NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY
31, 2022
(UNAUDITED)
NOTE
A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial
statements follows.
Business
General
Overview
Sparta
Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation
with headquarters in New York City, www.spartacommercial.com. We are a multi-disciplined parent corporation operating across three
business sectors – Financial Services, E-Commerce & Mobile Technology, and Health and Wellness (www.spartacommercial.com).
Sparta’s
roots are in the Powersports industry. The Company provided retail installment loans and leases through authorized motorcycle dealerships
in 33 states, with financing provided by institutional lenders. The Company also maintained a full underwriting and servicing platform
for its portfolio. Notwithstanding the discontinuance of our initial focus on consumer loans and leases post Lehman and during the 2008
financial crisis, in 2007, the Company introduced a new initiative, Municipal Financing (www.spartamunicipal.com), which has financed
over 100 jurisdictions to date. Sparta’s Municipal Finance program is available to all nonprofit organizations, institutions, and
entities. All nonprofit organizations which adhere to I.R.S. guidelines, including 501 (c) 3 of the Internal Revenue Code, are eligible.
Both public nonprofits, also known as public charities supported with publicly collected funds, and private nonprofits, also known as
private foundations backed by an individual or business entity, qualify for the program.
Consumers,
retailers, municipals, nonprofits, auction houses, banks, and insurance companies scrutinize title history reports for the vital information
needed and factored into crucial business decisions affecting the bottom line. Vehicle History Reports are a staple of Sparta’s
E-Commerce Technology subsidiary iMobile Solutions, Inc. Whether a vehicle is intended for business or recreational use, Sparta’s
Vehicle History Reports are highly regarded for accuracy and completeness. They have been sold across all 50 states and in 62 countries
worldwide. They provide a trusted layer of assurance to vehicle buyers and are available on our websites as well as on various dealership
websites. They include Cyclechex (Motorcycle History Reports at www.cyclechex.com), RVchex (Recreational Vehicle History Reports
at www.rvchex.com), and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com).
The
Company’s E-Commerce and Mobile Technology subsidiary name change to iMobile Solutions, Inc., from Specialty Reports, Inc., in
2016, signifies its ever-broadening service offerings in the evolving technology landscape. With iMobile App (www.imobileapp.com),
the Company provides mobile technology services, including web and mobile application creation, development, and management for a wide
range of businesses to increase revenue, build brand recognition, and improve customer engagement. Our ever-broadening business base
of mobile applications includes vehicle dealerships and racetracks, private clubs and country clubs, schools and entertainment venues,
restaurants, grocery stores, and various other merchant types. (www.imobileapp.com/app-gallery). The Company also designs, launches,
maintains, and hosts websites for businesses incorporating SEO (search engine optimization), social media marketing, and online reviews
to improve their presence online.
We
provide specific, tailored action plans for our clients’ websites that include services such as eCommerce, CRM (Customer Relationship
Management) development, and integration. This custom software helps businesses communicate with customers and can also be used for employees
to communicate internally. The CRM software can be web-based, integrated with a mobile app, or both. We work with clients to understand
their unique needs and incorporate the features and requirements that are most important to them and will facilitate their business growth
and success. Correspondingly, the Company designs and builds custom kitchen ordering software for independent grocery stores, delicatessens,
and other food service businesses. The software can be designed in various ways, including mobile devices and in-store ordering. The
kitchen ordering software is enabled with payment integration, text messaging notification, wireless printing, and other features. iMobile
Solutions, Inc. provides a turn-key solution for businesses looking to simplify or streamline their kitchen ordering process. Additionally,
we offer text messaging services, which supplement business marketing strategies to gain and retain brand loyalty among its clients,
customers, and investors. Our text messaging platform allows clients to manage, schedule, and analyze text message performance quickly.
Company management recognized the substantial business
opportunity in the rapidly expanding hemp-CBD (cannabidiol) market in the United States. Sparta created its subsidiary, New World Health
Brands, Inc., in April 2019, on the heels of the Agriculture Improvement Act (also known as the Farm Bill), signed into law last December
20, 2018. Consequently, regulators removed hemp (CBD) from Schedule 1 of the Controlled Substances Act. During 2019-2020, we sourced,
developed, and tested 5 CBD product categories totaling 31 products. We procured premium, domestic-grade, full-spectrum, broad-spectrum,
and THC-free hemp, created product packaging and labeling, and implemented fulfillment to launch an online Business-to-Consumer (“B
to C”) website: www.newworldhealthcbd.com on December 21, 2019.
