NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY
31, 2022 AND APRIL 30, 2021 (UNAUDITED)
NOTE
A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial
statements follows.
Business
Sparta
Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation
with headquarters in New York City, www.spartacommercial.com. We are a multi-disciplined parent corporation operating across three business
sectors – Financial Services, E-Commerce & Mobile Technology, and Health and Wellness, (www.spartacommercial.com).
Sparta’s
roots are in the Powersports industry. The Company provided retail installment loans and leases through authorized motorcycle dealerships
in 33 states, with financing provided by institutional lenders. The Company also maintained a full underwriting and servicing platform
for its portfolio. Notwithstanding the discontinuance of our initial focus on consumer loans and leases post Lehman and during
the 2008 financial crisis; in 2007, the Company had introduced a new initiative, Municipal Financing, (www.spartamunicipal.com),
which has financed over 100 jurisdictions to date. Sparta’s Municipal Finance program is also currently available to
all nonprofit organizations which adhere to IRS guidelines, including 501(c)3 of the Internal Revenue Code.
Vehicle
History Reports are a staple of Sparta’s E-Commerce Technology subsidiary iMobile Solutions, Inc. Whether a vehicle is intended
for business or recreational use, Sparta’s Vehicle History Reports are highly regarded for accuracy and completeness and have been
sold across all 50 states and in 62 countries worldwide. They provide a trusted layer of assurance to vehicle buyers and are available
on Kelley Blue Book, Auto Trader, AllState Insurance and a range of various dealership websites. They include Cyclechex (Motorcycle History
Reports at www.cyclechex.com), RVchex (Recreational Vehicle History Reports at www.rvchex.com), CarVINreport (Automobile History Reports
at www.carvinreport.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
2017, signifies its ever-broadening service offerings in the evolving technology landscape. Under 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 in the achievement of their marketing goals. The Company also designs, launches, maintains and hosts websites for businesses.
Sparta
created its subsidiary, New World Health Brands, Inc., in April 2019, on the heels of the Agriculture Improvement Act (also known as
the Farm Bill), which was signed into law the previous December 20, 2018. Consequently, hemp (CBD) was removed from Schedule 1 of the
Controlled Substances Act. Company management recognized the substantial business opportunity that lay ahead in the rapidly expanding
hemp-CBD (cannabidiol) market in the United States. During 2019-2020, we sourced, developed and tested 5 CBD product categories totaling
31 products. We procured premium, domestic-grade, full-spectrum, broad-spectrum, and THC free hemp, created product packaging and labeling,
and implemented fulfillment to launch an online B to C website: www.newworldhealthcbd.com on December 21, 2019. To ensure the safety
and quality of our products, all CBD product offerings are exclusively sourced, manufactured and tested at highly accredited testing
facilities in the United States and adhere to strict U.S standards and guidelines.
Sparta’s
response to the onset of the COVID 19 pandemic in early 2020 quickly took shape with thorough investigations into evolving customer trends
in health and wellness. As a result, we expanded New World Health Brands and developed a new product line of natural dietary supplements.
In August 2020, we launched an online B to C website: www.newworldhealthbrands.com, featuring high quality dietary supplements, including
vitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Beetroot Extract, Selenium, Vitamin B Complex, Vitamin C and PQQ. To
ensure the safety and quality of our products, all health and wellness offerings are exclusively sourced and manufactured in the United
States and adhere to strict U.S. standards and guidelines. Sparta’s commitment to high standards and transparency are tantamount
to being a trusted brand.
Sparta’s
newest subsidiary, Sparta Crypto, Inc., was established September 25, 2020 and is in the process of completing a proprietary state-of-the-art
platform designed to connect users of widely adopted digital currencies with sellers of various goods and services. The platform has
not launched and the Company can make no assurances that the described plan will reach implementation. In addition, the Company has completed
and tested a cryptocurrency payment gateway called SpartaPayIQ, which is functional and was formally announced on March 3,
2022.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements as of January 31, 2022 and for the three and nine months periods ended
January 31, 2022 and 2020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission,
including Form 10-Q and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals
and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.
Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted pursuant to such rules and regulations. The Company believes that
the disclosures provided are adequate to make the information presented not misleading.
