarter (May 1, 2018 – July 31, 2018)   $ 0.0055     $ 0.0044  
Second quarter (August 1, 2018 – October 31, 2018)   $ 0.0056     $ 0.0038  
Third quarter (November 1, 2018 – January 31, 2019)   $ 0.0075     $ 0.0034  
Fourth quarter (February 1, 2019 – April 30, 2019)   $ 0.0048     $ 0.0035  

 

Holders

 

The approximate number of holders of record of our common stock as of April 30, 2020 was 3,066 excluding stockholders holding common stock under nominee security position listings.

 

Dividends

 

We have never declared any cash dividends on our common stock. Future cash dividends on the common stock, if any, will be at the discretion of our Board of Directors and will depend on our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, including any restrictions pursuant to the terms of senior securities outstanding, and other factors that the Board of Directors may consider important. The Board of Directors does not intend to declare or pay cash dividends in the foreseeable future. It is the current policy to retain all earnings, if any, to support future growth and expansion.

 

As of April 30, 2020, we had outstanding 125 shares of Series A Convertible Preferred Stock, $.001 par value. The Series A shares pay a 6% annual dividend that may be paid in cash or shares of common stock at our option. As of April 30, 2020, we have not distributed any dividends on the Series A shares, in cash or in shares of common stock. Upon conversion of the Series A shares, all accrued and unpaid dividends are extinguished. As of April 30, 2020, there was $11,383 of accrued Series A dividends payable.

 

As of April 30, 2020 and April 30, 2019, we had no shares of Series B preferred stock outstanding or dividends payable.

 

As of April 30, 2020 and April 30, 2019, we had 4,005.05 and 2,960 shares of Series C convertible preferred stock outstanding, respectively. The Series C convertible preferred stock is non dividend paying.

 

As of April 30, 2020 and April 30, 2019, we had 1,132.10 and 580 shares of Series D convertible preferred stock outstanding, respectively. The Series D convertible preferred stock is non dividend paying.

 

Recent Sales of Unregistered Securities

 

Each of the issuance and sale of securities described below was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving a public offering. No advertising or general solicitation was employed in offering the securities. Each purchaser is a sophisticated investor (as described in Rule 506(b) (2) (ii) of Regulation D) or an accredited investor (as defined in Rule 501 of Regulation D), and each received adequate information about the Company or had access to such information, through employment or other relationships, to such information.

 

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Issuance of common stock and restricted preferred units:

 

During the three months ended April 30, 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) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share,
  issued 222Units 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,
  issued 160 Units of the Company’s Series D Convertible Preferred stock in exchange for $160,000 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,
  pursuant to terms of agreements, accrued as to be issued 3,000,000 shares of restricted common stock, valued at $6,000.

 

The issuance of shares of our Series C and Series D Convertible Preferred Units was exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 4(a)(2) and Regulation D of that act. These shares were unissued as of April 30, 2020.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

“FORWARD-LOOKING” INFORMATION

 

This report on Form 10-K 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, 2020. 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.

 

The following discussion and analysis should be read in conjunction with the information set forth in the audited financial statements for the years ended April 30, 2020 and April 30, 2019 and footnotes found in the Company’s Annual Report on Form 10-K.

 

RESULTS OF OPERATIONS

 

For the year ended April 30, 2020, our revenues from continuing operations decreased approximately 16.6% as compared to the year ended April 30, 2019. We have continued to incur significant expenses, and have sustained significant losses.

 

Revenues-Continuing Operations

 

Revenues totaled $320,847 in fiscal 2020 compared to revenues of $384,665 in fiscal 2019, primarily due to a downturn in nationwide motorcycle sales, which effected the utilization of our motorcycle apps and history report purchases, as well as insufficient funds to support an adequate level of sales, marketing and advertising. Our Information Technology revenues declined $108,848 or 28.3% from $384,665 in fiscal 2019 to $275,817 in the current fiscal year. NWHB revenues in the current fiscal year were $45,030. NWHB products were not offered for sale in fiscal 2019. Other income in fiscal 2020 was $5,571compared with $12,741 in fiscal 2019. Other income in both fiscal years was comprised primarily of municipal lease fee income.

 

Cost of Revenue

 

Cost of revenue consists of costs and fees paid to third parties to construct and maintain mobile apps, as well as fees for subscription services related to vehicle history reports.

 

Costs and Expenses-Continuing Operations

 

General and administrative expenses were $1,052,178 during the year ended April 30, 2020, compared to $1,200,471 during the year ended April 30, 2019, a decrease of $148,293, or 12.4% primarily due to overall reductions in expense due to management’s efforts to reduce overhead. Expenses incurred during the current fiscal year consisted primarily of the following expenses: Compensation and related costs, $605,099; Accounting, audit and professional fees, $65,558; Consulting fees, $63,784; Rent, utilities and telecommunication expenses $92,620. Expenses incurred during the comparative year ended April 30, 2019 consisted primarily of the following expenses: Compensation and related costs, $666,115; Accounting, audit and professional fees, $51,320; Consulting fees, $180,069; and Rent, utilities and telecommunication expenses $88,933.

 

Other (income) expense

 

Other (income) expense is comprised primarily of fees earned by our Municipal Financing program. Net other income was $18,834 for the year ended April 30, 2020, compared to net other expense of $823,120 for the year ended April 30, 2019, a decrease in net other expense of $841,954 or 102.3%. The decrease results from our borrowing activities and the related costs and forgiveness of debt in the amount of $422,394. The change in the fair value of our derivative liabilities resulted primarily from the changes in our stock price, the volatility of our common stock during the reported periods and the addition of warrants and the associated derivative liability.

 

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Discontinued Operations

 

As discussed in NOTE C to the consolidated financial statements, in August 2012, 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.

 

    Fiscal Years Ended  
    April 30,     April 30,  
    2020     2019  
             
Revenues   $ -     $ 1,356  
Net loss   $ -     $ -  

 

Net Loss

 

Our net loss attributable to common stockholders for the year ended April 30, 2020 decreased by $901,740 or 53.4% to $787,220 from a loss of $1,688,960 for the year ended April 30, 2019. This decrease in net loss attributable to common stockholders for the year ended April 30, 2020 was primarily due to the decreased costs and expenses discussed above.

 

Our net loss per common share (basic and diluted) attributable to common stockholders was $0.001 for the year ended April 30, 2020 and $0.003 for the year ended April 30, 2019.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of April 30, 2020, we had an accumulated deficit of $62,702,339 and a total deficit of $11,591,617. We generated a deficit in cash flow from operations of $626,790 for the year ended April 30, 2020. This deficit results primarily from our net loss of $773,195, partially increased by noncash income and gain from change in fair value of derivative liabilities of $756,188 and an increase of $902,593 in payables and accrued expenses.

 

We met our cash requirements during the period through proceeds from the issuances of convertible and other notes of $158,000, and we sold common and preferred stock for proceeds of $476,500, we repaid notes in the amount of $11,000.

 

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 April 30, 2020, we had 6 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.

 

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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.

 

AUDITOR’S OPINION EXPRESSES DOUBT ABOUT THE COMPANY’S ABILITY TO CONTINUE AS A “GOING CONCERN”

 

The independent auditors report on our April 30, 2020 and 2019 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.

 

Product Research and Development

 

We do not anticipate incurring significant research and development expenditures during the next twelve months.

 

Acquisition or Disposition of Plant and Equipment

 

We do not anticipate the acquisition or sale of any significant property, plant or equipment during the next twelve months.

 

Number of Employees

 

From our inception through the period ended April 30, 2020, we have relied on the services of outside consultants for services and currently have six full-time employees. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future 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 projected increase in personnel is dependent upon our generating 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 projected increase in the number of employees.

 

Inflation

 

The impact of inflation on our costs and the ability to pass on cost increases to our customers over time is dependent upon market conditions. We are not aware of any inflationary pressures that have had any significant impact on our operations over the past year, and we do not anticipate that inflationary factors will have a significant impact on future operations.

 

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.

 

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Revenue Recognition

 

During the first quarter of 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the cumulative-effect method. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption did not have an impact in our consolidated financial statements, other than the enhancement of our disclosures related to our revenue-generating activities.

 

The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.

 

Revenues from mobile app products and New World Health Brands products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery. The Company records deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.

 

Information Technology:

 

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured, and the fees are fixed or determinable. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.

 

Revenues from mobile app products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery.

 

New World Health Brands:

 

Revenues from New World Health Brands products are generally recognized upon delivery.

 

Stock-Based Compensation

 

The Company adopted Financial Accounting Standards Board Accounting Standard Codification Topic 718 (“ASC 718-10”), which records compensation expense on a straight-line basis, generally over the explicit service period of three to five years.