Sparta’s
response to the onset of the COVID-19 pandemic in early 2020 quickly took shape with thorough investigations into evolving customer trends
in health and wellness. As a result, we expanded New World Health Brands and developed a new product line of natural dietary supplements.
In August 2020, we launched an online B to C website: www.newworldhealthbrands.com, featuring high-quality nutritional supplements,
including vitamins and minerals, such as Zinc, Magnesium, Boron, Iodine, Beetroot Extract, Selenium, Vitamin B Complex, Vitamin C and
PQQ. All health and wellness offerings are exclusively sourced and manufactured in the United States and adhere to strict U.S. standards
and guidelines to ensure the safety and quality of our products. Sparta’s commitment to high standards and transparency is tantamount
to being a trusted brand.
Sparta’s
subsidiary, Sparta Crypto, Inc., www.SpartaCrypto.com, was established on September 25, 2020, and is in the process of completing a proprietary
state-of-the-art platform designed to connect users of widely adopted digital currencies with sellers of various goods and services.
The platform has not launched and the Company can make no assurances that the described plan will reach implementation. In addition,
the Company has completed and tested a cryptocurrency payment gateway called SpartaPayIQ, www.SpartaPayIQ.com, which is functional
and was formally announced on March 3, 2022.
Agoge Global USA, Inc. was formed as a subsidiary
of Sparta Crypto, Inc. in December 2022 and entered in to a Joint Venture Agreement with WeDev Group to facilitate cross-border transactions
between importers and exporters of goods from the U.S. and Brazil. In addition, Agoge Global USA provides business intermediary services
to global importers and exporters of goods and services. These services include, but are not limited to, industry introductions, tax compliance
assistance, import and export documentation assistance, reselling services in other jurisdictions, and facilitation of cross-border transactions.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements as of January 31, 2023, and for the nine months ended January 31,
2023, and 2022 have been prepared by the Company according to the rules and regulations of the Securities and Exchange Commission, including
Form 10-Q and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and
adjustments), which are, in the opinion of management, necessary to present the operating results for the respective periods fairly.
Certain information and footnote disclosures usually present in annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted under such rules and regulations. The Company believes that the
disclosures provided are adequate to make the information presented accurate.
These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and explanatory notes for the year ended April 30, 2022, as disclosed in the Company’s Form 10-K for that year as filed with the
Securities and Exchange Commission on August 15, 2022. The results of operations for the nine months ended January 31, 2022, are not
necessarily indicative of the results to be expected for any other interim period or the full year ending April 30, 2023.
The
condensed consolidated balance sheet as of April 30, 2022, contained herein has been derived from the audited consolidated financial
statements as of April 30, 2022, but does not include all disclosures required by the U.S. GAAP.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation. The third-party ownership of the Company’s subsidiary is accounted
for as noncontrolling interest in the consolidated financial statements. Changes in the noncontrolling interest are reported in the statement
of changes in deficit.
Estimates
These
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America,
which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures
of revenues and expenses for the said period. Accordingly, actual results could differ from those estimates.
Revenue
Recognition
During
the first quarter of 2018, the Company adopted A.S.U. 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 impact our consolidated financial statements other than enhancing our disclosures related to our revenue-generating activities.
The
Company acts as a principal in its revenue transactions as it is the primary obligor.
SCHEDULE OF DISAGGREGATION REVENUE
| |
| | | |
| | | |
| | | |
| | |
| |
3-months ended | | |
9-months ended | |
Revenue | |
Jan 2023 | | |
Jan 2022 (Adjusted) | | |
Jan 2023 | | |
Jan 2022 | |
Information technology | |
$ | 60,120 | | |
$ | 56,134 | | |
$ | 173,559 | | |
$ | 168,933 | |
New World Health | |
$ | 3,550 | | |
$ | 4,586 | | |
$ | 15,483 | | |
$ | 18,170 | |
Total | |
| 63,670 | | |
| 60,720 | | |
| 189,042 | | |
| 187,103 | |
Revenues
from mobile app products and New World Health Brands products are generally recognized upon delivery. Revenues from History Reports are
typically 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 before our performance,
including refundable amounts.
Cash
Equivalents
All
liquid investments with three months or less maturity are cash equivalents for the accompanying financial statements.
Fair
Value Measurements
The
Company has adopted ASC 820, “Fair Value Measurements (“ASC 820”).” ASC 820 establishes a three-level
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The scale gives the highest priority
to unadjusted quoted prices in active markets and 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,
derivative contracts traded in an active exchange market, and certain highly liquid securities 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 supported by little or no market activity and 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 the 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. Observable inputs may not always be available for some products or in certain market conditions.
