UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended OctoberJuly 31, 20202021

[  ]☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________ to ___________.

Commission file number: 0-9483

SPARTA COMMERCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Nevada30-0298178
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)

555 Fifth Avenue, 14th14th Floor, New York, NY 10017

(Address of principal executive offices) (Zip Code)

(212)239-2666

(Registrant’s telephone number, including area code)

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

Title of each classTrading SymbolName of each exchange on which registered
Common stock, $.001 par valueSRCOPink Open Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] ☒ Yes [  ] ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 504 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to file such files). [X] ☒ Yes [  ] ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]☐Accelerated filer [  ]☐
Non-accelerated filer [  ] ☐Smaller reporting company [X]☒
(Do not check if a smaller reporting company)Emerging growth company [  ]☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ]☐ Yes [X] ☒ No

As of December 18, 2020,September 20, 2021, we had 702,792,904 11,915,853 shares of common stock issued and outstanding.

 

 

 

SPARTA COMMERCIAL SERVICES, INC.

FORM 10-Q

FOR THE QUARTER ENDED OctoberJuly 31, 20202021

TABLE OF CONTENTS

Page
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)3
Condensed Consolidated Balance Sheets as of OctoberJuly 31, 20202021 (unaudited) and April 30, 202020213
Condensed Consolidated Statements of Operations for the Three Months Ended OctoberJuly 31, 2021 and 2020 and 2019 (unaudited)4
Condensed Consolidated Statement of Changes in Deficit for the Three Months ended OctoberJuly 31, 20202021 (unaudited)5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended OctoberJuly 31, 2021 and 2020 and 2019 (unaudited)6
Notes to Unaudited Condensed Consolidated Financial Statements7
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1615
Item 3.Quantitative and Qualitative Disclosures About Market Risk20
Item 4.Controls and Procedures20
Item 4.Controls and Procedures20
PART II.OTHER INFORMATION
Item 1.Legal Proceedings21
Item 1A.Risk Factors2221
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds22
Item 3.Defaults Upon Senior Securities22
Item 5.Other Information22
Item 6.Exhibits22
Signatures23
Signatures24

2

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF OCTOBERJULY 31, 2020,2021, AND APRIL 30, 20202021

(Unaudited)

  July 31, 2021  April 30, 2021 
       
ASSETS        
Current Assets        
Cash and cash equivalents $843  $396 
Accounts receivable  1,797   469 
Inventory  12,250   13,823 
Other current assets  -  - 
Total Current Assets  14,890   14,688 
Property and equipment, net of accumulated depreciation and amortization of $213,262 and $212,905, respectively  -   - 
Other assets  9,628   9,628 
Deposits  9,000   9,000 
Total assets $33,518  $33,316 
         
LIABILITIES AND DEFICIT        
Liabilities:        
Current Liabilities        
Bank overdraft $66,099  $49,041 
Accounts payable and accrued expenses  3,853,426   3,627,831 
Short Term Loan  394,013   409,013 
Current portion notes payable  4,720,275   4,680,275 
Deferred revenue  13,471   13,946 
Derivative liabilities  2,301,413   3,446,738 
Total Current Liabilities  11,348,697   12,226,844 
Loans payable-related parties  432,403   432,403 
Total Long Term Liabilities  432,403   432,403 
Total liabilities $11,781,100  $12,659,247 
         
Deficit:        
Preferred stock, $0.001 par value; 10,000,000 shares authorized of which 35,850 shares have been designated as Series A convertible preferred stock, with a stated value of $100 per share, 125 and 125 shares issued and outstanding, respectively  12,500   12,500 
 Preferred stock B, 1,000 shares have been designated as Series B redeemable preferred stock, $0.001 par value, with a liquidation and redemption value of $10,000 per share, 57 and 0 shares issued and outstanding, respectively  -   - 
Preferred stock C,4,200,000 shares have been designated as Series C redeemable, convertible preferred, $0.001 par value, with a liquidation and redemption value of $10 per share, 3,427,969 and 4,132,269 shares issued and outstanding, respectively  3,439   4,145 
Preferred stock D, 2,000,000 shares have been designated as Series D redeemable, convertible preferred, $0.001 par value, with a liquidation and redemption value of $1.00 per share, 1,191,412 and 1,493,962 shares issued and outstanding, respectively  1,191   1,494 
Preferred stock value        
Common stock, $0.001 par value; 750,000,000 shares authorized, and 11,508,878 and 9,809,877 shares issued and outstanding as of July 31 and April 30, 2021 respectively  11,509   9,810 
Common stock to be issued 2,349,697 and 1,215,000, respectively  2,350   1,215 
Additional paid-in-capital  51,847,540   51,351,156 
Accumulated deficit  (64,613,448)  (64,993,250)
Total deficiency in stockholders’ deficit  (12,734,919)  (13,612,930)
Non-controlling interest  987,337   986,999 
Total Deficit  (11,747,582)  (12,625,931)
Total Liabilities and Deficit  33,518   33,316 

  October 31, 2020  April 30, 2020 
       
ASSETS        
Current Assets        
Cash and cash equivalents $-  $- 
Accounts receivable  18,722   1,420 
Inventory  27,925   23,331 
Other current assets  21,297   470 
Total Current Assets  67,944   25,221 
Property and equipment, net of accumulated depreciation and amortization of $213,262 and $212,905, respectively  -   - 
Other assets  9,628   9,628 
Deposits  9,000   9,000 
Total assets $86,572  $43,849 
         
LIABILITIES AND DEFICIT        
Liabilities:        
Current Liabilities        
Bank overdraft $32,375  $14,773 
Accounts payable and accrued expenses  3,080,824   3,427,587 
Short Term Loan  120,944   - 
Current portion notes payable  5,038,655   4,942,324 
Deferred revenue  13,380   16,254 
Derivative liabilities  4,252,466   2,802,125 
Total Current Liabilities  12,538,644   11,203,063 
Loans payable-related parties  450,500   432,403 
Total Long Term Liabilities  450,500   432,403 
Total liabilities $12,989,144  $11,635,466 
         