 

ASC 718-10 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. The Company is using the Black-Scholes option-pricing model as its method of valuation for share-based awards. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.

 

Inventories

 

The Company’s inventories represent finished goods, consist of products available for sale and are accounted for using the first-in, first-out (FIFO) method and valued at the lower of cost or net realizable value. Inventory consists of finished goods for the Company’s New World Health Brands business.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815-40”).

 

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

 

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Derivative Liabilities

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

For information regarding recent accounting pronouncements and their effect on the Company, see “Recent Accounting Pronouncements” in Note A of the Notes to Consolidated Financial Statements contained herein.

 

In March 2018, the FASB issued ASU 2018-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2018-09”). This ASU makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU 2018-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance on May 1, 2019 and it did not have an impact on the Company’s consolidated financial statements and related disclosures.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Topic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This amendment prescribes that an entity should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting periods beginning May 1, 2019. The Company will begin evaluating going concern disclosures based on this guidance upon adoption.

 

The FASB issued the following accounting standard updates related to Topic 606, Revenue Contracts with Customers:

 

ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) in May 2014. ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations.
ASU No. 2018-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2018-08”) in March 2018. ASU 2018-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.
ASU No. 2018-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2018-10”) in April 2018. ASU 2018-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.
ASU No. 2018-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2018 EITF Meeting (SEC Update) (“ASU 2018-11”) in May 2018. ASU 2018-11 rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2018 EITF meeting. The SEC Staff is rescinding SEC Staff Observer comments that are codified in Topic 605 and Topic 932, effective upon adoption of Topic 606.
ASU No. 2018-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients in May 2018. ASU 2018-12 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on a few narrow areas and adds some practical expedients to the guidance.

 

These ASUs became effective for the Company beginning interim period beginning May 1, 2018. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, “Leases.” Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. The Company adopted Topic 842 effective May 1, 2019 using a modified retrospective method and elected not to recognize leases with terms of 12 months or less. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

26

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

    Page
     
Report of Independent Registered Public Accounting Firm   28
Consolidated Balance Sheets as of April 30, 2020 and 2019   29
Consolidated Statements of Operations for the years ended April 30, 2020 and 2019   30
Consolidated Statements of Deficit for the years ended April 30, 2020 and 2019   31
Consolidated Statements of Cash Flows for the years ended April 30, 2020 and 2019   32
Notes to Consolidated Financial Statements   33

 

27

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and

Board of Directors of Sparta Commercial Services, Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of Sparta Commercial Services, Inc. (the “Company”) as of April 30, 2020 and 2019, the related consolidated statements of operations, deficit, and cash flows for each of the two years in the period ended April 30, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis of Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to fraud or error. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

 

As discussed in Note B to the consolidated financial statements, the Company’s negative working capital, continuing operating losses and negative cash flows from operating activities raise substantial doubt about its ability to continue as a going concern for a period of one year from the issuance of the consolidated financial statements. Management’s plans are also described in Note 3. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.

 

/s/ Boyle CPA, LLC

 

We have served as the Company’s auditor since 2018

 

Bayville, NJ

August 13, 2020

 

361 Hopedale Drive SE P (732) 822-4427
Bayville, NJ 08721 F (732) 510-0665

 

28

 

 

SPARTA COMMERCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

FOR THE YEARS ENDED APRIL 30, 2020 AND 2019

 

    April 30, 2020     April 30, 2019  
             
ASSETS                
Current Assets                
Cash and cash equivalents   $ -     $ 13  
Accounts receivable     1,420       3,048  
Inventory     23,331       9,761  
Other current assets     470       1,827  
Total Current Assets     25,221       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   $ 43,849     $ 33,634  
                 
LIABILITIES AND DEFICIT                
                 
Liabilities:                
Current Liabilities                
Bank overdraft   $ 14,773     $ 11,496  
Accounts payable and accrued expenses     3,427,587       3,971,179  
Current portion notes payable net of discount of $0 and $8,633, respectively     4,930,244       4,106,169  
Deferred revenue     16,254       17,635  
Derivative liabilities     2,802,125       3,496,696  
Total Current Liabilities     11,190,983       11,603,175  
Loans payable-related parties     432,403       432,403  
Total Long Term Liabilities     432,403       432,403  
Total liabilities from continuing operations     11,623,386       12,035,578  
LIABILITIES FROM DISCONTINUED OPERATIONS     12,080       12,080  
Total liabilities   $ 11,635,466     $ 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, 4,005 and 2,960 shares issued and outstanding, respectively     4,005       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, 1,132 and 580 shares issued and outstanding, respectively     1,132       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 84,786,511 and 80,786,511, respectively     84,787       80,787  
Additional paid-in-capital     49,406,954       48,215,855  
Accumulated deficit     (62,702,339 )     (61,915,119 )
Total deficiency in stockholders’ equity     (12,565,868 )     (12,975,344 )
Non-controlling interest     974,251       961,320  
Total Deficit     (11,591,617 )     (12,014,024 )
Total Liabilities and Deficit   $ 43,849     $ 33,634  

 

See accompanying notes to consolidated financial statements.

 

29

 

 

SPARTA COMMERCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEARS ENDED APRIL 30, 2020 AND 2019

 

    Year Ended  
    April 30,  
    2020     2019  
Revenue            
Information technology   $ 275,817     $ 384,665  
New World Health Brands     45,030       -  
Total Revenue     320,847       384,665  
Less Cost of goods sold     60,341       29,603  
Gross profit     260,506       355,062  
                 
Operating expenses:                
General and administrative     1,052,178       1,200,471  
Depreciation and amortization     357       1,594  
Total operating expenses     1,052,535       1,202,065  
                 
Loss from operations     (792,029 )     (847,003 )
                 
Other (income) expense:                
Other income     (5,571 )     (12,741 )
Forgiveness of debt     (422,394 )     -  
Financing cost     1,262,542       2,189,836  
Amortization of debt discount     8,633       66,829  
Loss (gain) in changes in fair value of derivative liability     (862,044 )     (1,420,804 )
Total other (income) expense     (18,834 )     823,120  
                 
Income (loss) from continuing operations   $ (773,195 )   $ (1,670,123 )
                 
Loss from discontinued operations     -       -  
                 
Net income (loss)     (773,195 )     (1,670,123 )
                 
Net income attributed to non-controlling interest     (13,261 )     (18,073 )
                 
Preferred dividend     (764 )     (764 )
                 
Net income (loss) attributed to common stockholders   $ (787,220 )   $ (1,688,960 )
                 
Basic and diluted loss per share:                
Loss from continuing operations attributable to Sparta Commercial Services, Inc. common stockholders   $ (0.001 )   $ (0.003 )
Loss from discontinued operations attributable to Sparta Commercial Services, Inc. common stockholders     -       -  
Net loss attributable to Sparta Commercial Services, Inc. common stockholders   $ (0.001 )   $ (0.003 )
                 
Weighted average shares outstanding     627,092,904       626,189,206  

 

See accompanying notes to consolidated financial statements.

 

30

 

 

SPARTA COMMERCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF DEFICIT

FOR THE YEARS ENDED APRIL 30, 2020 AND 2019

 

    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, 2018     125     $ 12,500       -     $ -       1,170     $ 1,170       -     $ -       620,862,687     $ 620,863       75,786,511     $ 75,787     $ 46,635,457       (60,226,159 )   $ 943,299   $ (11,937,083 )
Sale of preferred stock                                     1,394       1,394                                                       694,656                       696,050  
Shares issued for financing cost                                                                     6,230,217       6,230       5,000,000       5,000       38,570                       49,800  
Shares issued for conversion of notes and interest                                     376       376       406       406                                       723,564                       724,346  
Shares issued for settlement of accounts payable                                                     124       124                                       123,626                       123,750  
Shares issued for conversion of subsidiary preferred                                     20       20       50       50                                       (18 )             (52 )     -  
Preferred dividend                                                                                                             (764 )             (764 )
Net loss                                                                                                             (1,688,196 )     18,073       (1,670,123 )
Balance April 30, 2019     125       12,500       -     $ -     2,960     $ 2,960       580     $ 580       627,092,904     $ 627,093       80,786,511     $ 80,787     $ 48,215,855       (61,915,119 )   $ 961,320     $ (12,014,024 )
Sale of preferred stock                                     953       953                                                       475,547                       476,500  
Shares issued for financing cost                                                                                     3,000,000       3,000       3,000                       6,000  
Shares issued for conversion of notes and interest                                     92       92                                                       45,737                       45,829  
Shares issued for settlement of accounts payable                                                     222       222                       1,000,000       1,000       321,028                       322,250  
Shares issued for conversion of subsidiary preferred                                                     330       330                                                       (330 )     -  
Reclassification of derivative liability                                                                                                     345,787                       345,787  
Preferred dividend                                                                                                             (764 )             (764 )
Net loss                                                                                                             (786,456 )     13,261       (773,195 )
Balance April 30, 2020     125     $ 12,500       -     $ -       4,005     $ 4,005       1,132     $ 1,132       627,092,904     $ 627,093       84,786,511     $ 84,787     $ 49,406,954     $ (62,702,339 )   $ 974,251     $ (11,591,617 )

 

See accompanying notes to consolidated financial statements.