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 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 position in the financial statements only if that position is more likely than not to be sustained
upon examination by taxing authorities based on the technical merits of the position. Our practice recognizes interest 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. It is recognized over the
service period, usually the vesting period. This guidance establishes standards for accounting 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 based on the fair value of the entity’s equity instruments, or the issuance of those equity instruments may settle
that.
We
use the fair value method for equity instruments granted to non-employees and the Black-Scholes model to measure options’ fair
value. The stock-based fair value compensation is determined as of the date of the grant or 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, consisting of available products. They are accounted for using the first-in, first-out
(FIFO) method and valued at the lower of cost or net realizable value. Inventory consists of finished goods for the Company’s New
World Health business.
Property
and Equipment
Property
and equipment are recorded at cost. Minor additions and renewals are expensed in the year incurred. Significant 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. The estimated useful lives of significant depreciable assets are as follows:
SCHEDULE
OF ESTIMATED USEFUL LIFE OF PROPERTY AND EQUIPMENT
|
|
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 more than 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.
As
of January 31, 2023, and April 30, 2022, approximately 32,350,243 potential shares (including 23,333,438 and 8,916,805 shares to be issued
on the balance sheet), respectively, were excluded from the shares used to calculate diluted earnings per share as their inclusion would
reduce the net loss per share.
Derivative
Liabilities
The
Company assessed the classification of its derivative financial instruments as of January 31, 2023, and April 30, 2022, which consist
of convertible instruments and rights to shares of the Company’s common stock. It 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 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.”
ASC
815-40 provides that, among other things, generally, if an event is not within the entity’s control and could or require net cash
settlement, then the contract shall be classified as an asset or a liability. 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 on 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. 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 underlying common stock’s fair value at the note transaction’s commitment date 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 redemption date.
Reclassifications
Certain
reclassifications have been made to conform with prior periods’ data to the current presentation. These reclassifications did not
affect reported losses.
Recent
Accounting Pronouncements-
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes
the lease requirements in Accounting Standards Codification (A.S.C.) 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 lease terms of 12 months or less. Adopting this standard did not have a material impact on the Company’s
consolidated financial statements.
Standard-setting
organizations and various regulatory agencies are currently studying multiple proposed or potential accounting standards. Due to the
tentative and preliminary nature of those proposed standards, we have yet to determine whether implementation of such proposed standards
would be material to our consolidated financial statements and other disclosures as included in the footnotes to the financial statements.
NOTE
B – GOING CONCERN MATTERS
The
accompanying unaudited condensed consolidated financial statements have been prepared on a going-concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the ordinary course of business. As shown in the accompanying unaudited
condensed consolidated financial statements, the Company has incurred recurring losses and generated negative cash flows from operating
activities since inception. As of January 31, 2023, the Company had an accumulated deficit of $69,448,432 and $73,984,686 respectively. A working capital deficit for the period ended January 31, 2023 and year ended April 30, 2022
(total current liabilities exceeded total current assets) of $13,438,774 and $19,327,286 respectively. The Company’s cash balance and revenues generated are
insufficient. They cannot cover our 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 depends on management’s ability to develop profitable operations. Management is devoting substantially
all its efforts to growing its business and raising capital, and there can be no assurance that the Company’s efforts will be successful.
The management’s actions are not guaranteed to result in profitable operations or resolve liquidity problems. The accompanying
unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to
continue as a going concern.
The
Company’s management actively pursues additional equity financing through discussions with investment bankers and private investors.
There can be no assurance that the Company will be successful in its effort to secure additional equity financing.
NOTE
C – NOTES PAYABLE AND DERIVATIVES
The
Company has numerous outstanding notes payable to various parties. The notes bear interest at rates of 5% - 20% per year and are summarized
as follows:
SCHEDULE OF NOTES PAYABLE
Notes Payable | |
January 31, 2023 | | |
April 30, 2022 | |
Notes convertible at holder’s option | |
$ | 3,042,773 | | |
$ | 2,980,848 | |
Notes convertible at Company’s option | |
| 335,700 | | |
| 335,700 | |
Non-convertible notes payable | |
| 2,077,981 | | |
| 1,933,536 | |
Subtotal | |
| 5,456,454 | | |
| 5,250,084 | |
Total | |
$ | 5,456,454 | | |
$ | 5,250,084 | |
The
balance of accrued interest of the above notes as of January 31, 2023, and April 30, 2022, were $ 1,656,450 and $2,680,787, respectively,
a significant decrease of $1,024,337 primarily due to several convertible notes having expired and being written off.
