Sparta Commercial Services, Inc 10-K for FY2022
Sparta Commercial Services, Inc. (SRCO)
About this 10-K
Sparta Commercial Services, Inc filed this 10-K on August 15, 2022, covering the fiscal year ended April 30, 2022 (FY2022).
Headline figures
Fiscal year ended April 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $245.47K
- down 5.5% from $259.73K a year earlier
- Net loss
- $8.99M
- compared with a net loss of $2.28M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
| 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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
| 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 ☒
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 ☒
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. ☒
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). ☒
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, smaller reporting company and emerging growth company. See the definitions “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The
aggregate market value of voting and non-voting common equity of the issuer held by non-affiliates, on April 30, 2022 was $
As of August 15, 2022, we had shares of common stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
SPARTA COMMERCIAL SERVICES, INC.
TABLE OF CONTENTS
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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 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, institutions and entities. All nonprofit organizations which adhere to IRS 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 supported by an individual or business entity, qualify for the program.
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, 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), and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Consumers, retailers, municipals, nonprofits, auction houses, banks and insurance companies alike scrutinize title history reports for the vital information needed and factored into crucial business decisions that affect the bottom line.
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 application includes vehicle dealerships and racetracks, private clubs and country clubs, schools and entertainment venues, restaurants and grocery stores, as well as 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 not only helps businesses communicate with customers but 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 for use in a combination of 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 any business looking to simplify or streamline their kitchen ordering process. Additionally, we offer text messaging services, which supplement business marketing strategies both to gain and retain brand loyalty among its clients, customers and investors. Our text messaging platform allows our clients to easily manage, schedule and analyze text message performance.
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 totalling 31 products. We procured premium, domestic-grade, full-spectrum, broad-spectrum, and THC free hemp, created product packaging and labelling, and implemented fulfilment to launch an online B to C website: www.newworldhealthcbd.com on December 21, 2019. The Company has since curated its products and currently offers 15 products with plans to add complementary products to our product line. Our CBD products are available in full spectrum, broad spectrum and non-detectable below the legal limit of .3 THC (ND-THC) and come in capsules, oils, tablets, gel caps, tinctures, salves, creams, lotions, as well as pet chews and tinctures. We remain watchful of consumer needs, adjusting our product line offerings either by adding new products, adjusting the potency levels of existing products or discontinuing still others, as warranted. 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. Because of our high standards, in-depth quality testing and label transparency, consumers know they can trust us.
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., www.SpartaCrypto.com, 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, www.SpartaPayIQ.com, which is functional and was formally announced on March 3, 2022.
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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.
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 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.
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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.
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 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 not only helps businesses communicate with customers but 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 for use in a combination of 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 any business looking to simplify or streamline their kitchen ordering process. Additionally, we offer text messaging services, which supplement business marketing strategies both to gain and retain brand loyalty among its clients, customers and investors. 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), 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.
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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 |
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, or Truckchex 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, or Truckchex (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, or Truckchex website linking their sales and marketing strategies |
| ● | Affiliates earn commission on Cyclechex, RVchex, or Truckchex 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.
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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 a marketing agreement with Kelley Blue Book.
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.
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.
The following websites are among those affiliated with iMobile Solutions, Inc. used to appropriately direct customer inquiries to our history report products:
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
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MUNICIPAL AND NON-PROFIT 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 as well as non-profit organizations 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.
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. The Company has since curated its products and currently offers 15 products with plans to add complementary products to our product line.
Sourcing CBD Products
All of our CBD products are sourced through third party suppliers in Arizona, Colorado, and Wyoming. 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. 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.
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 as any given supplier is lost in a specific region, NWHB has replaced supplier without material disruption as it can contract with multiple alternative suppliers and manufacturers.
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 and chews 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 chews and tinctures.
NEW WORLD HEALTH BRANDS - WELLNESS
Our Wellness products feature high quality dietary supplements, including vitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Selenium, Vitamin B Complex, Vitamin C and PQQ. In addition to our B to C website: www.newworldhealthbrands.com, our Wellness products are also offered on on-line marketplaces such as Amazon. We continue to study the market as we consider new products to add to our offerings.
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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.
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.
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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 and Non-Profit 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 as well as non-profits 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.
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.
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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, potentially, a nationally recognized brand.
Employees
As of April 30, 2022, we had 6 full-time employees, 1 part-time employee, and 5 interns.
ITEM 1A. RISK FACTORS
The Company’s forward-looking statements are subject to uncertainties and risks, among them the adverse effects of the COVID-19 pandemic. The Company’s operations — from supply chain and distribution – are impacted by government regulations and legislation, the economic landscape, revenue fluctuations, diminished customer base, competing products, regulatory changes, common share price volatility, availability of capital, successful integration of new businesses, and including but not limited to risks and uncertainties discussed under the heading “Risk Factors” in this MD&A and the Company’s other filings with the SEC. The impact of any risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent, and the Company’s future course of action depends on Management’s assessment of all relevant information available at the time. Except to the extent required by law, the Company assumes no obligation to publicly update or revise any forward-looking statements made in this MD&A, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on the Company’s behalf, are expressly qualified in their entirety by these cautionary statements.