 

31

 

 

SPARTA COMMERCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Year Ended  
    April 30,  
    2020     2019  
             
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (773,195 )   $ (1,670,123 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     357       1,595  
Gain from change in fair value of derivative liabilities     (862,044 )     (1,420,804 )
Amortization of debt discount     8,633       66,829  
Non-cash financing cost     519,260       1,839,314  
Forgiveness of debt     (422,394 )     -  
Changes in operating assets and liabilities                
Accounts receivable     (15,028 )     (2,048 )
Inventory     (18,164 )     (9,761 )
Other assets     1,357       (1,827 )
Accounts payable and accrued expenses     935,809       440,687  
Deferred revenue     (1,381 )     (2,911 )
Net cash used in operating activities     (626,790 )     (759,049 )
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of equipment     -       -  
Net cash (used in) investing activities     -       -  
CASH FLOWS FROM FINANCING ACTIVITIES                
Bank overdraft     3,277       9,614  
Proceeds from sale of stock     476,500       696,050  
Proceeds from notes payable     158,000       57,800  
Payments on notes payable     (11,000 )     (7,450 )
Proceeds from related party notes     -       12,000  
Payments on related party notes     -       (9,950 )
Net cash provided by financing activities     626,777       758,064  
                 
Cash flows from discontinued operations:                
Cash used in operating activities of discontinued operations     -       -  
Net cash flow from discontinued operation     -       -  
                 
Net (decrease) increase in cash   $ (13 )   $ (985 )
                 
Cash and cash equivalents, beginning of period     13       998  
Cash and cash equivalents , end of period   $ -     $ 13  
                 
Cash paid for:                
Interest   $ 2,456     $ 249  
Income taxes   $ -     $ 700  

 

See accompanying notes to consolidated financial statements.

 

32

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

NOTE A – SUMMARY OF ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.

 

Business

 

Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation serving four markets. Sparta is a technology company that develops, markets and manages business websites and 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 nationwide for local and/or state agencies seeking to finance municipal vehicles and equipment. The Company also introduced a new business line in the rapidly expanding Hemp-CBD (cannabidiol) market.

 

In 2016, 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 growing mobile application market domestically.

 

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, agriculture dealerships, 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.

 

The Company’s vehicle history reports include Cyclechex (Motorcycle History Reports at www.cyclechex.com); RVchecks (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, fire trucks, 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 Industrial Hemp-CBD (Cannabinol) market in the United States. During 2019-2020, management sourced, developed and lab tested 5 CBD product categories totaling 31 products, procured product packaging, labeling, implemented fulfillment and launched an on-line B2C website, www.newworldhealthcbd.com.

 

Sparta’s offices are located at 555 Fifth Avenue, 14th Floor, New York, NY 10017, (212) 239-2666. The Company maintains a corporate website at www.spartacommercial.com.

 

We identify our ongoing information technology business in two reporting groups: mobile apps/websites and vehicle history reports, both of which operate under our wholly owned subsidiary, iMobile Solutions, Inc. The latest product offering, via www.newworldhealthcbd.com, offering a full array of hemp-derived CBD products, is contained in our subsidiary, New World Health Brands, Inc.

 

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 stockholders’ deficit.

 

33

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

Estimates

 

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

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 and New World Health Brands products are generally recognized upon delivery. Revenues from History Reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery. The Company records deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.

 

The following table presents our revenues disaggregated by revenue source:

 

    Year Ended April 30,  
    2020     2019  
Information Technology   $ 275,817     $ 384,665  
New World Health Brands     45,030       -  
    $ 320,847     $ 384,665  

 

Cash Equivalents

 

For the purpose of the accompanying financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents.

 

Website Development Costs

 

The Company recognizes website development costs in accordance with ASC 350-50, “Accounting for Website Development Costs.” As such, the Company expenses all costs incurred that relate to the planning and post implementation phases of development of its website. Direct costs incurred in the development phase are capitalized and recognized over the estimated useful life. Costs associated with repair or maintenance for the website are included in cost of net revenues in the current period expenses.

 

34

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

Fair Value Measurements

 

The Company 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.
   

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 its 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 Brands business.

 

35

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

Property and Equipment

 

Property and equipment are recorded at cost. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives. Depreciation is calculated using the straight-line method over the estimated useful lives. Estimated useful lives of major depreciable assets are as follows:

 

Leasehold improvements 3 years
Furniture and fixtures 7 years
Website costs 3 years
Computer Equipment 5 years

 

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.

 

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 April 30, 2020 and 2019, 4.2 billion potential shares (including 84,786,511 shares to be issued included on the balance sheet) and 1,039,725,739 potential shares (including 80,786,511 shares to be issued included 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 April 30, 2020 and 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.

 

36

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

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 March 2019, the FASB issued ASU 2019-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2018-09). This ASU makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU 2018-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance on May 1, 2019 and it did not have an impact on the Company’s consolidated financial statements and related disclosures.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Topic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). This amendment prescribes that an entity should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting periods beginning May 1, 2019. The Company will begin evaluating going concern disclosures based on this guidance upon adoption.

 

The FASB issued the following accounting standard updates related to Topic 606, Revenue Contracts with Customers:

 

ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) in May 2014. ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations.
ASU No. 2018-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2018-08”) in March 2018. ASU 2019-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.
ASU No. 2018-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2018-10”) in April 2018. ASU 2018-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.
ASU No. 2018-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2018 EITF Meeting (SEC Update) (“ASU 2018-11”) in May 2018. ASU 2018-11 rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2018 EITF meeting. The SEC Staff is rescinding SEC Staff Observer comments that are codified in Topic 605 and Topic 932, effective upon adoption of Topic 606.
ASU No. 2018-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients in May 2018. ASU 2018-12 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on a few narrow areas and adds some practical expedients to the guidance.

 

These ASUs became effective for the Company beginning interim period beginning May 1, 2018. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

37

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, “Leases.” Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. The Company adopted Topic 842 effective May 1, 2019 using a modified retrospective method and elected not to recognize leases with terms of 12 months or less. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our consolidated financial statements.

 

NOTE B – GOING CONCERN MATTERS

 

The accompanying 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 consolidated financial statements, the Company has incurred recurring losses and generated negative cash flows from operating activities since inception. As of April 30, 2020, the Company had an accumulated deficit of $62,702,339 and a working capital deficit (total current liabilities exceeded total current assets) of $11,165,762. The Company’s cash balance and revenues generated are not currently sufficient and cannot be projected to cover its operating expenses for the next twelve months from the filing date of this report. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

 

The Company’s existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that the Company’s efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the resolution of its liquidity problems. The accompanying 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, private equity groups, 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.

 

    Years Ended  
    April 30, 2020     April 30, 2019  
             
Revenues   $             -     $ 1,356  
Net loss   $ -     $ -  

 

As the Company sold its entire portfolio of performing RISCs, and a portion of its portfolio of leases with the remaining leases in final run-off mode, therefore no portfolio performance measures were calculated for the years ended April 30, 2020 and 2019.

 

38

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

ASSETS INCLUDED IN DISCONTINUED OPERATIONS

 

None.

 

LIABILITIES INCLUDED IN DISCONTINUED OPERATIONS

 

Included in liabilities from discontinued operations are the following:

 

SECURED NOTE PAYABLE

 

    April 30, 2020     April 30, 2019  
             
Secured, subordinated individual lender     12,080       12,080  
Total   $ 12,080     $ 12,080  

 

At April 30, 2020, the note has a maturity due within one year.

 

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   April 30, 2020     April 30, 2019  
Notes convertible at holder’s option   $ 2,590,309     $ 1,901,866  
Notes convertible at Company’s option     75,700       75,700  
Non-convertible notes payable     2,264,235       2,137,236  
Subtotal     4,930,244       4,114,802  
Less debt discount     -       (8,633 )
Total   $ 4,930,244     $ 4,106,139  

 

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% to 48% to market value.