Certain
notes payable contain variable conversion rates, and the conversion features are classified as derivative liabilities. The conversion
prices are based on the market price of the Company’s common stock, at discounts of 30% - 48% to market value.
The
Company’s derivative financial instruments are embedded derivatives related to the outstanding short-term Convertible Notes Payable.
These embedded derivatives included 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, including 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 products
is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income. These Notes are subject to a six-year
Statute of Limitations in which to bring any potential claims.
The
change in fair value of the derivative liabilities on January 31, 2023, was calculated with the following average assumptions using a
Black-Scholes option pricing model are as follows:
SCHEDULE OF DERIVATIVE LIABILITIES ASSUMPTIONS USING BLACK-SCHOLES OPTION
Significant Assumptions: | |
| |
| | |
| |
| |
| | |
Risk-free interest rate | |
Ranging from | |
| 0.16% to 0.2 | % |
Expected stock price volatility | |
Ranging from | |
| 155 to 270 | % |
Expected dividend payout | |
| |
| 0 | |
Expected life in years | |
Ranging from | |
| 0.25 to 3.0 Years | |
Expected life in years | |
Ranging from | |
| 0.25 to 3.0 Years | |
Changes
in derivative liability during the three months ended January 31, 2023, and April 30, 2022 were:
SCHEDULE OF CHANGES IN DERIVATIVE LIABILITIES
| |
2023 | | |
2022 | |
| |
January 31, | | |
April 30, | |
| |
2023 | | |
2022 | |
Balance, beginning of year | |
$ | 9,549,640 | | |
$ | 3,446,738 | |
Derivative liability extinguished | |
| (336,418 | ) | |
| (1,029,141 | ) |
Derivative financial liability arising on the issuance of convertible notes and warrants | |
| | | |
| - | |
Fair value adjustments | |
| (4,168,344 | ) | |
| 7,132,043 | |
Balance, end of period | |
$ | 4,504,762 | | |
$ | 9,549,640 | |
NOTE
D – LOANS PAYABLE TO RELATED PARTIES
As
of January 31, 2023, and April 30, 2022, aggregated loans and notes payable, without demand and with no interest, to officers and directors
were $371,753 and $409,403, respectively.
NOTE
E – EQUITY TRANSACTIONS
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; 4,200,000 shares have been designated as Series C Preferred Stock with a
$1.00 per share liquidation value, and 2,000,000 shares have been designated as Series D Preferred Stock with a $1.00 per share liquidation
value.
During
the nine months ending January 31, 2023.
|
● |
Converted
total of 1,738,258 preferred shares C valued at $231,396 |
|
● |
Converted
a total of 141,053 preferred shares D valued at $141,053 |
During
the nine months ended January 31, 2022, the Company:
|
● |
Converted
a total of 1,969,269 preferred shares C to common shares valued at $373,893. |
|
● |
Converted
a total of 3,194,418 preferred shares D to common shares valued at $975,217. |
Common
Stock
The
Company is authorized to issue 750,000,000 shares of common stock, $0.001 par value. As of January 31, 2023 and April 30, 2022 the Company’s
issued and outstanding shares are 21,581,449 and 15,128,005, respectively.
During
the nine months ended January 31, 2023, the Company:
|
● |
Sold
3,102,346 shares valued at $212,500 issued for cash. |
|
● |
Issued 330,179 shares to accredited investors for cash |
|
● |
Issued
1,388,376 shares upon the conversion of shares of Series C Convertible Preferred Stock. |
|
● |
Issued
564,212 shares upon the conversion of shares of Series D Convertible Preferred Stock. |
|
● |
Issued
950,833 shares valued at $83,447 to accredited investors related to promissory notes. |
|
● |
Issued 378,909 shares valued at $35,000 to accredited investors upon conversion
of promissory notes |
|
● |
Issued
1,928,899 shares for consulting services valued at $282,981 |
During
the nine months ended January 31, 2023, the Company:
Sold
to six accredited investors 2,726,036
shares of common stock for cash of $182,500; actual shares were not issued yet and recorded as commons stock to be issued.
NOTE
F – FAIR VALUE MEASUREMENTS
The
Company follows the guidelines established according 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 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 January 31, 2023:
SCHEDULE OF FAIR VALUES OF FINANCIAL LIABILITIES
| |
Fair Value at | | |
Fair Value Measurement Using | |
| |
January 31, 2023 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liabilities | |
$ | 4,504,762 | | |
| - | | |
| - | | |
$ | 4,504,762 | |
Fair
values of financial liabilities as of April 30, 2022, are as follows:
| |
Fair Value at | | |
Fair Value Measurement Using | |
| |
April 30, 2022 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liabilities | |
$ | 9,549,640 | | |
| - | | |
| - | | |
$ | 9,549,640 | |
The
following is a description of the valuation methodologies used for these items:
Derivative
liabilities — these instruments consist of certain variable conversion features related to notes payable obligations and certain
outstanding warrants. These instruments were valued using pricing models incorporating 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 following A.S.C. Topic 825, “The Fair Value Option for Financial Issuances.”