Deficit:        
Preferred stock, $0.001 par value; 10,000,000 shares authorized of which 35,850 shares have been designated as Series A convertible preferred stock, with a stated value of $100 per share, 125 and 125 shares issued and outstanding, respectively  12,500   12,500 
Preferred stock B, 1,000 shares have been designated as Series B redeemable preferred stock, $0.001 par value, with a liquidation and redemption value of $10,000 per share, 0 and 0 shares issued and outstanding, respectively  -   - 
Preferred stock C, 200,000 shares have been designated as Series C redeemable, convertible preferred, $0.001 par value, with a liquidation and redemption value of $10 per share, 4,155and 4,005 shares issued and outstanding, respectively  4,155   4,005 
Preferred stock D, 2,000,000 shares have been designated as Series D redeemable, convertible preferred, $0.001 par value, with a liquidation and redemption value of $1.00 per share, 1,494 and 1,132 shares issued and outstanding, respectively  1,596   1,132 
Common stock, $0.001 par value; 750,000,000 shares authorized, 693,792,904 and 627,092,904 shares issued and outstanding, respectively  693,793   627,093 
Common stock to be issued 121,452,845 and 84,786,511, respectively  121,453   84,787 
Additional paid-in-capital  50,378,075   49,406,954 
Accumulated deficit  (65,082,461)  (62,702,339)
Total deficiency in stockholders’ equity  (13,870,889)  (12,565,868)
Non-controlling interest  968,317   974,251 
Total Deficit  (12,902,572)  (11,591,617)
Total Liabilities and Deficit  86,572   43,849 

See accompanying notes to unaudited condensed consolidated financial statements.

3

 

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AS OF OCTOBERJULY 31, 2020,2021, AND APRIL 30, 20202021

(Unaudited)

  2021  2020 
  Three Months Ended July 31, 
  2021  2020 
Revenue      
Information technology $56,557  $73,947 
New World Health Brands  4,128   2,660 
Total Revenue  60,685   76,607 
Less Cost of goods sold  10,177   20,148 
Gross profit $50,508  $56,459 
Operating expenses:        
General and administrative  250,024   713,676 
Depreciation and amortization  -   - 
Total operating expenses $250,024  $713,676 
Loss from operations $(199,516) $(657,217)
Other (income) expense:        
Other income $-  $- 
Forgiveness of debt  -   (63,053)
Financing cost  180,750   310,424 
Amortization of debt discount  -   - 
Non-Qualified Option Exp  -     
Loss (gain) in changes in fair value of derivative liability  (760,068)  1,310,307 
Total other (income) expense $(579,318) $1,557,678 
Income (loss) from continuing operations  379,802  (2,214,895)
Loss from discontinued operations  -   - 
Net income (loss)  379,802  (2,214,895)
Net income attributed to non-controlling interest  338   (1,972)
         
Preferred dividend     (191)
         
Net income (loss) attributed to common stockholders $380,140 $(2,217,058)
         
Basic and diluted loss per share:        
Loss from continuing operations attributable to Sparta Commercial Services, Inc. common stockholders  0  (0)
Loss from discontinued operations attributable to Sparta Commercial Services, Inc. common stockholders  -   - 
Net loss attributable to Sparta Commercial Services, Inc. common stockholders $0 $(0)
         
Weighted average shares outstanding  10,912,112   6,270,929 

  Three Months Ended  Six Months Ended 
  October 31,  October 31, 
  2020  2019  2020  2019 
Revenue            
Information technology $61,834  $72,967  $135,781  $150,641 
New World Health Brands  3,113   12,262   5,773   29,376 
Total Revenue  64,947   85,229   141,554   180,017 
Less Cost of goods sold  25,586   14,787   45,734   

31,671

 
Gross profit  39,361   70,442   95,820   148,346 
Operating expenses:                
General and administrative  220,033   224,709   933,709   503,715 
Depreciation and amortization  -   357   -   357 
Total operating expenses  220,033   225,066   933,709   504,072 
Loss from operations  (180,672)  (154,624)  (837,889)  (355,726)
Other (income) expense:                
Other income  (750)  (1,200)  (750)  (2,293)
Forgiveness of debt  -   (311,127)  (63,053)  (311,127)
Financing cost  (14,695)  212,632   295,729   524,258 
Amortization of debt discount  -   6,825   -   7,800 
Loss (gain) in changes in fair value of derivative liability  -   1,682,995   1,310,307   292,697 
Total other (income) expense  (15,445)  1,590,125   1,542,233   511,335 
Income (loss) from continuing operations  (165,227)  (1,744,749)  (2,380,122)  (867,061)
Loss from discontinued operations  -   -   -   - 
Net income (loss)  (165,227)  (1,744,749)  (2,380,122)  (867,061)
Net income attributed to non-controlling interest  (3,962)  (3,383)  (5,934)  (7,864)
Preferred dividend  -   (191)  (191)  (382)
Net income (loss) attributed to common stockholders $(169,189) $(1,748,323) $(2,386,247) $(875,307)
                 
Basic and diluted loss per share:                
Loss from continuing operations attributable to Sparta Commercial Services, Inc. common stockholders  (0)  (0)        
Loss from discontinued operations attributable to Sparta Commercial Services, Inc. common stockholders  -   -         
Net loss attributable to Sparta Commercial Services, Inc. common stockholders  (0)  (0)        
                 
Weighted average shares outstanding  662,430,947   627,092,904         

See accompanying notes to unaudited condensed consolidated financial statements.

4

 

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS DEFICITS

FOR THE THREE AND SIX MONTHS ENDED OCTOBERJULY 31, 20202021 AND 20192020

(UNAUDITED)

  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Interest  Total 
  Series A  Series B  Series C  Series D        Common Stock  Additional     Non-     
  Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Common Stock  to be issued  Paid in  Accumulated  controlling    
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Interest  Total 
Balance April 30, 2021  125  $12,500   -  $-   4,132,269  $4,145   1,493,962  $1,494   9,809,877  $9,810   1,214,528  $1,215  $51,351,156   (64,993,250) $986,999   (12,625,931)
Sale of preferred stock                                                                
Sale of preferred stock, shares                                                                
Sale of common stock                                                              
Sale of common stock, shares                                                              
Stock based compensation                                                                
Shares issued for settlement of accounts payable                                                              
Shares issued for settlement of accounts payable, shares                                                              
Option issued for settlement of accounts payable                                                              
Shares issued for conversion of subsidiary preferred                                                              
Shares issued for conversion of subsidiary preferred, shares                                                              
Conversion of Preferred to common stocks                  (704,300)   (704)   (302,551)   (303)   1,574,001   1,574           373,326         373,893 
Conversion of notes to common shares  -        -                        125,000   125           24,875           25,000 
Common shares issued for cash                                          1,134,697    1,135    98,183            99,318  
Preferred dividend                                                                
Net loss                                                      379,802  338    380,140
Balance July 31, 2021  125  $12,500   -  $-   3,427,969  $3,441   1,191,411  $1,191   11,508,878  $11,509   2,349,225  $2,350  $51,847,540  $(64,613,448) $987,337  $(11,747,582)
                                                                 