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, 2022, we have incurred significant expenses and have sustained significant losses. We have an accumulated deficit of $71,661,656 at April 30, 2022 and a negative working capital of $17,024,467.
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Our business requires additional amounts of capital, and we will need to obtain additional financing in the near future.
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.
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 $17,287,217 as of April 30, 2022. Unless we can restructure some or all 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, 2022, and April 30, 2021 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 be 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.
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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.
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 to our marketplace. 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.
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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, 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.
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 WHO characterized COVID-19 as a pandemic.
COVID-19 has impacted some of our customers. Our 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. Notwithstanding, revenues relating to mobile applications in certain verticals such as dealerships and racetracks fell and resulted in forebearance or cancellations during the pandemic.
Risks Related to our Subsidiary, New World Health Brands, Inc. (NWHB)
NWHB has limited operating history.
NWHB 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. NWHB 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.
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:
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| ● | 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 and there is no assurance our future operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably or are unable to raise additional funds, we may consider a merger, acquisition, joint venture, strategic alliance, a roll-up, or other business combination to increase business.
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 |
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 several 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 several 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.
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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.
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, thunderstorms, 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.
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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 February 3, 2022, 37 states, three territories, and Washington, DC have passed Legal Medical Marijuana Laws and as of May 27, 2022, 19 states, two territories, 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.
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.
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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 42 million potential shares at April 30, 2022. 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.
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.
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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 stockholders 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, 2022, 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, 2022 and 2021, the rent was $59,400 and $70,200 respectively.
ITEM 3. LEGAL PROCEEDINGS
As of April 30, 2022, we have not been named as parties to any further legal proceedings except as those disclosed prior and as updated below. From time to time, of course, we may become involved in further 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 with regard to 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, unliquidated and disputes same. While there can be no assurances that the Company would prevail in any potential litigation with regard to claims brought against the Company, these potential liabilities have been recorded in the unaudited condensed consolidated financial statements.
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With respect to the above claims, on September 22, 2016, a motion for summary judgment in lieu 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. The Plaintiff’s motion for summary judgment in lieu of complaint was denied on May 5, 2017. On August 22, 2018, Plaintiff thereafter brought a second motion seeking summary judgment on the issue of liability which was, 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. No further Court appearances have been scheduled, to date, in this matter. However, most notably, a favorable decision from the New York State Court of Appeals regarding the very same types of transactions have since been determined to be criminally usurious and, therefore, unenforceable. 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. There are cross dispositive motions pending which are scheduled to be heard in September, 2022. The Company disputes the enforceability of such claims for the similar reasons, as stated above, based on the Court of Appeals ruling as to the unenforceable nature of such claims demanding usurious interest rates.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information (Check dates and numbers in table below)
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 2022 | ||||||||
| First quarter (May 1, 2021 – July 31, 2021) | $ | 0.2 | $ | 0.07 | ||||
| Second quarter (August 1, 2021 – October 31, 2021) | $ | 0.11 | $ | 0.0548 | ||||
| Third quarter (November 1, 2021 – January 31, 2022) | $ | 0.28 | $ | 0.0418 | ||||
| Fourth quarter (February 1, 2022 – April 30, 2022) | $ | 0.28 | $ | 0.0811 | ||||
| Fiscal Year 2021 | ||||||||
| First quarter (May 1, 2020 – July 31, 2020) | $ | 0.6 | $ | 0.11 | ||||
| Second quarter (August 1, 2020 – October 31, 2020) | $ | 0.43 | $ | 0.23 | ||||
| Third quarter (November 1, 2020 – January 31, 2021) | $ | 0.42 | $ | 0.0966 | ||||
| Fourth quarter (February 1, 2021 – April 30, 2021) | $ | 0.1 | $ | 0.049 | ||||
Holders
The approximate number of holders of record of our common stock as of April 30, 2022 was 3,082 excluding stockholders holding common stock under nominee security position listings.
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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, 2022, 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, 2022, 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, 2022, there was $11,574 of accrued Series A dividends payable.
As of April 30, 2022, and April 30, 2021, we had no shares of Series B preferred stock outstanding or dividends payable.
As of April 30, 2022, and April 30, 2021, we had 2,163,000, and 4,132,269 shares of Series C convertible preferred stock outstanding, respectively. The Series C convertible preferred stock is non dividend paying.
As of April 30, 2022, and April 30, 2021, we had 618,411 and 1,493,962 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.
Issuance of common stock and restricted preferred units:
During year ended April 30, 2022, the Company:
Converted 1,010,703 shares of series C preferred stocks issued an aggregate of 3,305,860 shares of common stock valued at $506,078.The Company also converted 162,519 series D convertible preferred stock and issued an aggregate of 650,076 shares of common valued at $162,519.