These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and explanatory notes for the year ended April 30, 2021 as disclosed in the Company’s Form 10-K for that year as filed with the
Securities and Exchange Commission. The results of operations for the 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, 2022.
The
condensed consolidated balance sheet as of April 30, 2021 contained herein has been derived from the audited consolidated financial statements
as of April 30, 2021, but do not include all disclosures required by the U.S. GAAP.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its majority owned 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 United States of America which
require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of
revenues and expenses for the reported period. Accordingly, actual results could differ from those estimates. Included in these estimates
are assumptions about collection of accounts receivable, useful life of property and equipment, beneficial conversion feature of convertible
notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilities.
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 products are generally recognized upon delivery. Revenues from history reports are generally
recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue
and recognized upon delivery.
Cash
Equivalents
For
the purpose of the accompanying unaudited condensed consolidated financial statements, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
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.
Fair
Value Measurements
The
Company has adopted ASC 820, “Fair Value Measurements (“ASC 820”).” ASC 820 establishes a three-level
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets the lowest priority to unobservable inputs to fair value measurements of certain
assets and Liabilities. The three levels of the fair value hierarchy under ASC 820 are described below:
● |
Level
1 — Quoted prices for identical instruments in active markets. Level 1 assets and liabilities include debt and equity securities
and derivative contracts that are traded in an active exchange market, as well as certain securities that are highly liquid and are
actively traded in over-the-counter markets. |
|
|
● |
Level
2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in
active markets. |
|
|
● |
Level
3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurements.
Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques based on significant unobservable inputs, as well as management judgments or estimates that
are significant to valuation. |
This
hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining
fair value. For some products or in certain market conditions, observable inputs may not always be available.
Income
Taxes
We
utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income.
The
Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained
upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties
related to income tax matters in income tax expense.
Stock
Based Compensation
We
account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value
based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over
the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which
an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by
the issuance of those equity instruments.
We
use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value
of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of
the services is completed (measurement date) and is recognized over the vesting periods.
Inventories
The
Company’s inventories represent finished goods, consist of products available for sale and are accounted for using the first-in,
first-out (FIFO) method and valued at the lower of cost or net realizable value. Inventory consists of finished goods for the Company’s
New World Health business.
Concentrations
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash
equivalents and receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times,
such investments may be in excess of the FDIC insurance limit.
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, 2022, 133,278,980
shares potential shares (including 12,205,353
shares to be issued on the balance sheet), 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 January 31, 2022 and April 30, 2021, which consist
of convertible instruments and rights to shares of the Company’s common stock and determined that such derivatives meet the criteria
for liability classification under ASC 815.
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and
account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and
risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument
is deemed to be conventional, as described.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards
for “Accounting for Derivative Instruments and Hedging Activities”.
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from
their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial
Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly,
the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt
to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion
options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally,
if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an
asset or a liability.
Reclassifications
Certain
reclassifications have been made to conform to prior periods’ data to the current presentation. These reclassifications had no
effect on reported losses.
Recent
Accounting Pronouncements-
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes
the lease requirements in Accounting Standards Codification (ASC) Topic 840, “Leases.” Under Topic 842, lessees are
required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue
to be classified as either finance or operating. The Company adopted Topic 842 effective May 1, 2019 using a modified retrospective method
and will not restate comparative periods. Adoption of this ASU did not have a material impact on the Company’s consolidated financial
statements.
A
variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various
regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, we have not determined whether implementation
of such proposed standards would be material to our unaudited condensed consolidated financial statements.
NOTE
B – GOING CONCERN MATTERS
The
accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed
consolidated financial statements, the Company has incurred recurring losses and generated negative cash flows from operating activities
since inception. As of January 31, 2022, the Company had an accumulated deficit of $71,466,089
and a working capital deficit of $64,993,250.
The Company’s cash balance and revenues generated
are not currently sufficient and cannot be projected to cover its operating expenses for the next twelve months from the filing date
of this report. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for
a reasonable period of time.