Balance April 30, 2020  125  $12,500   -  $-   4,005  $4,005   1,132  $1,132   6,270,929  $627,093   84,786,511  $84,787  $49,406,954   (62,702,339) $974,251   (11,591,617)
Beginning balance  125  $12,500   -  $-   4,005  $4,005   1,132  $1,132   6,270,929  $627,093   84,786,511  $84,787  $49,406,954   (62,702,339) $974,251   (11,591,617)
Sale of preferred stock                  140   140                           69,860           70,000 
Sale of common stock                                  133,333   13,333           6,667           20,000 
Stock based compensation                                                  464,718           464,718 
Shares issued for settlement of accounts payable                          311   311                   311,067           311,378 
Option issued for settlement of accounts payable                                                  156,947           156,947 
Shares issued for conversion of subsidiary preferred  -    -    -    -            51   51           -    -    (40)      (11)  - 
Preferred dividend                                                      (191)      (191)
Net loss                                                      (2,216,867)  1,972   (2,214,895)
Balance July 31, 2020  125  $12,500   -  $-   4,145  $4,145   1,494  $1,494   6,404,262  $640,426   84,786,511  $84,787  $50,416,173  $(64,919,397) $976,212  $(12,783,660)
Ending balance  125  $12,500   -  $-   4,145  $4,145   1,494  $1,494   6,404,262  $640,426   84,786,511  $84,787  $50,416,173  $(64,919,397) $976,212  $(12,783,660)

  Series A Preferred Stock  Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock  Common Stock   Common Stock to be issued  Additional Paid in  Accumulated  Non-controlling    
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Interest  Total 
Balance April 30, 2020  125  $12,500   -  $-   4,005  $4,005   1,132  $1,132   627,092,904  $627,093   84,786,511  $84,787  $49,406,954   (62,702,339) $974,251   (11,591,617)
Sale of preferred stock                  140   140                           69,860           70,000 
Sale of common stock units                                          13,333,334   13,333   6,667           20,000 
Stock based compensation                                                  464,718           464,718 
Shares issued for conversion of notes and interest                                                              - 
Shares issued for settlement of accounts payable                          311   311                   311,067           311,378 
Options issued for settlement of accounts payable                                                  156,947           156,947 
Shares issued for conversion of subsidiary preferred                          51   51                   (40)      (11)  - 
Preferred dividend                                                      (191)      (191)
Net loss                                                      (2,216,867)  1,972   (2,214,895)
Balance July 31, 2020  125  $12,500   -  $  -   4,145  $4,145   1,494  $1,494   627,092,904  $627,093   98,119,845  $98,120  $50,416,173  $(64,919,397) $976,212  $(12,783,660)
Sale of preferred stocks                  10   10   102  $102                          112
Sale of common stock units                                  66,700,000   66,700          $(38,098)  $2,163       $35,765 
Common Stock to be issued                                          23,333,000  $23,333               23,333 
Net loss                                                     $(165,227) $(7,895)  (173,122)
                                                                
Balance October 31, 2020  125  $12,500   -  $-   4,155  $4,155   1,596  $1,596   693,792,904  $693,793   121,452,845  $121,453  $50,378,075  $(65,082,461) $968,317  $(12,902,572)
                                                                 
Balance April 30, 2019  125  $12,500   -  $-   2,960  $2,960   580  $580   627,092,904  $627,093   80,786,511  $80,787  $48,215,855  $(61,915,119) $961,320  $(12,014,024)
Sale of preferred stock                  206   206                           102,794           103,000 
Shares issued for financing cost                                                              - 
Shares issued for conversion of notes and interest                  92   92                           45,737           45,829 
Shares issued for settlement of accounts payable                                          1,000,000   1,000   99,000           100,000 
Shares issued for conversion of subsidiary preferred                          125   125                           (125)  - 
Reclassification of derivative liability                                                              - 
Preferred dividend                                                              - 
Net loss                                                      (1,748,966)  3,383   (1,745,583)
Balance July 31, 2019  125  $12,500   -  $-   3,258  $3,258   705  $705   627,092,904  $627,093   81,786,511  $81,787  $48,463,386  $(63,664,085) $964,578  $(13,510,778)
Sale of preferred stock                  392   392                           195,608           196,000 
Shares issued for conversion of subsidiary preferred                          15   15                           (15)  - 
Preferred dividend                                                      (191)      (191)
Net loss                                                      873,016   4,481   877,497 
Balance October 31, 2019  125  $12,500   -  $-   3,650  $4,695   1,425  $1,977   627,092,904  $627,093   81,786,511  $85,787  $49,850,093  $(63,577,480) $969,044  $(12,437,472)

See accompanying notes to unaudited condensed consolidated financial statements.

5

 

SPARTA COMMERCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS CASH FLOWS

FOR THE THREE AND SIX MONTHS ENDED OCTOBERJULY 31, 20202021 AND 20192021

(UNAUDITED)

  2021  2020 
  Three Months Ended July 31, 
  2021  2020 
       
CASH FLOWS FROM OPERATING ACTIVITIES        
Net Income (loss) $379,802 $(2,214,895)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock based compensation  25,000   464,718 
Gain from change in fair value of derivative liabilities  (760,028)  1,310,307 
Amortization of debt discount  40,000   - 
Non-cash financing cost  18,250   140,014 
Forgiveness of debt  -  (63,053)
Changes in operating assets and liabilities        
Accounts receivable  (1,328)  (1,250)
Inventory  1,573   (4,235)
Other assets  -   (49)
Accounts payable and accrued expenses  225,595   164,171 
Deferred revenue  (475)  (2,210)
Net cash used in operating activities  (71,611)  (206,482)
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of equipment  -   - 
Net cash (used in) investing activities  -   - 
CASH FLOWS FROM FINANCING ACTIVITIES        
Bank overdraft  17,058   (13,904)
Proceeds from sale of stock  70,000   90,000 
Proceeds from notes payable    130,944 
Payments on notes payable  (15,000)   (500)
Proceeds from related party notes  -   - 
Payments on related party notes  -   - 
Net cash provided by financing activities  72,058   206,540 
         
Cash flows from discontinued operations:        
Cash used in operating activities of discontinued operations  -   - 
Net cash flow from discontinued operation  -   - 
         
Net (decrease) increase in cash $447  $58 
         
Cash and cash equivalents, beginning of period  396   - 
Cash and cash equivalents , end of period $843  $58 
         