Issued 355,000 common shares for commitment and default shares relating to promissory notes.
Sold to fourteen accredited investors 8,563,531 shares of common stock for cash or conversions of $644,968 and; actual shares were not issued yet and recorded as commons stocks to be issued.
Sold to three accredited investors 520,000 shares of Sparta Crypto, Inc,’s common stock for cash of $130,000; actual shares were not issued yet and recorded as common stocks to be issued.
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, 2022. 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, 2022 and April 30, 2021 and footnotes found in the Company’s Annual Report on Form 10-K.
RESULTS OF OPERATIONS
For the year ended April 30, 2022, our revenues from continuing operations decreased approximately 5% as compared to the year ended April 30, 2021. We have continued to incur significant expenses and have sustained significant losses.
Revenues-Continuing Operations
Revenues totaled $245,469 in fiscal 2022 compared to revenues of $259,731 in fiscal 2021, primarily due to the COVID-19 pandemic and a simultaneous downturn in the nationwide economy, which affected the utilization and purchases of our mobile apps, history reports and CBD/Wellness products, as well as insufficient funds to support an adequate level of sales, marketing, and advertising. Our Information Technology revenues declined $26,271 or 11% from $245,675 in fiscal 2021 to $219,404 in the current fiscal year. NWHB revenues in the current fiscal year were $26,065 compared to $14,056 in the previous fiscal year. NWHB products revenues increase by 85%. This is primarily due to the COVID 19 impact in previous fiscal year which brought the revenue significantly less.
Net other expenses in fiscal 2022 was $7,721,368 compared with net other expenses of $1,094,584 in fiscal 2021. Net other expenses for the current fiscal year was primarily due to loss in changes in fair value of derivative liabilities.
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.
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Costs and Expenses-Continuing Operations
General and administrative expenses were $1,199,416 during the year ended April 30, 2022, compared to $1,394,881 during the year ended April 30, 2021, a decrease of $195,465, or 14% primarily due to overall decrease in expense due to non-cash expenses to management and consulting fees paid in year of $464,718 this was offset by the increase in Professional fees of $202,675, these are fees paid to consultants for strategic management and business developments. The Company also incurred $271,138 in research and development costs related to the development of SpartaPayIQ. The following are the major expense categories:
| 2022 | 2021 | Increase (Decrease) | % | |||||||||||||
| Salaries and related Expenses | 577,290 | 554,780 | 22,510 | 4.06 | % | |||||||||||
| Advertising and Marketing | 27,888 | 14,266 | 13,622 | 95.49 | % | |||||||||||
| General office Expenses | 147,462 | 140,251 | 7,211 | 5.14 | % | |||||||||||
| Legal and Professional Fees | 330,265 | 127,590 | 202,675 | 158.85 | % | |||||||||||
| Taxes and Licenses | 17,837 | 6,023 | 11,814 | 196.15 | % | |||||||||||
| SEC related Expenses | 18,316 | 12,153 | 6,163 | 50.71 | % | |||||||||||
| Office Rent | 59,400 | 70,200 | (10,800 | ) | -15.38 | % | ||||||||||
| Software Development Cost | 20,958 | - | 20,958 | -100.00 | % | |||||||||||
| Bad Debts | - | 4,900 | (4,900 | ) | -100.00 | % | ||||||||||
| Non cash expenses | 464,718 | (464,718 | ) | -100.00 | % | |||||||||||
| 1,199,416 | 1,394,881 | |||||||||||||||
Other (income) expense
Other (income) expense in April 30,2022 is comprised primarily of finance cost $601,279 and loss on value of derivative liabilities $7,132,045 while in fiscal year 2021 comprises of finance cost of $723,003 and loss on value of derivative liabilities $504,599.
Net Loss
Our net loss attributable to common stockholders for the year ended April 30, 2022, increased by $6,687,778 to $8,991,437 from a loss of $2,303,659 for the year ended April 30, 2021. This increase in net loss for the year was primarily due to the increase other expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2022, we had an accumulated deficit of $73,984,687 and a total stockholders’ deficit of $20,734,865. We generated a deficit in cash flow from operations of $1,170,621 for the year ended April 30, 2022. This deficit results primarily from our net loss of $8,988,614, partially decreased by noncash loss from change in fair value of derivative liabilities of $7,132,042.
We met our cash requirements during the period through revenue of $245,469 and proceeds from the issuances of convertible and other notes of $302,381, and we sold common stock for proceeds of $890,000.
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, 2022, we had 6 full time employees, one part time employee, and 5 interns. 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, 2022 and 2021 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, 2022, we have relied on the services of outside consultants for services and currently have six full-time employees, one part-time employee and five interns. 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.
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CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions, we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our financial statements, we believe the following critical accounting policy involves the most complex, difficult and subjective estimates and judgments.
Revenue Recognition
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.
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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.
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 became 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.