 

39

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

Amortization of debt discount for the years ended April 30, 2020 and 2019 was $8,633 and $66,829, 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 of convertible notes outstanding at April 30, 2020 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     0.16% to 0.20  
Expected stock price volatility         253 %
Expected dividend payout         0  
Expected options life in years   Ranging from     1 year to 2 years  

 

The change in fair value of the derivative liabilities at April 30, 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     2.39 % to 2.47 %
Expected stock price volatility         95 %
Expected dividend payout         0
Expected options life in years   Ranging from     0.8 year to 1 year  

 

Changes in derivative liability during the years ended April 30, 2020 and 2019 were:

 

    April 30,  
    2020     2019  
Balance, beginning of year   $ 3,496,696     $ 3,502,669  
Derivative liability reclassified to additional paid in capital     (821,564 )     871,673  
Derivative financial liability arising on the issue of convertible notes and warrants     286,205       543,158  
Fair value adjustments     (159,212 )     (1,420,804 )
Balance, end of year   $ 2,802,125     $ 3,496,696  

 

NOTE E – LOANS PAYABLE TO RELATED PARTIES

 

As of April 30, 2020 and 2019, aggregated loans payable, without demand and with no interest, to officers and directors were $432,403 and $432,403, respectively.

 

40

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

NOTE FEQUITY TRANSACTIONS

 

Common Stock

 

The Company is authorized to issue 750,000,000 shares of common stock, $0.001 par value.

 

The Company had 627,092,904 and 627,092,904 shares of common stock issued and outstanding as of April 30, 2020 and 2019, respectively. The Company had 84,786,511 and 80,786,511 shares of common classified as to be issued at April 30, 2020 and April 30, 2019, respectively.

 

Preferred Stock

 

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 per share liquidation value. The Company had 125 shares of Series A Preferred Stock issued and outstanding as of April 30, 2020 and 2019. The Company had no shares of Series B Preferred Stock issued and outstanding as of April 30, 2020 and 2019. The Company had 4,005 and 2,960 shares of Series C Preferred Stock issued and outstanding as of April 30, 2020 and 2019. The Company had 1,132 and 580 shares of Series D Preferred Stock issued and outstanding as of April 30, 2020 and 2019.

 

Preferred Stock Series A.

 

The Series A Preferred Stock has a stated value of $100 per share, carries a 6% annual cumulative dividend, payable semi-annually in arrears, and is convertible into shares of common stock at the rate of one preferred share into 8.55 shares of common stock. There were no transactions of the Series A Preferred Stock during the years ended April 30, 2020 and 2019.

 

Accrued dividends payable on the Series A Preferred were $10,619 and $9,855 at April 30, 2020 and 2019, respectively. At the Company’s option, these dividends may be paid in shares of the Company’s Common Stock.

 

Preferred Stock Series B

 

On July 24, 2009, the Company designated 1,000 shares as Series B Preferred Stock. The Series B Preferred Stock, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank senior to the Company’s common stock and any other class or series of preferred stock, and junior to all of the Company’s existing and future indebtedness. The Series B Preferred Stock accrues dividends at an annual rate of 10%. Accrued dividends are payable upon redemption of the Series B Preferred Stock. The Company’s common stock may not be redeemed while shares of Series B Preferred Stock are outstanding. The Series B Preferred Stock certificate of designations provides that, without the approval of a majority of the shares of Series B Preferred Stock, the Company cannot authorize or create any class of stock ranking as to distribution of assets upon a liquidation senior to or otherwise pari passu with the Series B Preferred Stock, liquidate, dissolve or wind-up the Company’s business and affairs, or effect certain fundamental corporate transactions, or otherwise alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock. The Series B Preferred Stock have a liquidation preference per share equal to the original price per share thereof plus all accrued dividends thereon upon liquidation, including upon consummation of certain fundamental corporate transactions, dissolution, or winding up of the Company’s business. The shares of Series B Preferred Stock are redeemable at the Company’s option on or after the fifth anniversary of the date of its issuance. During the year ended April 30, 2015, pursuant to the terms of the Series B Preferred Stock, the Company redeemed and returned to treasury all shares of Series B Preferred Stock and all shares of to be issued Series B Preferred Stock by exchanging the shares for $2,118,309 of note subscription receivables and $193,011 of interest receivable thereon. Subsequent to this redemption, there were no shares of Series B Preferred Stock outstanding and there were no shares of Series B Preferred Stock payable. There were no transactions of the Series B Preferred Stock during the years ended April 30, 2020 and April 30, 2019.

 

Preferred Stock Series C

 

In November 2009, the Company authorized a new series of 200,000 shares of preferred stock designated as Series C Convertible Preferred Stock, each share having a par value of $0.001 per share. The Series C Preferred Stock shall, upon liquidation, winding-up or dissolution, rank: (a) senior to the Company’s common stock and any other class or series of preferred stock of the Company which by their terms are junior to the Series C Preferred Stock (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such Preferred Stock, the “Junior Shares”); (b) junior to all existing and future indebtedness of the Company; and (c) junior to the Company’s Series A and Series B Preferred Stock. The Series C Preferred Stock is not entitled to receive any dividends, has a liquidation value of $10.00 per share, redeemable at the Company’s option at $10.00 per share, and is convertible at the option of the holder into shares of common stock as follows: the number of such shares of common stock to be received for each share of Series C Preferred Stock so converted shall be determined by (A) dividing the number of shares of Series C Preferred Stock to be converted by the weighted average closing price per share of the Company’s common stock for the ten (10) trading days immediately preceding The date on which the Company agrees to issue shares of Series C Preferred Stock to such holder multiplied by (B) the Series C liquidation value.

 

41

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

Preferred Stock Series D

 

In August 2019, the Company authorized a new series of 2,000,000 shares of preferred stock designated as Series D Convertible Preferred Stock, each share having a par value of $0.001 per share. The Series D Preferred Stock shall, upon liquidation, winding-up or dissolution, rank: (a) senior to the Company’s common stock and any other class or series of preferred stock of the Company which by their terms are junior to the Series D Preferred Stock (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such Preferred Stock, the “Junior Shares”); (b) junior to all existing and future indebtedness of the Company; and (c) junior to the Company’s Series A, Series B, and Series C Preferred Stock. The Series D Preferred Stock is not entitled to receive any dividends, has a liquidation value of $1.00 per share, redeemable, after three years from issue, at the Company’s option at $1.15 per share, and each shares of Series D Preferred Stock is convertible at the option of the holder into 400 shares of common stock.

 

Equity Transactions

 

During the year ended April 30, 2020, the Company:

 

Sold 953,000 Units of Series C convertible preferred stock for $476,500
Issued 92,000 Units of Series C convertible preferred stock upon the conversion of notes payable and accrued interest aggregating $45,829
Issued 222,000 Units of Series D convertible preferred stock upon the conversion of accounts payable aggregating $222,250
Issued 330,000 Units of Series D convertible preferred stock upon the conversion of $330,000 of the Company’s subsidiary preferred stock
Pursuant to agreement, accrued to be issued 3,000,000 shares of common stock valued at $6,000
Pursuant to agreement, accrued to be issued 1,000,000 shares of common stock valued at $322,250.

 

42

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

 

During the year ended April 30, 2019, the Company:

 

sold 1,354,000 shares of Series C Preferred stock for $676,050,
pursuant to terms of agreements, accrued as to be issued 5,000,000 shares of restricted common stock, valued at $22,172,
pursuant to terms of agreements, issued 6,230,217 shares of restricted common stock, valued at $27,628,
issued 20,000 Units of the Company’s Series C Convertible Preferred stock in exchange for $10,000 of the Company’s subsidiary’s Series C Convertible Preferred stock. 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 376,000 Units of Series C Convertible Preferred stock upon conversion of $317,596 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 406,000 Units of the Company’s Series D Convertible Preferred stock upon conversion of $405,968 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 124,000 Units of the Company’s Series D Convertible Preferred stock upon conversion of $123,750 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 50,000 Units of the Company’s Series D Convertible Preferred stock in exchange for $25,000 of the Company’s subsidiary’s Series C 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.

 

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.