Cash paid for:        
Interest     $- 
Income taxes $-  $- 

  Six Months Ended 
  October 31, 
  2020  2019 
       
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(2,380,122) $(867,061)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  -   357 
Stock based compensation  464,718  $- 
Gain from change in fair value of derivative liabilities  1,310,307   292,697 
Amortization of debt discount  -   7,800 
Non-cash financing cost  295,729   225,115 
Forgiveness of debt  (63,053)  (311,127)
Changes in operating assets and liabilities        
Accounts receivable  (17,302)  (6,453)
Inventory  (4,594)  (34,672)
Other assets  (20,827)  (9,978)
Accounts payable and accrued expenses  346,763   373,844 
Deferred revenue  (2,874)  (2,063)
Net cash used in operating activities  (71,255)  (331,541)
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of equipment  -   - 
Net cash (used in) investing activities  -   - 
CASH FLOWS FROM FINANCING ACTIVITIES        
Bank overdraft  17,602   (11,496)
Proceeds from sale of stock  90,000   299,000 
Proceeds from notes payable  130,944   50,000 
Payments on notes payable  (500)  (5,500)
Proceeds from PPP loan  120,944   - 
Proceeds from related party notes  18,097   - 
Payments on related party notes  (305,832)  - 
Net cash provided by financing activities  71,255   332,004 
         
Cash flows from discontinued operations:        
Cash used in operating activities of discontinued operations  -   - 
Net cash flow from discontinued operation  -   - 
         
Net (decrease) increase in cash  -   463 
         
Cash and cash equivalents, beginning of period  -   13 
Cash and cash equivalents , end of period $-  $476 
         
Cash paid for:        
Interest $-  $249 
Income taxes $-  $700 

See accompanying notes to unaudited condensed consolidated financial statements.

6

 

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBERJULY 31, 20202021 AND 20192020

(UNAUDITED)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Business

Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation servingwith headquarters in New York City, www.spartacommercial.com. We are a multi-disciplined parent corporation operating across three markets. Sparta is a technology company that develops, marketsbusiness sectors – Financial Services, E-Commerce & Mobile Technology, and manages business mobile application (mobile apps) for smartphonesHealth and tablets. The Company also owns and manages websites which sell on-demand motorcycle, recreational vehicle, power-sport vehicle and truck title history reports for consumers, retail dealers, auction houses, insurance companies and banks/finance companies. Notwithstanding our discontinuance of consumer loans and leases, since 2007, we have offered, on a pass through basis, an equipment-leasing finance product for local and state agencies throughout the country seeking an alternative and economical way to finance their essential equipment needs, including police motorcycles and cruisers, buses and EMS equipment. Our historic customers can be viewed at https://www.spartamunicipal.com/clientsWellness, (www.spartacommercial.com). The Company also introduced a new business line in the rapidly expanding Hemp-CBD (cannabidiol) market

OurSparta’s roots are in the Powersports industryindustry. Notwithstanding the discontinuance of our initial focus on consumer loans and our original focus was providing consumer leasing and retail installment contracts as well as municipal financingleases, in 2007, the Company had introduced a new initiative, Municipal Financing, (www.spartamunicipal.com). Sparta’s Municipal Finance program is also available to all nonprofit organizations which adhere to IRS guidelines, including 501(c)3 of the powersports, recreational vehicle, and automobile industries. Presently, through ourInternal Revenue Code.

Vehicle History Reports are a staple of Sparta’s E-Commerce Technology subsidiary iMobile Solutions, Inc. (“IMS”)Whether a vehicle is intended for business or recreational use, Sparta’s Vehicle History Reports are highly regarded for accuracy and completeness and have been sold across all 50 states and in 62 countries worldwide. They provide a trusted layer of assurance to vehicle buyers and are available on Kelley Blue Book, Auto Trader, AllState Insurance and a range of various dealership websites. They include Cyclechex (Motorcycle History Reports at www.cyclechex.com), we offerRVchex (Recreational Vehicle History Reports at www.rvchex.com), CarVINreport (Automobile History Reports at www.carvinreport.com), and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com).

The Company’s E-Commerce and Mobile Technology subsidiary name change to iMobile Solutions, Inc., from Specialty Reports, Inc., in 2017, signifies its ever-broadening service offerings in the evolving technology landscape. Under iMobile App (www.imobileapp.com), the Company provides mobile technology services, including web and mobile application creation, development sales, marketing and support, and Vehicle Title History Reports.

Our mobile application (mobile app) offerings have broadened our base beyond vehicle dealers tomanagement for a wide range of businesses including, but not limited to, racetracks, private clubs, country clubs, restaurants and grocery stores. Our clients can be seen at https://imobileapp.com/app-gallery/. We also offer a private label versionin the achievement of our mobile app framework to enable other businesses to offer custom apps to their customers.

marketing goals. The Company also designs, launches, maintains and hosts websites for businesses. We provide specific, tailored action plans for our clients’ websites that include services such as eCommerce, CRM (Customer Relationship Management) development and integration, ordering system creation and integration, SEO (search engine optimization), social media marketing, and online reviews to improve their presence online. In addition, we offer text messaging services which are vital for businesses’ marketing, retention and loyalty strategies. Our text messaging platform allows our clients to easily manage, schedule, and analyze text message performance.

Our vehicle history reports, which can be found on Kelly Blue Book, AutoTrader, AllState Insurance, as well as on various dealership websites, include Cyclechex (Motorcycle History Reports at www.cyclechex.com); RVchecks (Recreational Vehicle History Reports at www.rvchecks.com); CarVINreport (Automobile at www.carvinreport.com) and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Our Vehicle History Reports are designed for consumers, retail dealers, auction houses, insurance companies and banks/finance companies.

Sparta created its subsidiary, 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 withon the passingheels of the 2018Agriculture Improvement Act (also known as the Farm Bill,Bill), which resulted inwas signed into law the removal ofprevious December 20, 2018. Consequently, hemp (CBD) was removed from Schedule 1 of the Controlled Substances Act. Sparta’sCompany management recognized athe substantial potential business opportunity that lay ahead in the rapidly expanding Hemp-CBD (Cannabinol)hemp-CBD (cannabidiol) market in the United States. During 2019-2020, managementwe sourced, developed and tested 5 CBD product categories totaling 31 products,products. We procured premium, domestic-grade, full-spectrum, broad-spectrum, and THC free hemp, created product packaging and labeling, and implemented fulfillment and launchedto launch an on-lineonline B to C website, www.newworldhealthcbd.com. In addition, NWHB expandedwebsite: www.newworldhealthcbd.com on December 21, 2019. To ensure the safety and quality of our products, all CBD product offerings are exclusively sourced, manufactured and tested at highly accredited testing facilities in the United States and adhere to strict U.S standards and guidelines.