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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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Directors of Sparta Commercial Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sparta Commercial Services, Inc. (the “Company”) as of April 30, 2022 and 2021, the related consolidated statements of operations, deficit, and cash flows for each of the two years in the period ended April 30, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
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 discussed in Note B to the accompanying financial statements, the Company has incurred recurring losses and generated negative cash flows from operating activities since inception. As of April 30, 2022, the Company had an accumulated deficit and a working capital deficit. 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. 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.
Basis of Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 audit to obtain reasonable assurance about whether the 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 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 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 financial statements. We believe that our audit provides a reasonable basis for our opinion.
| 331 Newman Springs Road | P (732) 822-4427 |
| Building 1, 4th Floor, Suite 143 | F (732) 510-0665 |
| Red Bank, NJ 07701 |
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Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Embedded Derivative Liabilities Related to Convertible Debentures
As described in Notes A and C to the financial statements, the Company had convertible debentures that required accounting considerations and significant estimates.
The Company determined that variable conversion features issued in connection with certain convertible debentures required derivative liability classification. These variable conversion features were initially measured at fair value and subsequently have been remeasured to fair value at each reporting period. The Company determined the fair value of the embedded derivatives using the Black-Scholes-Merton option pricing model.
We identified the accounting considerations and related valuations, including the related fair value determinations of the embedded derivative liabilities of such as a critical audit matter. The principal considerations for our determination were: (1) the accounting consideration in determining the nature of the various features (2) the evaluation of the potential derivatives and potential bifurcation in the instruments, and (3) considerations related to the determination of the fair value of the various debt and equity instruments and the conversion features that include valuation models and assumptions utilized by management. Auditing these elements is especially challenging and requires auditor judgement due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
Our audit procedures related to management’s conclusion on the evaluation and related valuation of embedded derivatives, included the following, among others: (1) evaluating the relevant terms and conditions of the various financings, (2) assessing the appropriateness of conclusions reached by the Company with respect to the accounting for the convertible debt, and the assessment and accounting for potential derivatives and (3) independently recomputing the valuations determined by Management.
/s/
We have served as the Company’s auditor since 2018
August 15, 2022
| 331 Newman Springs Road | P (732) 822-4427 |
| Building 1, 4th Floor, Suite 143 | F (732) 510-0665 |
| Red Bank, NJ 07701 |
| 30 |
SPARTA COMMERCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED APRIL 30, 2022 AND 2021
| April 30, 2022 | April 30, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net of accumulated depreciation and amortization of $ | ||||||||
| Other assets | ||||||||
| Deposits | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND DEFICIT | ||||||||
| Liabilities: | ||||||||
| Current Liabilities | ||||||||
| Bank overdraft | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Short Term Loan | ||||||||
| Current portion notes payable | ||||||||
| Deferred revenue | ||||||||
| Derivative liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Loans payable-related parties | ||||||||
| Total Long Term Liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value; shares authorized of which shares have been designated as Series A convertible preferred stock, with a stated value of $ per share, and shares issued and outstanding, respectively | ||||||||
| Preferred stock B, shares have been designated as Series B redeemable preferred stock, $ par value, with a liquidation and redemption value of $ | ||||||||
| Preferred stock C, shares have been designated as Series C redeemable, convertible preferred, $ par value, with a liquidation and redemption value of $ | ||||||||
| Preferred stock D, shares have been designated as Series D redeemable, convertible preferred, $ par value, with a liquidation and redemption value of $ | ||||||||
| Preferred stock value | ||||||||
| Common stock, $ par value; shares authorized, and and shares issued and outstanding, respectively | ||||||||
| Common stock to be issued and respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total deficiency in stockholders’ equity | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Deficit | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 31 |
SPARTA COMMERCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 2022 AND 2021
| 2022 | 2021 | |||||||
| Revenue | ||||||||
| Information technology | $ | $ | ||||||
| New World Health Brands | ||||||||
| Total Revenue | ||||||||
| Less Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (income) expense: | ||||||||
| Other income | ( | ) | ( | ) | ||||
| Forgiveness of debt | ( | ) | ||||||
| Financing cost | ||||||||
| Amortization of debt discount | ||||||||
| Loss (gain) in changes in fair value of derivative liability | ||||||||
| Total other (income) expense | $ | $ | ||||||
| Net income (loss) | ( | ) | ( | ) | ||||
| Net loss (income) attributed to non-controlling interest | ( | ) | ||||||
| Preferred dividend | ( | ) | ||||||
| Net income (loss) attributed to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share: | ||||||||
| Loss from continuing operations attributable to Sparta Commercial Services, Inc. common stockholders | ( | ) | ( | ) | ||||
| Loss from discontinued operations attributable to Sparta Commercial Services, Inc. common stockholders | ||||||||
| Net loss attributable to Sparta Commercial Services, Inc. common stockholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding | ||||||||
See accompanying notes to consolidated financial statements.