 

The table below summarizes the fair values of financial liabilities as of April 30, 2020:

 

    Fair Value at     Fair Value Measurement Using  
   

April 30, 2020

    Level 1     Level 2     Level 3  
Derivative liabilities   $ 2,802,125       -       -     $ 2,802,125  

 

Fair values of financial liabilities as of April 30, 2019 are as follows:

 

    Fair Value at     Fair Value Measurement Using  
   

April 30, 2019

    Level 1     Level 2     Level 3  
Derivative liabilities    $ 3,496,696       -       -     $ 3,496,696  

 

43

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

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 FINANCIAL INFORMATION

 

During the year ended April 30, 2020, the Company:

 

  issued 92,000 Units of Series C convertible preferred stock upon the conversion of notes payable and accrued interest aggregating $45,829
  issued 222,000 Units of Series D convertible preferred stock upon the conversion of accounts payable aggregating $222,250
  issued 330,000 Units of Series D convertible preferred stock upon the conversion of $330,000 of the Company’s subsidiary preferred stock
  pursuant to agreement, accrued to be issued 3,000,000 shares of common stock valued at $6,000
  pursuant to agreement, accrued to be issued 1,000,000 shares of common stock valued at $322,250.

 

During the year ended April 30, 2019, the Company:

 

  Pursuant to terms of agreements, accrued as to be issued 5,000,000 shares of restricted common stock, valued at $22,172,
  pursuant to terms of agreements, issued 6,230,217 shares of restricted common stock, valued at $27,628,
  issued 20 Units of the Company’s Series C Convertible Preferred stock in exchange for $10,000 of the Company’s subsidiary’s Series C Convertible Preferred stock. 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 376 Units of Series C Convertible Preferred stock upon conversion of $317,596 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 406 Units of the Company’s Series D Convertible Preferred stock upon conversion of $405,968 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 124 Units of the Company’s Series D Convertible Preferred stock upon conversion of $123,750 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 50 Units of the Company’s Series D Convertible Preferred stock in exchange for $25,000 of the Company’s subsidiary’s Series C 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.

 

44

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

NOTE I - PROPERTY AND EQUIPMENT

 

Major classes of property and equipment at April 30, 2020 and 2019 consist of the followings:

 

    2020     2019  
Computer equipment, software and furniture   $ 213,262     $ 213,262  
Less: accumulated depreciation     (213,262 )     (212,905 )
Net property and equipment   $ -     $ 357  

 

Depreciation expense related to property and equipment was $357 and $1,594 for the years ended April 30, 2020 and 2019, respectively.

 

NOTE J - STOCK OPTIONS AND WARRANTS

 

Options:

 

During the fiscal year ended April 30, 2015, four employees agreed to exchange 3,999 options exercisable at $7.50 per share and 28,667 options exercisable at $ 1.65 per share for 113,338 shares of the Company’s common stock, valued at $77,460. The shares are fully vested. Only 66,835 shares have been issued. 6,000 shares have been cancelled as the employee resigned prior to vesting leaving 40,499 shares to be issued.

 

Pursuant to resolutions of the Company’s Board of Directors in August 2014, the exercise price on the 327,335 options held by the Company’ s officers and directors was reduced to $0.50 per share from exercise prices ranging from $0.60 to $14.355, and the expiration dates were extended by two years. The $63,149 valuation of this action was fully expensed during the year.

 

No options were granted during the fiscal years ended April 30, 2020 and 2019.

 

The following table summarizes common stock options issued to officers, directors and employees outstanding and the related exercise price.

 

Options Outstanding           Options Exercisable  

Number Outstanding

   

Weighted Average Remaining Contractual Life (Years)

   

Weighted Average Exercise Price

   

Number Exercisable

   

Weighted Average Exercise Price

 
             0                 -     $          -                 -     $             -  

 

Transactions involving stock options issued to officers, directors and employees are summarized as follows:

 

   

Number

of Shares

   

Weighted Average Price Per Share

 
Outstanding at April 30, 2018     26,667     $ 0.50  
Granted     -       -  
Exercised     -       -  
Canceled or expired     (26,667 )     0.50  
Outstanding at April 30, 2019     -     $ -  
Granted     -       -  
Exercised     -       -  
Canceled or expired     -       -  
Outstanding at April 30, 2020     -     $ -  

 

45

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

Warrants:

 

During the year ended April 30, 2020, the Company, as part of the issuance of 1,044,700 Units of Series C Convertible Preferred Stock issued an aggregate of 156,705,000 warrants to purchase an aggregate of 156,705,000 shares of common stock at $0.005 per share. The warrants were initially valued at $239,485 using the Black-Sholes option-pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 120% to 221%, (3) risk-free interest rate of 0.2% to 2.15%, and (4) expected life of 2 years. As part of the issuance of 552,000 Units of Series D Convertible Preferred Stock, issued an aggregate of 82,800,000 warrants to purchase an aggregate of 82,800,000 shares of common stock at $0.01 per share. The warrants initially valued at $48,178 using the Black-Sholes option-pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 120% to 221%, (3) risk-free interest rate of 0.2% to 2.15%, and (4) expected life of 2 years. The warrants are fully vested.

 

As of December 31, 2019, the Company’s Board of Directors voted to approve unanimously: “…an extension of the exercise period of those certain warrants previously issued in connection with the Corporation’s Series C Preferred Stock and Series D Preferred Stock for an additional 24 months form the original termination date of each such warrant; and that such extension of expiration dates shall apply to any such warrant that had expired as of the date hereof.”

 

During the year ended April 30, 2019, the Company, as part of the issuance of 1,790,400 Units of Series C Convertible Preferred Stock issued an aggregate of 268,560,000 warrants to purchase an aggregate of 268,560,000 shares of common stock at $0.005 per share. The warrants were initially valued at $1,099,534 using the Black-Sholes option-pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 103.1% to 143.7%, (3) risk-free interest rate of 2.34% to 2.86%, and (4) expected life of 2 years. As part of the issuance of 579,880 Units of Series D Convertible Preferred Stock, issued an aggregate of 86,982,000 warrants to purchase an aggregate of 86,982,000 shares of common stock at $0.01 per share. The warrants initially valued at $294,141 using the Black-Sholes option-pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 103.1% to 143.7%, (3) risk-free interest rate of 2.34% to 2.86%, and (4) expected life of 2 years. The warrants are fully vested.

 

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company.

 

      Warrants Outstanding           Warrants Exercisable  

Exercise Prices

   

Number Outstanding

   

Weighted Average Remaining Contractual Life (Years)

   

Weighted Average Exercise Price

   

Number Exercisable

   

Weighted Average Exercise Price

 
$ 0.005       600,757,500       2.41     $ 0.005       600,757,500     $ 0.005  
$ 0.01       169,815,000       2.72     $ 0.01       169,815,000     $ 0.01  

 

Transactions involving stock warrants issued to non-employees are summarized as follows:

 

   

Number of Shares

   

Weighted Average Exercise Price Per Share

 
Outstanding at April 30, 2018     175,532,500     $ 0.0051  
Granted     355,542,000       0.0062  
Exercised     -       -  
Canceled or expired                
Outstanding at April 30, 2019     531,074,500       0.0059  
Granted     239,538,000       0.0067  
Exercised     -       -  
Canceled or expired     (40,000 )     0.65  
Outstanding at April 30, 2020     770,572,500,     $ 0.0061  

 

46

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

NOTE K - INCOME TAXES

 

At April 30, 2020, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $47,663,000, that may be used to offset future taxable income and expiring through the tax year 2036, subject to certain limitation pursuant to Internal Revenue Code Section 382. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that, the benefits will not be realized.

 

A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

 

    Years Ended April 30,  
    2019     2020  
Federal statutory income tax rate     (21.0 )%     (21.0 )%
State income taxes, net of federal benefit     (7.1 )     (7.1 )
Permanent differences     6.7       6.7  
Change in valuation allowance     21.4       21.4  
                 
Provision for income taxes     0.0 %     0.0 %

 

Components of deferred tax assets as of April 30, 2019 and estimated 2020 are as follows:

 

    April 30,  
    2019     2020  
Noncurrent:                
Net operating loss carry forward   $ 33,703,695     $ 34,269,706  
Valuation allowance     (33,703,695 )     (34,269,706 )
Net deferred tax asset   $ -     $ -  

 

The valuation allowance increased by $13,723,035 and $566,011 during the years ended April 30, 2019 and 2020, respectively. The 2019 allowance has been adjusted for lower federal corporate income tax rate.

 

NOTE L - 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 $62,186 and $56,150 for the years ended April 30, 2020 and 2019, respectively.

 

Employment and Consulting Agreements

 

The Company does not have employment agreements with any of its non-executive employees.

 

The Company has consulting agreements with outside contractors to provide marketing and financial advisory services. The agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or consultant terminates such engagement by written notice.