The
Company’s existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially
all of its efforts to developing its business and raising capital and there can be no assurance that the Company’s efforts will
be successful. No assurance can be given that management’s actions will result in profitable operations or the resolution of its
liquidity problems. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
In
order to improve the Company’s liquidity, the Company’s management is actively pursuing additional equity financing through
discussions with investment bankers and private investors. There can be no assurance that the Company will be successful in its effort
to secure additional equity financing.
NOTE
C – 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:
SCHEDULE OF NOTES PAYABLE
Notes Payable | |
January 31, 2022 | | |
April 30, 2021 | |
Notes convertible at holder’s option | |
$ | 2,980,848 | | |
$ | 2,522,925 | |
Notes convertible at Company’s option | |
| 335,700 | | |
| 335,700 | |
Non-convertible notes payable | |
| 1,913,536 | | |
| 1,821,650 | |
Subtotal | |
| 5,230,084 | | |
| 4,680,275 | |
Debt discount | |
| - | | |
| - | |
Total | |
$ | 5,230,084 | | |
$ | 4,680,275 | |
Certain
of the notes payable contain variable conversion rates and the conversion features are classified as derivative liabilities. The conversion
prices are based on the market price of the Company’s common stock, at discounts of 30% - 48% to market value.
The
Company’s derivative financial instruments consist of embedded derivatives related to the outstanding short term Convertible Notes
Payable. These embedded derivatives include certain conversion features indexed to the Company’s common stock. The accounting treatment
of derivative financial instruments requires that the Company record the derivatives and related items at their fair values as of the
inception date of the Convertible Notes Payable and at fair value as of each subsequent balance sheet date. In addition, under the provisions
of Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”),
as a result of entering into the Convertible Notes Payable, the Company is required to classify all other non-employee stock options
and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications
of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is
higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives
is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.
The
change in fair value of the derivative liabilities at January 31, 2022, was calculated with the following average assumptions,
using a Black-Scholes option pricing model are as follows:
SCHEDULE
OF DERIVATIVE LIABILITIES ASSUMPTIONS USING BLACK-SCHOLES OPTION
Significant Assumptions: | |
| |
| |
| |
| |
| |
Risk free interest rate | |
Ranging from | |
0.09 to 0.2 | % |
Expected stock price volatility | |
Ranging from | |
155 to 270 | % |
Expected dividend payout | |
| |
| |
Expected life in years | |
Ranging from | |
0.25 to 3.0 Years | |
The
change in fair value of the derivative liabilities of convertible notes outstanding at April 30, 2021 was calculated with the following
average assumptions, using a Black-Scholes option-pricing model are as follows:
Significant
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
Risk
free interest rate |
|
Ranging
from |
|
1.83%
to 2.00 |
%
|
Expected
stock price volatility |
|
|
|
118%
to 187 |
%
|
Expected
dividend payout |
|
|
|
0 |
% |
Expected
life in years |
|
Ranging
from |
|
0.25
year to 2.0 years |
|
During
the nine months ended January 31, 2022 and 2021, the Company recorded a net loss of $6,852,259
and $2,507,055,
respectively, related to the mainly due to change
in value of the derivative liabilities.
Changes
in derivative liability during the nine months ended January 31, 2022, and 2021 were:
SCHEDULE OF CHANGES IN DERIVATIVE LIABILITIES
| |
| | |
| |
| |
January 31, | |
| |
2021 | | |
2021 | |
Balance, beginning of year | |
$ | 3,446,738 | | |
$ | 2,802,125 | |
Derivative liability extinguished | |
| (1,297,041 | ) | |
| - | |
Derivative financial liability arising on the issuance of convertible notes and warrants | |
| | | |
| 140,014 | |
Fair value adjustments | |
| 6,138,682 | | |
| 1,310,307 | |
Balance, end of period | |
$ | 8,288,379 | | |
$ | 4,252,446 | |
NOTE
D – LOANS PAYABLE TO RELATED PARTIES
As
of January 31, 2022, and April 30, 2021, aggregated loans and notes payable, without demand and with no interest, to officers and directors
were $432,403 and $432,403, 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
$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.