NOTE
G – PROPERTY AND EQUIPMENT
Significant
classes of property and equipment on January 31, 2023, and April 30, 2022, consist of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
January 31, 2023 | | |
April 30, 2022 | |
Computer equipment, software and furniture | |
$ | 213,262 | | |
$ | 213,262 | |
Less: accumulated depreciation | |
| (213,262 | ) | |
| (213,262 | ) |
Net property and equipment | |
$ | - | | |
$ | - | |
All
equipment is fully depreciated as of January 31, 2023, and 2022. No additional investment in equipment for both fiscal years.
NOTE
H – WARRANTS:
No
warrants were issued to employees or services. As of January
31, 2023, a total of 9,229,370 warrants were vested. The computed fair value was $211,614.
NOTE
I – COMMITMENTS AND CONTINGENCIES
Operating
Lease Commitments
Our
executive offices are located in New York, NY. We have an agreement for use of office space at this location under a sublease which expired
on July 31, 2018, and continues on a month-to-month basis thereafter. The monthly base rent is $5,100.
Rent
expense was $49,700 and 43,200 for the nine months period ending January 31, 2023 and 2022, respectively.
Litigation
The
Company is subject to legal proceedings and claims arising in its business’s ordinary course. Sparta can make no representations
about the potential outcome of such proceedings.
As
of January 31, 2023, we have not been named as parties to any further legal proceedings except those disclosed prior and updated below.
From time to time, we may become involved in other legal proceedings, which sometimes arise due to the very nature of and in the ordinary
course of this business.
By
way of background, the Company had received notices dated April 1, 2016, May 13, 2016, and July 22, 2016, from two lenders claiming defaults
relating to conversion requests of $8,365.00 in principal plus interest, attorney fees, and $5,000.00 in principal plus interest also
seeking stock conversions aside from the stated principal and interest concerning notes in the total amounts of $55,125.00 and $27,500.00,
respectively, which the Company has declined to process and believes it has valid, meritorious defenses in that regard. The Company believes
these claims are contingent and unliquidated and disputes the same. While there can be no assurances that the Company would prevail in
any potential litigation concerning allegations brought against the Company, these potential liabilities have been recorded in the unaudited
condensed consolidated financial statements.
For
the above claims, on September 22, 2016, a motion for summary judgment instead of complaint was filed in the Supreme Court in the
State of New York: County of Kings against the Company by a lender for the amount of $102,170.82
in principal and stock conversion interest, plus fees and costs. Plaintiff’s motion for summary judgment instead of complaint
was denied on May 5, 2017. On August 22, 2018, Plaintiff brought a second motion seeking summary judgment on the liability issue,
again denied by the Court on March 14, 2019. The most recent appearance in this matter had been scheduled for March 13, 2020, at
which time the Court marked the case “adjourned without a date” due to the restrictions imposed on the Courts arising
from the COVID-19 pandemic. To date, no further Court appearances have been scheduled in this matter. However, most notably, a
favorable decision from the New York State Court of Appeals regarding the same types of transactions has since been determined to be
criminally usurious and, therefore, unenforceable management believes. These were the very same defenses raised on behalf of the Company.
On
October 26, 2018, a second lender commenced an action in the Supreme Court of the State of New York: New York County alleging damages
from unpaid principal arising from a promissory note dated February 26, 2015, in the amount of $50,000.00 plus damages including interest
and stock conversions, costs and fees. The Company disputes the enforceability of such claims for similar reasons, as stated above, based
on the Court of Appeals ruling regarding the unenforceable nature of such allegations demanding usurious interest rates. On November
9, 2022 the court rendered a decision on the cross motions for summary judgment in favor of the Company granting full dismissal of all
causes of action and awarded costs in favor of the Company. The time within which for plaintiff to appeal the decision has since expired.
NOTE
J – SUBSEQUENT EVENTS
The
Company had evaluated subsequent events for recognition and disclosure as of March 21, 2023 when the financial statements were
available to be issued. The Company’s Board of Directors has approved management’s recommendation to discontinue the
canabidiol (CBD) line of business effective March 31, 2023. No other matters were identified affecting the accompanying financial
statements and related disclosures.