 

The Company entered into an employment agreement, dated as of July 12, 2004, with Anthony L. Havens, our Chief Executive Officer. The employment is for a term of five years. The employment term is to be automatically extended for one five-year period, and additional one-year periods, unless written notice is given three months prior to the expiration of any such term that the term will not be extended. The agreement was automatically extended for one year on July 12, 2020. He is entitled to six weeks of paid vacation per year, and health insurance, short-term and long-term disability insurance, retirement benefits, fringe benefits, and other employee benefits on the same basis as is generally made available to other senior executives. He did not receive any equity compensation as part of this agreement.

 

47

 

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2020 AND 2019

 

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 April 30, 2020, 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.

 

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 M – SUBSEQUENT EVENTS

 

Subsequent to April 30, 2020 the Company:

 

Granted to each of its two independent Directors five year options to purchase 48,214,285 shares of the Company’s common stock at $0.00308 per share. The options are fully vested. These options represent compensation for nine years of service on the board.

 

Entered into five year employment agreements with its CEO, Anthony L Havens and Vice President of Operations, Sandra L Ahman. As part of their employment agreements, Mr. Havens received five year options to purchase 37,625,574 shares of the Company’s common stock at $0.00308 per share. The options vest in three equal tranches over three years. Ms. Ahman received five year options to purchase 12,541,858 shares of the Company’s common stock at $0.00308 per share. The options vest in three equal tranches over three years.

 

Granted Mr. Havens five year options to purchase 88,615,323 shares of the Company’s common stock upon the conversion of $243,692.14 of deferred salary owed him. The options are exercisable at $0.00275 per share and are fully vested.

 

Granted Ms. Ahman five year options to purchase 77,727,272 shares of the Company’s common stock upon the conversion of $200,000 of deferred salary owed her. The options are exercisable at $0.00275 per share and are fully vested.

 

Filed a Form 14C Information Statement stating: “Sparta Commercial Services, Inc., a Nevada corporation (the “Company”) is providing this Information Statement (this “Information Statement”), which is being mailed or furnished on or about July 9, 2020 to the holders of the Company’s common stock, par value $.001 per share (the “Common Stock”) on such date, as notification that in accordance with the provisions of Section 78-2055 of the Nevada Revised Statutes holders of a majority of the issued and outstanding shares of Common Stock of the Company, by means of a written consent in lieu of a special meeting of the stockholders (the “Written Consent”,) voted in favor of decreasing the number of issued and outstanding shares of Common Stock by effecting a 1 for 100 reverse split of the Company’s common shares outstanding held by each holder of record of Common Stock at the effective date which shall occur on the 21st calendar day after the Company files this Form 14(c)2 Information Statement with the Securities and Exchange Commission (the “Effective Date”).”

 

Sold to 7 accredited investors, 90 Units of Series C convertible preferred for $90,000.

 

Sold to one accredited investor 12.4 Units of Series D convertible preferred for $12,455 and issued to the same investor 38 Units of Series D convertible preferred in exchange for 7.6 shares of the Company’s preferred stock valued at $38,000.

 

48

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Engagement of New Certifying Accountant

 

On October 31, 2018, Boyle CPA, LLC (“Boyle”) was engaged as the Registrant’s independent auditors, commencing effective October 31, 2018.

 

During the two most recent fiscal years and the interim period preceding the engagement of Boyle, Registrant had not consulted with Boyle regarding either:

 

i.

the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on Registrant’s financial statements, and either a written report or oral advice was provided to the Company by Boyle that Boyle concluded was an important factor considered by the Registrant in reaching a decision as to the accounting, auditing, or financial reporting issue; or
   
ii. any matter that was either the subject of a disagreement or event identified in response to paragraph (a) (1) (iv) of Item 304, as those terms are used in Item 304 (a) (1) (iv) of Regulations S-B and S-K and the related instructions to Item 304 of Regulations S-B and S-K.

 

ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS

 

(a) Financial Statements of Business Acquired. N/A

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of April 30, 2020. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls, the Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.

 

49

 

 

Management Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2020 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. In our assessment of the effectiveness of internal control over financial reporting as of April 30, 2020, 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 reporting during the year ended April 30, 2020. 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 April 30, 2020 based on criteria established in Internal Control—Integrated Framework issued by COSO.

 

In light of these significant deficiencies, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended April 30, 2020 included in this Annual Report on Form 10-K were fairly stated in accordance with U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the year ended April 30, 2020 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit a smaller reporting company to provide only management’s report in its annual report.

 

Changes in Internal Controls

 

During the fiscal year ended April 30, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

Not applicable.

 

50

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATION GOVERNANCE

 

Our Management

 

The following table sets forth our executive officers and directors and their respective ages and positions as of April 30, 2020.

 

Name   Age   Position
Anthony L. Havens   66   Chief Executive Officer, President, Principal Financial Officer and Chairman
Kristian Srb   65   Director
Jeffrey Bean   67   Director
Richard P. Trotter*   77   Chief Operating Officer
Sandra L. Ahman   57   Vice President, Secretary and Director

 

*Mr. Trotter retired April 30, 2020.

 

Management Profiles

 

Anthony L. Havens, Chief Executive Officer, President, and Chairman. On February 27, 2004, Mr. Havens became our Chief Executive Officer, President and Chairman of the Board. Mr. Havens served as acting Chief Financial Officer from July 2005 to September 2006. Mr. Havens resumed serving as acting Chief Financial Officer on January 31, 2016, upon the retirement of the Chief Financial Officer. He is involved in all aspects of Sparta’s operations, including providing strategic direction, and developing sales and marketing strategies. From 1994 to 2004, Mr. Havens was Chief Executive Officer and a director of American Motorcycle Leasing Corp. He co-founded American Motorcycle Leasing Corp. in 1994, and developed its operating platform and leasing program to include a portfolio, which includes both prime and sub-prime customers. Mr. Havens has over 20 years of experience in finance and investment banking.

 

Kristian Srb, Director. Mr. Srb joined our Board of Directors in December 2004. Mr. Srb has been a director of American Motorcycle Leasing Corp. from 1994 to the present. Mr. Srb was President of American Motorcycle Leasing Corp. from 1994 to 1999. Since 1999, Mr. Srb has engaged in private investment activities. He has over 16 years’ experience in international brand development and management, including for 13 years with Escada A.G.

 

Jeffrey Bean, Director. Mr. Bean joined our Board of Directors in December 2004. Mr. Bean is the founder and President of Bean Foods, LLC. Formed in July 2006 the company develops, owns and operates quick serve restaurants in Georgia. Prior to founding Bean Foods, Mr. Bean was the founding partner for GoMotorcycle.com, a business that engaged in the sale of motorcycle parts and accessories over the Internet. Mr. Bean was an institutional broker and trader at a major commodities trading firm from 1985 to 1997. From 1977 to 1985, Mr. Bean was President of Thomaston Press, Ltd., a printing concern. He received a B.A. degree from the University of Virginia.

 

Richard P. Trotter, Chief Operating Officer. Mr. Trotter has been our Chief Operating Officer since November 2004. From 2001 to 2004, Mr. Trotter was President, Chief Credit Officer, of American Finance Company, Inc., purchasing retail automobile installment contracts from independent automobile dealers nationwide. From 1996 to 2001, he was Senior Vice President of Originations for Consumer Portfolio Services, Inc., one of the nation’s leading purchasers of non-prime retail automobile installment contracts. From 1994 to 1996, he was Senior Vice President of Marketing for Consumer Portfolio Services, Inc. His experience also includes positions as Chief Operating Officer, Executive Director and President, and Chief Credit Officer for banks and financial institutions in California. Mr. Trotter has over 30 years’ experience in financial institutions and over 20 years’ experience specializing in the automobile lending, servicing, and collecting industry.

 

Sandra L. Ahman, Vice President, Secretary and Director. On March 1, 2004, Sandra Ahman became Vice President of Operations and Secretary of Sparta, and a Director on June 1, 2004. She served as a Vice President of our predecessor entity, Sparta Commercial Services, LLC since its inception in 2001 until its dissolution in February 2006. From 1994 to 2004, she was Vice President of Operations of American Motorcycle Leasing Corp. Prior to joining American Motorcycle Leasing Corp., Ms. Ahman was with Chatham Capital Partners, Ltd. Before joining Chatham in 1993, she was Manager, Human Resources for Comart and Aniforms, a sales promotion and marketing agency in New York, where she worked from 1986 to 1993. For the past 15 years, Ms. Ahman has been a volunteer with The Children’s Aid Society in New York City, a membership of 500 committed volunteers, serving from 2000 to 2002 as President of its Associates Council, from 2002 to 2005 as Chairman of the Associates Council, and from 2002 to 2012 as a member of the Advisory Council of their Board of Trustees.