Sparta’s response to the onset of the COVID 19 pandemic in early 2020 quickly took shape with thorough investigations into theevolving customer trends in health and wellness marketwellness. 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 on-lineonline B to C website,website: www.newworldhealthbrands.com, with a line offeaturing high quality dietary supplements, including but not limited tovitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Beetroot Extract, Selenium, Vitamin B Complex, Vitamin C and more - specifically formulatedPQQ. 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 strengthen the immune system. The Company believes that this will allow usstrict U.S. standards and guidelines. Sparta’s commitment to access markets,high standards and e-commerce platforms currently not availabletransparency are tantamount to its CBD products.being a trusted brand.

7

 

SPARTA COMMERCIAL SERVICES, INC.Sparta’s newest subsidiary, Sparta Crypto, Inc., was established September 25, 2020 and is in the process of building a proprietary state-of-the-art platform designed to connect users of various digital currency with sellers of luxury goods. The platform has not launched and the Company can make no assurances that the described plan will reach implementation.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of OctoberJuly 31, 20202021 and for the three monthmonths periods ended OctoberJuly 31, 20202021 and 20192020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and explanatory notes for the year ended April 30, 20202021 as disclosed in the Company’s Form 10-K for that year as filed with the Securities and Exchange Commission. The results of operations for the three months ended OctoberJuly 31, 20202021 are not necessarily indicative of the results to be expected for any other interim period or the full year ending April 30, 2020.2022.

The condensed consolidated balance sheet as of April 30, 20202021 contained herein has been derived from the audited consolidated financial statements as of April 30, 2020,2021, but do not include all disclosures required by the U.S. GAAP.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The third-party ownership of the Company’s subsidiary is accounted for as noncontrolling interest in the consolidated financial statements. Changes in the noncontrolling interest are reported in the statement of changes in deficit.

Estimates

These financial statements have been prepared in accordance with accounting principles generally accepted in United States of America which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of revenues and expenses for the reported period. Accordingly, actual results could differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of property and equipment, beneficial conversion feature of convertible notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilitiesliabilities.

Revenue Recognition

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

Revenues from mobile app products and New World Health products are generally recognized upon delivery. Revenues from history reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery.

8

 

Cash Equivalents

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

Website Development Costs

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

8

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited

Fair Value Measurements

The Company has adopted ASC 820, “Fair Value Measurements (“ASC 820”).” ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets the lowest priority to unobservable inputs to fair value measurements of certain assets and Liabilities. The three levels of the fair value hierarchy under ASC 820 are described below:

●Level 1 — Quoted prices for identical instruments in active markets. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain securities that are highly liquid and are actively traded in over-the-counter markets.
●Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in active markets.
●Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurements. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques based on significant unobservable inputs, as well as management judgments or estimates that are significant to valuation.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not always be available.

Income Taxes

We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

Stock Based Compensation

We account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

9

 

We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

Inventories

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

9

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.

Net Loss Per Share

The Company uses ASC 260-10, “Earnings Per Share” for calculating the basic and diluted loss per share. The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.

At OctoberAs of July 31, 2021 and 2020, and 2019, 4,748,292,51142 million shares potential shares (including 98,119,845 shares to be issued on the balance sheet)2,349,697 and 3,949,236,328 potential shares (including 81,786,5111,493,962 shares to be issued on the balance sheet), respectively, were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.

Derivative Liabilities

The Company assessed the classification of its derivative financial instruments as of OctoberJuly 31, 20202021 and April 30, 2020,2021, which consist of convertible instruments and rights to shares of the Company’s common stock and determined that such derivatives meet the criteria for liability classification under ASC 815.

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

Convertible Instruments

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

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

10

 

Reclassifications

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-Pronouncements-

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

10

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited

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

NOTE B – GOING CONCERN MATTERS

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred recurring losses and generated negative cash flows from operating activities since inception. As of OctoberJuly 31, 2020,2021, the Company had an accumulated deficit of $65,082,461 $64,613,448 and a working capital deficit (total current liabilities exceeded total current assets) of $12,452,072.$11,315,179. The Company’s cash balance and revenues generated are not currently sufficient and cannot be projected to cover its operating expenses for the next twelve months from the filing date of this report. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

The Company’s existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that the Company’s efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the resolution of its liquidity problems. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

In order to improve the Company’s liquidity, the Company’s management is actively pursuing additional equity financing through discussions with investment bankers and private investors. There can be no assurance that the Company will be successful in its effort to secure additional equity financing.

NOTE C – NOTES PAYABLE AND DERIVATIVES

The Company has outstanding numerous notes payable to various parties. The notes bear interest at rates of 5%5% - 20%20% per year and are summarized as follows:

SCHEDULE OF NOTES PAYABLE

Notes Payable July 31, 2021  April 30, 2021 
Notes convertible at holder’s option $2,522,925  $2,522,925 
Notes convertible at Company’s option  335,700   335,700 
Non-convertible notes payable  1,861,650   1,821,650 
Subtotal  4,720,275   4,680,275 
Debt discount  -   - 
Total $4,720,275  $4,680,275 

11

 

Notes Payable 

October 31,

2020

  

April 30,

2020

 
Notes convertible at holder’s option $2,590,309  $2,590,309 
Notes convertible at Company’s option  75,700   75,700 
Non-convertible notes payable  2,372,646   2,276,315 
Subtotal  5,038,655   4,942,324 
         
Less debt discount  -   - 
  $5,038,655  $4,942,324 

Certain of the notes payable contain variable conversion rates and the conversion features are classified as derivative liabilities. The conversion prices are based on the market price of the Company’s common stock, at discounts of 30%30% - 48%48% to market value. At October 31, 2020, the Company has reserved 238,630,500 shares of its common stock for issuance upon the conversion of debentures.

Amortization of debt discount for the three-month periods ended October 31, 2020 and 2019 was $0 and $6,825, respectively.

11

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited

The Company’s derivative financial instruments consist of embedded derivatives related to the outstanding short term Convertible Notes Payable. These embedded derivatives include certain conversion features indexed to the Company’s common stock. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related items at their fair values as of the inception date of the Convertible Notes Payable and at fair value as of each subsequent balance sheet date. In addition, under the provisions of Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”), as a result of entering into the Convertible Notes Payable, the Company is required to classify all other non-employee stock options and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.