| 32 |
SPARTA COMMERCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF DEFICIT
FOR THE YEARS ENDED APRIL 30, 2022 AND 2021
| Series A | Series C | Series D | Common Stock | Additional | Non | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | Capital | Deficit | Interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance April 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of Preferred and Common Stock for Cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Preferred and Common Stock for Cash, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Accrued Compensation to Series D Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Accrued Compensation to Series D Preferred Stock , shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options issued for compensation and accrued compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred to common shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of notes to common shares | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred shares | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | $ | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stocks issued for settlement of payables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stocks issued for equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stocks issued from to be issued | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance April 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance April 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance value | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Preferred and Common Stock for Cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Accrued Compensation to Series D Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options issued for compensation and accrued compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividend | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance April 30, 2021 | $ | | | $ | $ | | $ | | $ | $ | $ | ( | ) | $ | | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| alance value | $ | | | $ | $ | | $ | | $ | $ | | $ | ( | ) | $ | | $ | ( | ||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| 33 |
SPARTA COMMERCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss (Gain) from change in fair value of derivative liabilities | ||||||||
| Amortization of debt discount | ( | ) | ||||||
| Non-cash financing cost | ||||||||
| Forgiveness of debt | ||||||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ||||||||
| Net cash (used in) investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Bank overdraft | ( | ) | ||||||
| Proceeds from sale of stock | ||||||||
| Net Proceeds from notes payable | ||||||||
| Payments on notes payable | ||||||||
| Proceeds from related party notes | ||||||||
| Payments on related party notes | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash | $ | ( | ) | $ | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents , end of period | $ | $ | ||||||
| Cash paid for: | ||||||||
| Interest | ||||||||
| Income taxes | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 34 |
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022 AND 2021
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); 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. The Company has since curated its products and currently offers 15 products with plans to add complementary products to our product line.
| 35 |
Sparta’s newest subsidiary, Sparta Crypto, Inc., www.SpartaCrypto.com, 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, www.SpartaPayIQ.com, which is functional and was formally announced on March 3, 2022.
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.
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.
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:
SCHEDULE OF DISAGGREGATION REVENUE
| Year Ended April 30, | ||||||||
| 2022 | 2021 | |||||||
| Information Technology | $ | $ | ||||||
| New World Health Brands | ||||||||
| $ | $ | |||||||
| 36 |
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.
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.
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.
| 37 |
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.
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:
SCHEDULE OF ESTIMATED USEFUL LIFE OF PROPERTY AND EQUIPMENT
| Leasehold improvements | |
| Furniture and fixtures | |
| Website costs | |
| Computer Equipment |
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.
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, 2022 and 2021 million potential shares (including shares to be issued included on the balance sheet) and potential shares (including 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, 2022 and 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.
| 38 |
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 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 became 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. |
| 39 |
| ● | 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.
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,
2022, the Company had an accumulated deficit of $
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.
| 40 |
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 | April 30, 2022 | April 30, 2021 | ||||||
| Notes convertible at holder’s option | $ | $ | ||||||
| Notes convertible at Company’s option | ||||||||
| Non-convertible notes payable | ||||||||
| Subtotal | ||||||||
| Less debt discount | ||||||||
| Total | $ | $ | ||||||
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
Amortization
of debt discount for the years ended April 30, 2022 and 2021 was $
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, 2022 and 2021 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 | |||||
| Expected stock price volatility | % | |||||
| Expected dividend payout | ||||||
| Expected options life in years | Ranging from | |||||
Changes in derivative liability during the years ended April 30, 2022 and 2021 were:
SCHEDULE OF CHANGES IN DERIVATIVE LIABILITIES
| April 30, | ||||||||
| 2022 | 2021 | |||||||
| Balance, beginning of year | $ | $ | ||||||
| Derivative liability reclassified to additional paid in capital | ( | ) | ( | ) | ||||
| Derivative financial liability arising on the issue of convertible notes and warrants | ||||||||
| Fair value adjustments | ||||||||
| Balance, end of year | $ | $ | ||||||
| 41 |
NOTE D – LOANS PAYABLE TO RELATED PARTIES
As
of April 30, 2022, and 2021, aggregated loans payable, without demand and with no interest, to officers and directors were $
NOTE E – EQUITY TRANSACTIONS
Common Stock
The Company is authorized to issue shares of common stock, $ par value.
On
December 30, 2020, Sparta Commercial Services, Inc. (the “Company”) 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
As a result of the Reverse Stock Split, 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 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.
The Company had and shares (post-split) of common stock issued and outstanding as of April 30, 2022 and 2021, respectively. The Company had and shares of common classified as to be issued at April 30, 2022 and April 30, 2021, respectively.