 

51

 

 

Board of Directors Information and Corporate Governance

 

There are no family relationships among our executive officers or directors. None of our directors or officers serves or has served during the past five years as a director of another reporting company or a registered investment company. Based solely in reliance on representations made by our officers and directors, during the past ten years, none of the following occurred with respect to such persons: no petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such persons, or any partnership in which he or she was a general partner or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing; no such persons were convicted in a criminal proceeding or are a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); no such persons were the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, or of any federal or state authority barring, suspending or otherwise limiting, their involvement in any type of business practice, or in securities or banking or other financial institution activities; and no such persons were found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or by the Commodity Futures Trading Commission to have violated any federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

The number of directors shall be between two (2) and ten (10). The number of directors shall be set by the then current members of the Board of Directors. The size of the Board of Directors is four (4). A director need not be a stockholder. In the case of a vacancy as a result in an increase in the number of directors, the Board of Directors shall fill such vacancy at a special meeting thereof. In seeking candidates for directors, our Board may use their business, professional and personal contacts; accept the recommendations from other Board members, stockholders or management. Current members of the Board are considered for re-election. The process for evaluating candidates and the manner of evaluation is the same regardless of the category of person recommending the proposed candidate. The Board considers business experience, mix of skills and other criteria and qualities appropriate for Board membership, including: intelligence, high personal and professional ethics, values, integrity and sound judgment; education; business and professional skills and experience; familiarity with our business and the industry in general; independence from management; ability to devote sufficient time to Board business; commitment to regularly attend and participate in meetings of our Board and its committees; and concern for the long-term interests of the stockholders. While such factors important in evaluating candidates, we do not impose any specific, minimum qualifications for director nominees.

 

Our Board of Directors does not currently maintain a separately designated standing audit, nominating, or compensation committee, or other similar committee, of the Board of Directors, and we do not have audit, nominating, or compensation committee, or other similar charter. Functions customarily performed by such committees are performed by our Board as a whole as our operations have been limited and we have had a small number of officers and a small number of directors since inception. We are not required to maintain such committees under the applicable rules of the OTC Bulletin Board. None of our directors qualifies as an “audit committee financial expert.” As all of our Board members are officers or nominees of a substantial stockholder who may not be deemed independent, we have not established separate Board committees.

 

The Board of Directors has not adopted a specific process with respect to security holder communications, but security holders wishing to communicate with the Board of Directors may do so by mailing such communications to the Board of Directors at our offices.

 

Code of Ethics

 

We have adopted a “code of ethics”, as defined by the SEC, which applies to all our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Sparta’s executive officers, directors, and persons who beneficially own more than ten percent of Sparta’s common stock to file with the Securities and Exchange Commission initial reports of beneficial ownership and reports of changes in beneficial ownership of Sparta’s common stock. Such persons are also required by Securities and Exchange Commission regulations to furnish Sparta with copies of all such Section 16(a) forms filed by such person. Based solely on a review of the copies of such reports furnished to Sparta in connection with the fiscal year ended April 30, 2020, Sparta is not aware of any material delinquencies in the filing of such reports.

 

52

 

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation

 

The table below sets forth information concerning the compensation we paid to our Chief Executive Officer and our next two most highly compensated executive officers who served during our fiscal year ended April 30, 2020 (“Named Executive Officers”).

 

                      Stock     Option     All Other        
          Salary     Bonus     Awards     Awards     Compensation     Total  
Name and Principal Position   Year     ($)(a)     ($)     ($)     ($)     ($)(b)     ($)  
                                           
Anthony L. Havens     2020       280,000               -       -               280,000  
Chief Executive Officer     2019       280,000               -       -               280,000  
                                                         
Richard P. Trotter*     2020       100,000       -       -       -       -       100,000  
Chief Operating Officer     2019       100,000       -       -       -       -       100,000  

 

*Mr. Trotter retired April 30, 2020.

 

(a) For Mr. Havens includes accrued, unpaid net salary of $35,917 and $57,033 at year end 2020 and 2019 respectively.
(b) This column reports the total amount of perquisites and other benefits provided, if such total amount exceed $10,000.

 

In general, compensation payable to a Named Executive Officer consists of a base salary, a stock or stock option award, and may include a cash bonus. During our 2019 fiscal year, we had in effect a written employment agreement with the Mr. Havens. Our compensation system has generally not been tied to performance-based conditions other than the passage of time.

 

Employment Agreement with CEO

 

We entered into an employment agreement, dated as of July 12, 2004, with Anthony L. Havens who serves as our Chief Executive Officer. The agreement was for an initial term of five years, and provided for automatic extensions for one five-year period and for additional one-year periods, unless written notice is given three months prior to the expiration of any such term that the term will not be extended. The agreement was automatically extended for one year in July 2020. His base salary is at an annual rate of $280,000. He is entitled to defer a portion of his base salary each year. He is entitled to annual increases in his base salary and other compensation as may be determined by the Board of Directors. He is entitled to a $1,000,000 term insurance policy. He is entitled to six weeks of paid vacation per year, health insurance, short term and long-term disability insurance, retirement benefits, fringe benefits, and other employee benefits on the same basis as is generally made available to other senior executives. He is entitled to reimbursement of reasonable business expenses incurred by him in accordance with company policies. If terminated, he is entitled to three months of severance for up to six months of service for each year of employment, plus full participation in all standard employee benefits during the period of severance payments. The employment agreement provides for termination for cause. If he resigns for good reason or is terminated without cause within twelve months after a change in control, he is entitled to receive an additional lump sum payment equal to the greater of the severance payment or the balance of his base salary for the remaining employment term, continued coverage under any welfare benefits plans for two years, and full vesting of any account balance under a 401(k) plan. For purposes of the employment agreement, a change in control refers to:

 

  a change in voting power, due to a person becoming the beneficial owner of 50% or more of the voting power of our securities and our largest stockholder;
  during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors, including later approved directors, ceasing to constitute a majority of the board;
  a merger or consolidation of our company with a third party, after which our stockholders do not own more than 50% of the voting power; or
  a sale of all or substantially all of our assets to a third party.

 

If we elect not to renew the employment agreement, he shall be entitled to receive severance equal to thirty months of his base salary plus standard employment benefits. If we fail to fully perform all or any portion of our post-termination obligations, we are be obligated to pay to him an amount equal to five times the value of the unperformed obligation.

 

53

 

 

Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth information concerning outstanding equity awards held by the Name Executive Officers as of April 30, 2020.

 

    Option Awards     Stock Awards  
Name  

Number of securities underlying unexercised options (#)

Exercisable

   

Number of securities underlying unexercised options (#)

Unexercisable

   

Option

exercise price ($)

   

Option

expiration date

   

Number of shares or units of stock that have not vested (#)

   

Market value of shares or units of stock that have not vested ($)

 
Anthony L. Havens        0                                 0        -  
Sandra L. Ahman     0                              0       -  
Richard P. Trotter     0                         0       -  

 

Compensation of Directors

 

In fiscal 2020, non-employee directors received no compensation.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table summarizes our equity compensation plan information as of April 30, 2020.

 

Plan category  

Number of securities to be issued upon exercise of outstanding options, warrants and rights

   

Weighted-average exercise price of outstanding options, warrants and rights

   

Number of securities remaining available for future issuance under equity compensation plan

 
Equity compensation plans
approved by securities holders
                         
2005 Plan      -       -       -  
Equity compensation plans not
approved by security holders
                       
2009 Plan     -       -       116,270  
2014 Plan     -       -       2,800,000  
Total     -       -       2,916,270  

 

Plans in the Shareholder Approved Category

 

In July 2004, we adopted our 2005 Stock Incentive Compensation Plan (the “2005 Plan”). The 2005 Plan authorizes our Board of Directors to grant securities, including stock options, to employees, directors and others, in the aggregate amount of 113,334 shares of common stock. Securities issued under the plan may be stock awards, non-qualified options, incentive stock options, or any combination of the foregoing. In general, stock options granted under the plan have a maximum duration of ten years from the date of the grant and are not transferable. The per share exercise price of any incentive stock option granted under the plan may not be less than the fair market value of the common stock on the date of grant. Incentive stock options granted to persons who have voting control over ten percent or more of our capital stock are granted at 110% of fair market value of the underlying common stock on the date of grant and expire five years after the date of grant. No awards may be granted after July 1, 2014. In June 2015, four employees agreed to exchange 3,999 options exercisable at $7.50 per share and 28,667 options exercisable at $ 1.65 per share for 113,334 shares of the Company’s common stock, valued at $77,460. The shares are fully vested. Only 66,835 shares have been issued. 6,000 shares have been cancelled as the employee resigned prior to vesting leaving 40,499 shares to be issued.