The change in fair value of the derivative liabilities at OctoberJuly 31, 20202021 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 rateRanging from0.110.09 to 0.2%
Expected stock price volatilityRanging from135155 to 273270%
Expected dividend payout0
Expected life in yearsRanging from0.25 to 3.0 Years

The change in fair value of the derivative liabilities of convertible notes outstanding at October 31, 2019April 30, 2021 was calculated with the following average assumptions, using a Black-Scholes option-pricing model are as follows:

Significant Assumptions:
Risk free interest rateRanging from1.83%1.83% to 2.00%
Expected stock price volatility118%118% to 187%
Expected dividend payout0%
Expected life in yearsRanging from0.25 year to 2.0 years

During the three months ended OctoberJuly 31, 20202021 and 2019,2020, the Company recorded a (loss)net income of $1,310,307 $380,140 and a (loss) of $1,682,995,$2,217,058, respectively, related to the mainly due to change in value of the derivative liabilities.

Changes in derivative liability during the three months ended OctoberJuly 31, 2021 and 2020 and 2019 were:

SCHEDULE OF CHANGES IN DERIVATIVE LIABILITIES

  2021  2020 
  July 31, 
  2021  2020 
Balance, beginning of year $3,446,738  $2,802,125 
Derivative liability extinguished  (385,257)  - 
Derivative financial liability arising on the issuance of convertible notes and warrants     140,014 
Fair value adjustments  760,068   1,310,307 
Balance, end of period $2,301,413  $4,255,446 

12

 

  October 31, 
  2020  2019 
Balance, beginning of year $2,802,125  $3,496,696 
Derivative liability extinguished  -   - 
Derivative financial liability arising on the issuance of convertible notes and warrants  140,014   63,613 
Fair value adjustments  1,310,307   1,682,995 
Balance, end of period $4,252,446  $5,243,304 

NOTE D – LOANS PAYABLE TO RELATED PARTIES

As of OctoberJuly 31, 2020,2021, and April 30, 2020,2021, aggregated loans and notes payable, without demand and with no interest, to officers and directors were $450,500$432,403 and $432,403,$432,403, respectively.

12

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited

NOTE E – EQUITY TRANSACTIONS

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock with $0.001$0.001 par value per share, of which 35,850 shares have been designated as Series A convertible preferred stock with a $100$100 stated value per share, share; 1,000 shares have been designated as Series B Preferred Stock with a $10,000$10,000 per share liquidation value, 200,000value; 4,200,000 shares have been designated as Series C Preferred Stock with a $10$10 per share liquidation value, and 2,000,000 shares have been designated as Series D Preferred Stock with a $1$1 per share liquidation value and 750,000,000 shares of common stock with $0.001 par value per share. The Company had 125 shares of Series A preferred stock issued and outstanding as of October 31, 2020 and April 30, 2020. The Company had no shares of Series B preferred stock issued and outstanding as of October 31, 2020 and April 30, 2020. The Company had 4,155,000 and 4,005,000 shares of Series C preferred stock issued and outstanding as of October 31, 2020 and April 30, 2020. The Company had 1,596,000 and 1,132,000 shares of Series D preferred stock issued and outstanding as of October 31, 2020 and April 30, 2020.value.

The Company had 693,792,904 and 627,092,904 shares of common stock issued and outstanding as of October 31, 2020 and April 30, 2020, respectively. The Company had 121,452,845 and 84,786,511 shares of common classified as to be issued at October 31, 2020 and April 30, 2020.

Preferred Stock

During the three months ended OctoberJuly 31, 2021, the Company:

Converted 704,300 preferred shares D and 1,493,962 preferred shares C for a total of 1,571,101 common shares valued at $253,442.

During the three months ended July 31, 2020, the Company:

Sold 140 Units Series C Convertible Preferred stock for $70,000. $70,000. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock) and 150 two-yeartwo year Warrants to purchase one share of the Company’s common stock at $0.005$0.005 per share.

Issued 311 Units Series D Convertible Preferred stock in settlement of $311,378$311,378 in accounts payable. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock) and 150 two-yeartwo year Warrants to purchase one share of the Company’s common stock at $0.01$0.01 per share.

Issued 51 Units Series D Convertible Preferred stock upon conversion of $51,000$51,000 of the Company’s subsidiary’ preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock) and 150 two-yeartwo year Warrants to purchase one share of the Company’s common stock at $0.01$0.01 per share.

Common Stock

The Company had 11,508,878and 9,809,877 shares of common stock (after stock split effect) issued and outstanding as of July 31, 2021 and April 30, 2021, respectively. The Company 1,214,528 shares (after stock split effect) of common classified as to be issued at July 31 and April 30, 2021.

During the three months ended OctoberJuly 31, 2019,2021, the Company:

Sold 206 Units C Convertible Preferredto four accredited investors 1,134,697 shares of common stock for $103,000. Each Unit consistscash of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock)$70,000 and 150 two-year Warrants to purchase one share of the Company’s common stock at $0.005 per share.

Issued 92 Units C Convertible Preferred stock upon the conversion of $45,829 of notes payable and accrued interest thereon. Each Unit consistsexpenses settlement of 1 share of Series C Preferred stock (convertible at any time into 300$29,317.81 actual shares of the Company’s common stock)were not issued yet and 150 two-year Warrantsrecorded as commons stocks to purchase one share of the Company’s common stock at $0.005 per share.be issued.

Issued 125 Units D Convertible Preferred stock upon the conversion of $125,000 of the Company’s subsidiary’ preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock) and 150 two-year Warrants to purchase one share of the Company’s common stock at $0.01 per share.

Common Stock

During the three months ended OctoberJuly 31, 2020, the Company:

Sold to two accredited investors 13,333,334 shares of common stock and two-yeartwo year warrants, to purchase 6,666,667 shares of common stock at $0.004$0.004 per share, for $20,000.$20,000.

During the three months ended October 31, 2019, the Company:

Accrued to be issued 1,000,000 shares of restricted common stock in consideration of the cancellation of $311,127 of accounts payable.

13

SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited)

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.

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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 OctoberJuly 31, 2020:2021:

SCHEDULE OF FAIR VALUES OF FINANCIAL LIABILITIES

  Fair Value at  Fair Value Measurement Using 
  October 31, 2020  Level 1  Level 2  Level 3 
Derivative liabilities $4,252,446   -   -  $4,252,446 
  Fair Value at  Fair Value Measurement Using 
  July 31, 2021  Level 1  Level 2  Level 3 
Derivative liabilities $2,301,413   -   -  $2,301,413 

Fair values of financial liabilities as of April 30, 20202021 are as follows:

  Fair Value at  Fair Value Measurement Using 
  April 30, 2020  Level 1  Level 2  Level 3 
Derivative liabilities $2,802,125   -   -  $2,802,125 
  Fair Value at  Fair Value Measurement Using 
  April 30, 2021  Level 1  Level 2  Level 3 
Derivative liabilities $3,446,738   -   -  $3,446,738 

The following is a description of the valuation methodologies used for these items:

Derivative liabilities — these instruments consist of certain variable conversion features related to notes payable obligations and certain outstanding warrants. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.