Preferred Stock
The
Company is authorized to issue shares of preferred stock with $ par value per share, of which shares have been
designated as Series A convertible preferred stock with a $ stated value per share; shares have been designated as Series B
Preferred Stock with a $
SCHEDULE OF PREFERRED STOCK OUTSTANDING SHARES
| Preferred stock outstanding shares | 2022 | 2021 | ||||||
| Series A | ||||||||
| Series B | ||||||||
| Series C | ||||||||
| Series D | ||||||||
| 42 |
Equity Transactions
During the year ended April 30, 2022 the Company:
| ● | Issued
common shares for consulting services valued at $ | |
| ● | Issued common shares upon the conversion of shares of Series C Convertible Preferred stock. | |
| ● | Issued common shares upon the conversion of shares of Series D Convertible Preferred stock. | |
| ● | Sold
to fourteen accredited investors shares of common stock for cash or conversions
of $ | |
| ● | Sold to three accredited investors shares of Sparta Crypto, Inc,’s
common stock for cash of $ | |
| ● | 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 $ of deferred salary in exchange for a stock option agreement (the “Havens Stock Option Agreement”) to purchase shares of the Company’s common stock. | |
| ● | Ahman agreed to convert $ 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 shares of the Company’s common stock. | |
| ● | On January 3, 2022, the Company granted to each of its two independent Directors options to purchase shares of the Company’s common stock at $ per share. The options vest in three equal tranches over . 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, options to purchase an aggregate of shares of the Company’s common stock at $ per share. The options vest in three equal tranches over . | |
| ● | On January 3, 2022, the Company granted to four employees, options to purchase an aggregate of shares of the Company’s common stock at $ per share. The options vest in three equal tranches over . |
During the year ended April 30, 2021, the Company:
| ● | Sold
Units of Series C convertible preferred stock for $ | |
| ● | Issued
Units of Series D convertible preferred stock upon the conversion of accounts payable aggregating $ | |
| ● | Issued
Units of Series D convertible preferred stock upon the conversion of $ | |
| ● | Pursuant
to agreement, issued shares of the Company’s Common Stock, valued at $ | |
| ● | Pursuant
to Conversions of Preferred Series D convertible preferred stock, issued shares of the Company’s Common Stock, valued
at $ | |
| ● | Pursuant
to Conversions of Preferred Series C convertible preferred stock, issued shares of the Company’s Common Stock, valued
at $ | |
| ● | Pursuant
to agreement, issued shares of common stock valued at $ |
| 43 |
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 April 30, 2022:
SCHEDULE OF FAIR VALUES OF FINANCIAL LIABILITIES
| Fair Value at | Fair Value Measurement Using | |||||||||||||||
| April 30, 2022 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liabilities | $ | $ | ||||||||||||||
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 | $ | $ | ||||||||||||||
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 - PROPERTY AND EQUIPMENT
Major classes of property and equipment at April 30, 2022 and 2021 consist of the followings:
SCHEDULE OF PROPERTY AND EQUIPMENT
| 2022 | 2021 | |||||||
| Computer equipment, software and furniture | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
All equipment are fully depreciated as of the fiscal year end April 30, 2022 and 2021. No additional investment in equipment for both fiscal year.
NOTE H – WARRANTS:
During the year ended April 30, 2022, the company
issued a total of warrants to employees and service provider at an average option strike price of $ per share. As of April
30, 2022, of these warrants were vested. Computed fair value was $
| 44 |
SCHEDULE OF WARRANTS OR RIGHTS, SHARES AUTHORIZED, BY EXERCISE PRICE RANGE
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Exercise Prices | Number Outstanding | Weighted
Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
Transactions involving stock warrants issued to non-employees are summarized as follows:
SCHEDULE OF WARRANTS ACTIVITY
| Number of Shares | Weighted Average Exercise Price Per Share | |||||||
| Outstanding at April 30, 2020 | $ | |||||||
| Granted | ||||||||
| Canceled or expired | ( | ) | ||||||
| Outstanding at April 30, 2021 | ||||||||
| Granted | ||||||||
| Exercised | ||||||||
| Canceled or expired | ( | ) | ||||||
| Outstanding at April 30, 2022 | $ | |||||||
| 45 |
NOTE I - INCOME TAXES
At
April 30, 2022, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $
A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:
SCHEDULE OF RECONCILIATION OF INCOME TAX RATE
| Years Ended April 30, | ||||||||
| 2022 | 2021 | |||||||
| Federal statutory income tax rate | ( | )% | ( | )% | ||||
| State income taxes, net of federal benefit | ( | ) | ( | ) | ||||
| Permanent differences | ||||||||
| Change in valuation allowance | ||||||||
| Provision for income taxes | % | % | ||||||
Components of deferred tax assets as of April 30, 2022 and estimated 2021 are as follows:
SCHEDULE OF DEFERRED TAX ASSETS
| April 30, | ||||||||
| 2022 | 2021 | |||||||
| Noncurrent: | ||||||||
| Net operating loss carry forward | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
NOTE J - 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
Rent
expense was $
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 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
| 46 |
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, 2022, we have not been named as parties to any further legal proceedings except as those disclosed prior and as updated below. From time to time, of course, we may become involved in further 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 $
With
respect to the above claims, on September 22, 2016, a motion for summary judgment in lieu 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 $
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 $
NOTE K – SUBSEQUENT EVENTS
The Company has evaluated subsequent events for recognition and disclosure as of August 15, 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.
| 47 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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, 2022. 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.