During
the nine months ended January 31, 2022, the Company:
|
● |
Converted 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 |
During
the nine months ended January 31, 2021, the Company:
| ● | Sold
150 Units Series C Convertible Preferred stock for $70,000. Each Unit consists of 1 share
of Series C Preferred stock (convertible at any time into 300 shares of the Company’s
common stock) and 150 two-year Warrants to purchase one share of the Company’s common
stock at $0.005 per share. |
| ● | Issued
311 Units Series D Convertible Preferred stock in settlement of $311,378 in 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) and 150 two-year Warrants to purchase one share
of the Company’s common stock at $0.01 per share. |
| ● | Issued
51 Units Series D Convertible Preferred stock upon conversion of $51,000 of the Company’s
subsidiary’ 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) and 150 two-year
Warrants to purchase one share of the Company’s common stock at $0.01 per share. |
Common
Stock
The
Company had 14,253,005 and
9,809,877 shares
of common stock (after stock split effect) issued and outstanding as of January 31, 2022 and April 30, 2021, respectively. The
Company had 2,349,697
and 1,215,000
shares (after stock split effect) of common classified
as to be issued at January 31, 2022 and April 30, 2021.
During
the nine months ended January 31, 2022, the Company:
|
● |
Issued 427,235 common shares for services valued at $25,063. |
|
● |
Sold to
four accredited investors 1,134,697 shares
of common stock for cash of $70,000 and
notes payable and accrued expenses settlement of $29,317.81 actual
shares were not issued yet and recorded as commons stocks to be issued. |
|
● |
Sold 140 Units
Series C Convertible Preferred stock for $70,000. Each
Unit consists of 1 share of Series C Preferred stock (convertible at any time into 3 shares of the Company’s common
stock) and 1.5 two-year
Warrants to purchase one share of the Company’s common stock at $0.050 per
share. |
|
● |
Issued 311 Units
Series D Convertible Preferred stock in settlement of $311,378 in
accounts payable. Each
Unit consists of 1 share of Series D Preferred stock (convertible at any time into 4 shares of the Company’s common
stock) and 1.5 two-year
Warrants to purchase one share of the Company’s common stock at $1.00 per
share. |
|
● |
Issued 51 Units
Series D Convertible Preferred stock upon conversion of $51,000 of
the Company’s subsidiary’ preferred stock. Each
Unit consists of 1 share of Series D Preferred stock (convertible at any time into 4 shares of the Company’s common
stock) and 1.5 two-year
Warrants to purchase one share of the Company’s common stock at $1.00 per
share. |
|
● |
On January 3, 2022, entered
into agreements with Anthony L. Havens, the Company’s Chief Executive Officer (“Havens”) and Sandra L. Ahman,
the Company’s Vice-President of Operations (“Ahman”) whereby Havens and Ahman agreed to convert debt owed to them
in exchange for non-qualified stock options. |
|
● |
Havens agreed
to convert $137,465.76 of
deferred salary in exchange for a stock option agreement (the “Havens Stock Option Agreement”) to purchase 1,718,322 shares
of the Company’s common stock. |
|
● |
Ahman agreed
to convert $125,000 of
deferred salary in exchange for a stock option agreement (the “Ahman Stock Option Agreement” and with the Havens Stock
Option Agreement, the “Stock Option Agreements”) to purchase 1,562,500 shares
of the Company’s common stock. |
|
● |
On January
3, 2022, the Company granted to each of its two independent Directors five
year options to purchase 187,500 shares
of the Company’s common stock at $0.08 per
share. The options vest in three equal tranches over three
years. These options represent compensation
for past service on the board. |
|
● |
On January 3, 2022, the Company
granted its CEO, Anthony L Havens and Vice President of Operations, Sandra L Ahman, five
year options to purchase an aggregate of 750,000
shares of the Company’s common stock
at $0.08
per share. The options vest in three equal
tranches over three years. |
|
● |
On January
3, 2022, the Company granted to four employees, five
year options to purchase an aggregate of 437,500 shares
of the Company’s common stock at $0.08 per
share. The options vest in three equal tranches over three
years. |
During the nine months period ended January
31, 2021, the company
On December 30, 2020, filed with the Secretary
of State of the state of Nevada, a Certificate of Amendment to its Articles of Incorporation (the “Amendment”), attached
herewith as Exhibit 3.1, and incorporated by reference. The Amendment will be effective as of December 30, 2020. On July 9, 2020, the
Board of Directors of the Company declared July 30, 2020 as the effective date for the 1 for 100 reverse stock split (the “Reverse
Stock Split”), previously approved by the stockholders of the Company by written consent in accordance with the information contained
in the Schedule 14C Information Statement filed with the Securities and Exchange Commission on July 9, 2020. FINRA reviewed and authorized
the corporate action changing the effective date to December 30, 2020 (the “Effective Date”).