The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with ASC Topic 825 “The Fair Value Option for Financial Issuances”.

NOTE G – NON-CASH INVESTING AND FINANCING INFORMATION

During the three months ended October 31, 2020, the Company:

●Issued 311 Units Series D Convertible Preferred stock in settlement of $311,378 in accounts payable. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share.
●Issued 51 Units Series D Convertible Preferred stock upon conversion of $51,000 of the Company’s subsidiary’ preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock) and 150 two-year Warrants to purchase one share of the Company’s common stock at $0.01 per share.

During the three months ended October 31, 2019, the Company:

●Issued 92 Units C Convertible Preferred stock upon the conversion of $45,829 of notes payable and accrued interest thereon. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock) and 150 two-year Warrants to purchase one share of the Company’s common stock at $0.005 per share.

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SPARTA COMMERCIAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 30, 2020

(Unaudited)

●Issued 125 Units D Convertible Preferred stock upon the conversion of $125,000 of the Company’s subsidiary’ preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share.
●Accrued to be issued 1,000,000 shares of restricted common stock in consideration of the cancellation of $311,127 of accounts payable.

NOTE H – COMMITMENTS AND CONTINGENCIES

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carry forwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision.

Operating Lease Commitments

Our executive offices are located in New York, NY. We have an agreement for use of office space at this location under a sub-lease which expired on October 31, 2019 and continues on a month-to-month basis thereafter. The monthly base rent is $5,100.$5,100.

Rent expense was $16,200$16,200 and $13,250$16,200 for the three-monththee-months periods ended OctoberJuly 31, 2021 and 2020, and 2019, respectively.

Litigation

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Sparta can make no representations about the potential outcome of such proceedings.

As of OctoberJuly 31, 2020,2021, we were not a party to any material pending legal proceeding except as stated below. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.

The Company has received notices dated April 1, 2016, May 13, 2016 and July 22, 2016 from two lenders claiming defaults relating to conversion requests of $8,365$8,365 principal and $643$643 interest and $5,000$5,000 principal, with regard to notes in the total amounts of $55,125$55,125 and $27,500,$27,500, respectively, which the Company has refused to process and believes it has defenses in that regard. The company believes these claims are contingent, unliquidated and disputed. There can be no assurance that the Company would prevail should litigation with regard to any of these requests occur. These liabilities have been recorded in the unaudited condensed consolidated financial statements.

On September 22, 2016, a motion for summary judgment in lieu of complaint was filed in the Supreme Court of The State of New York County of Kings, against the Company by a lender for the amount of $102,170.82$102,170.82 in principal and interest; accrued and unpaid interest thereupon in the amount from the date of filing to entry of judgment herein; lender’s reasonable attorney’s fees, costs, and expenses; and any such other relief as the Court deems just and proper. Plaintiff’s motion for summary judgment in lieu of complaint was denied on May 5, 2017. On August 22, 2019,2018, Plaintiff brought a second motion seeking summary judgment on the issue of liability which was denied on March 14, 2020.2019. The Court found that there existed issues of fact warranting a trial. The most recent appearance in this matter was scheduled for March 13, 2020 at which time the Court marked the case “adjourned without a date” due to the restrictions imposed on the Courts from the COVID-19 pandemic. The Company believes the claim is contingent, unliquidated and disputed. There is no assurance that the Company will prevail in this litigation. These liabilities have been recorded in the unaudited condensed consolidated financial statements.

On October 26, 2019,2018, a lender commenced an action in the Supreme Court of the State of New York in New York County alleging damages from unpaid principal and interest, attorney’s fees, costs, and expenses arising from a promissory note dated February 26, 2015, in the amount of $50,000.00. The case is presently in the$50,000.00. All discovery phase of the litigation.has been completed. A motion for summary judgment and cross motion to dismiss were fully submitted on September 15, 2021. The Company believes the claim is contingent, unliquidated, and disputed.

NOTE IH – SUBSEQUENT EVENTS

Subsequent to October 31, 2020 the Company:

Sold, to an accredited investor, 3,333,334 Shares of Common stock (and two-year warrants to purchase 1,666,667 shares of common stock at $0.004 per share)The Company has evaluated subsequent events for $5,000.

Sold, to an accredited investor, 10 Units of Series C convertible preferred stock for $10,000. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock)recognition and 150 two-year Warrants to purchase one share of the Company’s common stock at $0.005 per share.

On July 9, 2020, the Company filed with the Securities and Exchange Commission, a Schedule 14C Information Statement whereby a majority of the Company’s shareholders approved a 1 for 100 reverse stock split of the Company’s common shares outstanding. As ofdisclosure September 17, 2021 which is the date of this filing, FINRA (the Financial Industry Regulatory Authority) has yetthe financial statements were available to approvebe issued. No other matters were identified affecting the reverse stock split.accompanying financial statements and related disclosures.  

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion of our financial condition and results of operations should be read in conjunction with (1) our interim unaudited condensed consolidated financial statements and their explanatory notes included as part of this quarterly report, and (2) our annual audited consolidated financial statements and explanatory notes for the year ended April 30, 20202021 as disclosed in our annual report on Form 10-K for that year as filed with the SEC.

“Forward-Looking” Information

This report on Form 10-Q contains various statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder which represent our expectations and beliefs, including, but not limited to statements concerning the Company’s business and financial plans and prospects and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” and other similar expressions can, but not always, identify forward-looking statements, which speak only as of the date such statement was made. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), including Item 1A of the Company’s Annual Report of Form 10-K for the year ended April 30, 2020.2021. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward-looking statements in light of this explanation, and we caution you about relying on forward-looking statements.

General Overview

Sparta Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation servingwith headquarters in New York City, www.spartacommercial.com. We are a multi-disciplined parent corporation operating across three markets. Spartabusiness sectors – Financial Services, E-Commerce & Mobile Technology, and Health and Wellness, (www.spartacommercial.com).