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, 2022 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, 2022, 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. |
| 48 |
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, 2022. 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, 2022 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, 2022 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, 2022 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, 2022, 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.
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, 2022.
| Name | Age | Position | ||
| Anthony L. Havens | 68 | Chief Executive Officer, President, Principal Financial Officer and Chairman | ||
| Kristian Srb | 67 | Director | ||
| Jeffrey Bean | 69 | Director | ||
| Sandra L. Ahman | 58 | Vice President, Secretary and Director |
| 49 |
Management Profiles
Anthony L. Havens, Founder, 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.
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.
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.
| 50 |
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, 2022, Sparta is not aware of any material delinquencies in the filing of such reports.
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Numbers below are not updated
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, 2022 (“Named Executive Officers”).
| Stock | Option | All Other | ||||||||||||||||||||||||
| Salary | Bonus | Awards | Awards | Compensation | Total | |||||||||||||||||||||
| Name and Principal Position | Year | ($)(a) | ($) | ($) | ($) | ($)(b) | ($) | |||||||||||||||||||
| Anthony L. Havens | 2022 | 280,000 | - | 28,494 | 308,494 | |||||||||||||||||||||
| Chief Executive Officer | 2021 | 280,000 | - | - | 280,000 | |||||||||||||||||||||
| Sandra L. Ahman | 2022 | 140,000 | - | - | 14,247 |
- | 154,247 | |||||||||||||||||||
| Vice President, Operations | 2021 | 140,000 | - | - | - | - | 140,000 | |||||||||||||||||||
| (a) | For Mr. Havens includes accrued, unpaid net salary of $30,851 and $112,408 at year end 2022 and 2021, respectively. For Ms. Ahman, includes accrued, unpaid net salary of $91,029 and $63,526 at year end 2022 and 2021 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 2021 fiscal year, we had in effect a written employment agreement with the Mr. Havens and Ms. Ahman. Our compensation system has generally not been tied to performance-based conditions other than the passage of time.
Employment Agreements with CEO and Vice President Operations
We entered into an employment agreement, dated as of July 9, 2020, 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. 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 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.
We entered into an employment agreement, dated as of July 9, 2020, with Sandra L. Ahman who serves as our Vice President of Operations. 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. Her base salary is at an annual rate of $140,000. She is entitled to defer a portion of her base salary each year. She is entitled to annual increases in her base salary and other compensation as may be determined by the Board of Directors. She 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. She is entitled to reimbursement of reasonable business expenses incurred by her in accordance with Company policies. If terminated, she 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 she resigns for good reason or is terminated without cause within twelve months after a change in control, she is entitled to receive an additional lump sum payment equal to the greater of the severance payment or the balance of her 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, she shall be entitled to receive severance equal to thirty months of her 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 her an amount equal to five times the value of the unperformed obligation.
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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, 2022.
| 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 ($) | ||||||||||||||||||
| Anthony L. Havens | 3,480,731 | 0.1530 | 4/31/2024 | 458,750 | 110,100 | |||||||||||||||||||
| Sandra L. Ahman | 2,824,072 | 0.1530 | 4/31/2024 | 367,352 | 88,164 | |||||||||||||||||||
Compensation of Directors
In fiscal 2022, non-employee directors were compensated for their services in the amounts set forth below.
| Name | Fees earned or
paid in ($) | Stock awards ($)(a) | Option awards ($)(b) | All other compensation ($) |
Total ($) | |||||||||||||
| Jeffrey Bean | 0 | 0 | 3,188 | – | 3,188 | |||||||||||||
| Kristian Srb | 0 | 0 | 3,188 | – | 3,188 | |||||||||||||
| (a) | Represents the stock-based compensation recognized in accordance with ASC 718. Stock-based awards are valued at the fair value on the grant date using a Black-Scholes model. Assumptions made in the valuation of stock-based awards are discussed in Note M to the consolidated financial statements. |
| (b) | On January 3, 2022, the Company issued 187,500 options to Mr. Bean and 187,500 options to Mr. Srb, exercisable at $0.08 per share until January 3, 2027; options for both Mr. Bean and Mr. Srb are subject to vesting at the rate of 62,500 options on the grant date, 62,500 options on January 3, 2023, and 62,500 options on January 23, 2024. |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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, 2022, 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, 2022, 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 August 10, 2022 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 17,501,298 outstanding shares as of August 10, 2022, 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) | 3,004,579 | 14.654 | % | |||||
| Kristian Srb (2) | 548,642 | 3.040 | % | |||||
| Jeffrey Bean (3) | 545,680 | 3.024 | % | |||||
| Sandra L. Ahman (4) | 2,456,799 | 12.310 | % | |||||
| All current directors and named officers as a group (4 in all) | 6,555,700 | 27.260 | % | |||||
| (a) | Unless indicated otherwise, the address for each person named in the table is c/o Sparta Commercial Services, Inc., 555 Fifth Avenue, 14th Floor. New York, NY 10017. |
| (1) | Excludes approximately 500 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. |
Includes (i) 250,838 vested stock options, all exercisable at $0.308 per share until July 9, 2025, (ii) 886,154 vested stock options, all exercisable at $0.275 per share until July 22, 2025, (iii) 166,667 vested stock options all exercisable at $0.08 per share until January 3, 2027 and (iv) 1,718,322 vested stock options all exercisable at $0.08 per share until January 3, 2027. |
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| (2) | Includes 482,143 vested stock options, all exercisable at $0.308 per share until July 9, 2025 and 62,500 vested stock options, all exercisable at $0.08 per share until January 3, 2027. |
| (3) | Includes 482,143 vested stock options, all exercisable at $0.308 per share until July 9, 2025 and 62,500 vested stock options, all exercisable at $0.08 per share until January 3, 2027. |
| (4) | Includes (i) 83,613 vested stock options, all exercisable at $0.308 per share until July 9, 2025, (ii) 727,273 vested stock options, all exercisable at $0.275 per share until July 22, 2025, (iii) 83,333 vested stock options, all exercisable at $0.08 per share until January 3, 2027 and (iv) 1,562,500 vested stock options, all exercisable at $0.08 per share until January 3, 2027. |
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, 2022 and 2021. As of April 30, 2022, 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.