 

As of April 30, 2020, no options to purchase shares of common stock were outstanding under the 2005 plan.

 

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Plans Not in the Shareholder Approved Category

 

In May 2009, the Company’s Board of Directors authorized a 2009 Consultant Stock Plan covering 133,334 shares of the Company’s common stock for purposes of compensation of certain consultants. Effective June 12, 2013, the Plan was amended to increase the authorized number of shares by 500,000 bringing the total number of authorized shares to 633,333. During the fiscal year ended April 30, 2020, no shares were issued under the plan.

 

In October 2014, the Company’s Board of Directors approved the “2014 Equity Incentive Plan” authorizing the issuance of up to 3,000,000 shares of the Company’s common stock or common stock purchase options. The purpose of the 2014 Equity Incentive Plan (the “2014 Plan”) is to advance the interests of Sparta Commercial Services, Inc. (the “Company”) and its shareholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding such individuals who contribute to the achievement by the Company of its economic objectives. The shares underlying the 2014 Plan were registered on Form S-8 with the Securities and Exchange Commission on November 3, 2014. During the fiscal year ended April 30, 2020, no shares of common stock were issued under the 2014 Plan.

 

Common Stock

 

The table below sets forth information regarding the beneficial ownership of our common stock as of July 31, 2020 by: each of our directors; each of our executive officers; all of our executive officers and directors as a group; and each person known by us to be the beneficial owner of more than 5% of our common stock.

 

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power. Under SEC rules, a person is deemed to be the beneficial owner of securities, which may be acquired by such person upon the exercise of options and warrants or the conversion of convertible securities within 60 days from the date on which beneficial ownership is to be determined. Each beneficial owner’s percentage ownership is determined by dividing the number of shares beneficially owned by that person by the base number of outstanding shares, increased to reflect the beneficially owned shares underlying options, warrants or other convertible securities included in that person’s holdings, but not those underlying shares held by any other person.

 

Name (a)  

Number of Shares

Beneficially Owned

   

Percentage of Class

Beneficially Owned

 
Anthony L. Havens (1)     259,118       ≤1 %
Kristian Srb     398,944       ≤1 %
Jeffrey Bean     103,614       ≤1 %
Richard P. Trotter* (2)     1,067,588       ≤1 %
Sandra L. Ahman     7,685       ≤1 %
All current directors and named officers as a group (5 in all)     1,836,949       ≤1 %

 

*Mr. Trotter retired April 30, 2020.

 

(a) Unless indicated otherwise, the address for each person named in the table is c/o Sparta Commercial Services, Inc., 555 Fifth Avenue, 14thFloor. New York, NY 10017.
(1) Excludes approximately 50,000 shares of common stock owned by Mr. Havens’ son held in an irrevocable trust account. Mr. Havens is not the trustee for his son’s trust account, and does not have the sole or shared power to vote or direct the vote of such shares. Mr. Havens disclaims beneficial ownership of such shares held in his son’s trust account.
(2)

Includes 1,667 vested shares and 44,445 shares held by The Richard and Kay Trotter Trust Established March 18, 2009. Includes 21,476 shares to be issued to Mr. Trotter in lieu of salary. Includes 1,000,000 shares to be issued to Mr. Trotter for forgiveness of past due salary. Includes 53,550 vested stock options, all exercisable at $0.500 per share until May 12, 2020. Mr. Trotter retired April 30, 2020.

 

Changes in Control

 

Other than outstanding convertible securities, we do not have any arrangements that may result in a change in control.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

There were no transactions with our Directors during the fiscal years ended April 30, 2020 and 2019. As of April 30, 2020, we owed Mr. Srb $395,643 and Ms. Ahman $36,760.

 

Director Independence

 

None of our directors, other than Kristian Srb and Jeffrey Bean, is deemed an independent director. For purposes of determining independence, we are applying the independence standards of the NASDAQ Stock Market LLC.

 

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit Fees

 

Fees for audit services provided by Boyle CPA, LLC, our principal independent registered public accounting firm, during the fiscal years ended April 30, 2020 and 2019 were $14,000 and $14,000, respectively. Audit fees consist of the aggregate fees billed for the audits of our annual financial statements, the reviews of our quarterly financial statements, and services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.

 

Audit-Related Fees

 

Fees for audit-related services provided by our principal independent registered public accounting firm during the fiscal years ended April 30, 2020 and 2019 were $0. Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under the caption Audit Fees.

 

Tax Fees

 

Fees for tax services provided by our principal independent registered public accounting firm during the fiscal years ended April 30, 2020 and 2019 were $0 and $0, respectively. Tax fees consist of fees billed for tax compliance, tax advice, and tax planning.

 

All Other Fees

 

There were no other fees billed for services our principal independent registered public accounting firm for the fiscal years ended April 30, 2020 and 2019.

 

Pre-Approval Policies and Procedures

 

Our Board of Directors has a policy that requires pre-approval of all audit, audit-related, tax services, and other services, including non-audit services, performed by our independent registered public accounting firm. All services performed by our principal independent registered public accounting firm, and all fees paid, in our fiscal years ended April 30, 2020 and 2019 were pre-approved. The Board of Directors is responsible for matters typically performed by an audit committee. We do not presently have a separate audit committee of the Board of Directors. The Board of Directors considered whether, and determined that, the auditor’s provision of audit and non-audit services was compatible with maintaining the auditor’s independence.

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a) List of documents filed as a part of this report:

 

(1) Index to Condensed Consolidated Financial Statements

 

Report of Registered Independent Certified Public Accounting Firm

Consolidated Balance Sheets as of April 30, 2020 and 2019

Consolidated Statements of Losses for the years ended April 30, 2020 and 2019

Consolidated Statement of Deficit for the two years ended April 30, 2020

Consolidated Statements of Cash Flows for the years ended April 30, 2020 and 2019

Notes to Consolidated Financial Statements

 

(2) Index to Financial Statement Schedules

 

Not required.

 

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(3) Index to Exhibits

 

Exhibit Number   Description of Exhibit
3(i)(1)   Articles of Incorporation of Tomahawk Oil and Minerals, Inc. (Incorporated by reference to Exhibit 3(i) (1) of Form 10-KSB filed on August 13, 2004)
3(i)(2)   Certificate of Amendment of Articles of Incorporation, November 1983 (Incorporated by reference to Exhibit 3(i) (2) of Form 10-KSB filed on August 13, 2004)
3(i)(3)   Certificate of Amendment of Articles of Incorporation for name change, August 2004 (Incorporated by reference to Exhibit 3(i) of Form 8-K filed on August 27, 2004)
3(i)(4)   Certificate of Amendment of Articles of Incorporation for increase in authorized capital, September 2004 (Incorporated by reference to Exhibit 3(i) of Form 8-K filed on September 17, 2004)
3(i)(5)   Certificate of Amendment of Articles of Incorporation for decrease in authorized capital, December 2004 (Incorporated by reference to Exhibit 3(i) of Form 8-K filed on December 23, 2004)
3(i)(6)   Certificate of Designation for Series A Redeemable Preferred Stock, December 2004 (Incorporated by reference to Exhibit 3(i) of Form 8-K filed on January 4, 2005)
3(i)(7)   Certificate of Designation for Series B Preferred Stock (Incorporated by reference to Exhibit B to Preferred Stock Purchase Agreement, dated as of July 29, 2009
3(i)(8)   Certificate of Amendment of Articles of Incorporation for increase in authorized capital, September 21, 2009 (Incorporated by reference to Exhibit 3(i)(8) of Form S-1 filed on October 2, 2009)
3(i)(9)   Certificate of Designations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 5.03(i) of Form 8-K filed on November 19, 2009)
3(i)(10)   Certificate of Designation of Series D Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on August 14, 2018)
3(ii)(1)   By-laws (Incorporated by reference to Exhibit 3(ii) (1) of Form 10-KSB filed on August 13, 2004)
3(ii)(2)   By-laws Resolution (Incorporated by reference to Exhibit 3(ii) (2) of Form 10-KSB filed on August 13, 2004)
3(ii)(3)   Board of Directors Resolutions amending By-laws (Incorporated by reference to Exhibit 3(ii) of Form 10-QSB filed on December 15, 2004)
4.1   Form of Stock Option Agreement with Jeffrey Bean (Incorporated by reference to Exhibit 4.1 of Form 10-Q filed on July 9, 2020)
4.2   Form of Stock Option Agreement with Kristian Srb (Incorporated by reference to Exhibit 4.2 of Form 10-Q filed on July 9, 2020)
4.3