As a result of the Reverse Stock Split, for every
one hundred shares of outstanding common stock will automatically be converted into one shares of the Company’s common stock immediately
prior to the opening of trading on the next business day after the Effective Date. If, as a result of the reverse split, a stockholder
is left with a fractional share, that stockholder shall receive one full share in lieu of such fractional share. Immediately after the
effectiveness of the reverse split, there will be 7,027,930 shares of the Company’s common stock issued and outstanding. The aggregate
number of shares of common stock that the Company is authorized to issue remains the same and was unaffected by the Reverse Stock Split.
All outstanding stock options and other contractual rights including the preferred stock entitling the holders of such rights to acquire
shares of common stock outstanding at the Effective Date will be appropriately adjusted to give effect to the Reverse Stock Split.
NOTE
F – FAIR VALUE MEASUREMENTS
The
Company follows the guidance established pursuant to ASC 820 which established a framework for measuring fair value and expands disclosure
about fair value measurements. ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability
(i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels
of inputs that may be used:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The
fair value hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level
3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions.
The fair value hierarchy gives the lowest priority to Level 3 inputs.
The
table below summarizes the fair values of financial liabilities as of January 31, 2022:
SCHEDULE OF FAIR VALUES OF FINANCIAL LIABILITIES
| |
Fair Value at | | |
Fair Value Measurement Using | |
| |
January 31, 2022 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liabilities | |
$ | 8,288,379 | | |
| - | | |
| - | | |
$ | 8,288,379 | |
Fair
values of financial liabilities as of April 30, 2021 are as follows:
| |
Fair Value at | | |
Fair Value Measurement Using | |
| |
April 30, 2021 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liabilities | |
$ | 3,446,738 | | |
| - | | |
| - | | |
$ | 3,446,738 | |
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
G – COMMITMENTS AND CONTINGENCIES
In
response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law
in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017
Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years,
which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing
corporate entities to fully utilize NOL carry forwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct
interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and
2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits
instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.
In
addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property
generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material
adjustments to our income tax provision.
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 October 31, 2019 and continues on a month-to-month basis thereafter. The monthly base rent is $5,100.
Rent
expense was $43,200 and
$48,600 for
the nine months periods ended January 31, 2022 and 2021, respectively.
Litigation
The
Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Sparta can make no representations
about the potential outcome of such proceedings.
As
of January 31, 2022, 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. These liabilities have been recorded in the unaudited condensed consolidated
financial statements. While, there is no absolute guarantee in the outcome of litigation, should any be instituted,
the Company believes the claim has no merit based on, among other things, a recent favorable decision by the New York State
Court of Appeals relating to the affirmative defenses that would be raised on the Company’s behalf.
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 seeking:
damages in 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 most recent appearance in this matter was 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
from the COVID-19 pandemic. These liabilities have been recorded in the unaudited condensed consolidated financial statements. While,
there is no absolute guarantee in the outcome of this litigation, the Company believes the claim has no merit based on, among
other things, a recent favorable decision by the New York State Court of Appeals relating to the affirmative defenses raised on
the Company’s behalf in this litigation.
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. Upon the completion
of all discovery, a motion for summary judgment and cross motion to dismiss were fully submitted on September 15, 2021. At this
time, the motions remain pending and we are awaiting a decision from the court. These liabilities have been recorded
in the unaudited condensed consolidated financial statements. While, there is no absolute guarantee in the outcome of
this litigation, the Company believes the claim has no merit based on, among other things, a recent favorable decision by the
New York State Court of Appeals relating to the affirmative defenses raised on the Company’s behalf in this litigation.
NOTE
H – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events for recognition and disclosure as of March 17, 2022 which is the date the financial statements
were available to be issued. No other matters were identified affecting the accompanying financial statements and related disclosures.