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, 2022 and 2021 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, 2022 and 2021 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, 2022 and 2021 were $0 and $0, respectively. Tax fees consist of fees billed for tax compliance, tax advice, and tax planning.
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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, 2022 and 2021.
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, 2022 and 2021 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, 2022 and 2021 | |
| Consolidated Statements of Losses for the years ended April 30, 2022 and 2021 | |
| Consolidated Statement of Deficit for the two years ended April 30, 2022 | |
| Consolidated Statements of Cash Flows for the years ended April 30, 2022 and 2021 | |
| Notes to Consolidated Financial Statements | |
| (2) Index to Financial Statement Schedules |
Not required.
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(3) Index to Exhibits
* Filed herewith.
** Incorporated by reference to the registration statement on Form S-8 filed by the registrant with the Commission on November 3, 2014
+ Represents executive compensation plan or agreement
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SPARTA COMMERCIAL SERVICES, INC. | ||
| By: | /s/ Anthony L. Havens | |
| Anthony L. Havens | ||
| Chief Executive Officer | ||
| Date: August 15, 2022 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| By: | /s/ Anthony L. Havens | |
| Anthony L. Havens | ||
| Chief Executive Officer, President, Interim Principal Financial Officer | ||
| and Chairman of the Board | ||
| Date: August 15, 2022 | ||
| By: | /s/ Sandra L. Ahman | |
| Sandra L. Ahman | ||
| Vice President and Director | ||
| Date: August 15, 2022 | ||
| By: | /s/ Kristian Srb | |
| Kristian Srb | ||
| Director | ||
| Date: August 15, 2022 | ||
| By: | /s/ Jeffrey Bean | |
| Jeffrey Bean | ||
| Director | ||
| Date: August 15, 2022 |
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EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
The following is a list of subsidiaries of the Company as of April 30, 2022
| Name | Where Incorporated | |
| iMobile Solutions, Inc. | Nevada | |
| New World Health Brands, Inc. | Nevada | |
| Sparta Crypto, Inc. | Nevada |
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-189264) and (File No. 333-199822) of our report, which includes an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern, dated August 15, 2022 included in Sparta Commercial Services, Inc.’s Annual Report on Form 10-K for the year ended April 30, 2022.
| /s/ Boyle CPA, LLC | |
| Boyle CPA, LLC | |
| Bayville, NJ | |
| August 15, 2022 |
| 361 Hopedale Drive SE | P (732) 822-4427 |
| Bayville, NJ 08721 | F (732) 510-0665 |
EXHIBIT 31.1
CERTIFICATIONS
I, Anthony L. Havens, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended April 30, 2022 of Sparta Commercial Services, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. As the registrant’s sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. As the registrant’s sole certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 15, 2022 | |
| /s/ Anthony L. Havens | |
| Anthony L. Havens | |
| Chief Executive Officer, principal executive officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Anthony L. Havens, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended April 30, 2022 of Sparta Commercial Services, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. As the registrant’s sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. As the registrant’s sole certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 15, 2022 | |
| /s/ Anthony L. Havens | |
| Anthony L. Havens | |
| Principal financial and accounting officer |
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Sparta Commercial Services, Inc. (the “Company”) on Form 10-K for the fiscal year ended April 30, 2022, as filed with the Securities and Exchange Commission on the date therein specified (the “Report”), I, Anthony L. Havens, Chief Executive Officer and principal financial and accounting officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company. |
Date: August 15, 2022
| /s/ Anthony L. Havens | |
Anthony L. Havens, Chief Executive Officer, principal executive officer, principal financial and accounting officer |