Sparta’s roots are in the Powersports industry. Notwithstanding the discontinuance of our initial focus on consumer loans and leases, in 2007, the Company had introduced a new initiative, Municipal Financing, (www.spartamunicipal.com). Sparta’s Municipal Finance program is also 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 technology company that develops, marketsstaple 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 manages business mobile applications (mobile apps) for smartphonescompleteness and tablets. The Company also ownshave been sold across all 50 states and manages websites which sell on-demand motorcycle, recreationalin 62 countries worldwide. They provide a trusted layer of assurance to vehicle power-sport vehiclebuyers and truckare available on Kelley Blue Book, Auto Trader, AllState Insurance and a range of various dealership websites. They include Cyclechex (Motorcycle History Reports at www.cyclechex.com), RVchex (Recreational Vehicle History Reports at www.rvchex.com), CarVINreport (Automobile History Reports at www.carvinreport.com), and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Consumers, retailers, municipals, nonprofits, auction houses, banks and insurance companies alike scrutinize title history reports for consumers, retail dealers, auction houses, insurance companiesthe vital information needed and banks/finance companies. Lastly, since 2007, Sparta has administered leasing programs for local and/or state agencies seekingfactored into crucial business decisions that affect the bottom line.

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The Company’s E-Commerce and Mobile Technology subsidiary name change to finance municipal vehicles and essential equipment. Our historic customers can be viewed at https://www.spartamunicipal.com/clients. The Company also introduced a new business line in the rapidly expanding Hemp-CBD (cannabidiol) market.

In 2020, the Company changed the name of its majority-owned subsidiaryiMobile Solutions, Inc., from Specialty Reports, Inc., toin 2017, signifies its ever-broadening service offerings in the evolving technology landscape. Under iMobile Solutions, Inc. The new name reflectsApp (www.imobileapp.com), the Company’s strategic evolutionCompany provides mobile technology services, including web and focus on the fast-growing mobile application market.

Sparta’s mobile application (mobile app) offerings have broadened our base beyond our original base of vehicle dealers to includecreation, development and management for a wide range of businesses including, but not limited to,in the achievement of their marketing goals. 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. Our clients can be seen at https://imobileapp.com/app-gallery/stores, as well as various other merchant types. (www.imobileapp.com/app-gallery). 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,Additionally, we offer text messaging services, which are vital for businesses’supplement business marketing retentionstrategies both to gain and retain brand loyalty strategies.among its clients, customers and investors. Our text messaging platform allows our clients to easily manage, schedule and analyze text message performance.

The Company’s vehicle history reports, which can be found on Kelly Blue Book, AutoTrader, AllState Insurance, as well as on various dealership websites, include Cyclechex (Motorcycle History Reports at www.cyclechex.com); RVchex (Recreational Vehicle History Reports at www.rvchecks.com); CarVINreport (Automobile Reports at www.carvinreport.com) and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com). Our Vehicle History Reports are designed for consumers, retail dealers, auction houses, insurance companies and banks/finance companies.

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Sparta also administers a Municipal Leasing Program for local and/or state agencies throughout the country who are seeking a better and more economical way to finance their essential equipment needs, including police motorcycles, cruisers, buses, and EMS equipment. We are continuing to expand our roster of equipment manufacturers and the types of equipment we lease.

created its subsidiary, New World Health Brands, Inc. (NWHB) was formed, in April 2020 as a subsidiary and new business line of Sparta Commercial Services, Inc. While anticipating, and with2019, on the passingheels of the 2019Agriculture Improvement Act (also known as the Farm Bill,Bill), which resulted inwas signed into law the removal ofprevious December 20, 2018. Consequently, hemp (CBD) was removed from Schedule 1 of the Controlled Substances Act. Sparta’sCompany management recognized athe substantial potential business opportunity that lay ahead in the rapidly expanding Hemp-CBD (Cannabinol)hemp-CBD (cannabidiol) market in the United States. During 2019-2020, managementwe sourced, developed and tested 5 CBD product categories totalingtotalling 31 products,products. We procured premium, domestic-grade, full-spectrum, broad-spectrum, and THC free hemp, created product packaging labeling,and labelling, and implemented fulfillment and launchedfulfilment to launch an on-lineonline B to C website, www.newworldhealthcbd.com. . In addition, NWHB expandedwebsite: www.newworldhealthcbd.com on December 21, 2019. 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 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 theevolving customer trends in health and wellness market withwellness. 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 but not limited tovitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Beetroot Extract, Selenium, Vitamin B Complex, Vitamin C and more - specifically formulatedPQQ. 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 strengthenstrict U.S standards and guidelines. Sparta’s commitment to high standards and transparency are tantamount to being a trusted brand.

Sparta’s newest subsidiary, Sparta Crypto, Inc., was established on September 25, 2020 and in the immune system.process of building a proprietary state-of-the-art platform designed to connect users of various digital currency with sellers of luxury goods. The platform has not launched and the Company believescan make no assurances that thisthe described plan will allow us to access markets, and e-commerce platforms currently not available to its CBD products.reach implementation.

RESULTS OF OPERATIONS

Comparison of the sixthree Months Ended OctoberJuly 31, 2021 and 2020 to the Three Months Ended October 31, 2019

For the three months ended OctoberJuly 31, 20202021 and 2019,2020, we have generated limited sales revenues, have incurred significant expenses, and have sustained significant losses.

Revenues

Revenues totaled $141,554 during the six months ended October 31, 2020 as compared to $180,017$60,685 during the three months ended OctoberJuly 31, 2019,2021 as compared to $76,607 during the three months ended July 31, 2020, a decrease of $38,463$15,922 or 21%, primarily due to Covid-19. Revenues from our Information Technology products declined $908by $17,390 or 1.34% to $73,947 while revenues from our New World Health Brands products declined $9,602 or 78.31 % to $2,660.24%.

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Cost of Revenue

Cost of revenue consists of costs and fees incurred to third parties to construct and maintain mobile apps, as well as fees for subscription services related to vehicle history reports and cost of goods purchased for New World Health Brand products. Cost of revenue was $10,177 during the three months ended July 31, 2021 as compared to $20,148 during the three months ended OctoberJuly 31, 2020 as compared to $14,787 during the three months ended October 31, 2019.2020. This $5,361$9,971 or 36.25% increase49% decline was due to New World Health Brands product line inventory purchases.purchases during the three months period ending July 31, 2020.

Operating Expenses

General and administrative expenses were $933,709$225,024 during the sixthree months ended OctoberJuly 31, 2021, compared to $713,676 during the three months ended July 31, 2020, compared to $503,715 during the six months ended October 31, 2020, an increasea decrease of $429,994$488,652 or 85%68%, primarily due to the non-cash Black Scholes $464,718 valuation of options issued to management and directors. directors in the previous period.

Expenses incurred during the current sixthree months period consisted primarily of the following expenses: Compensation, options and related costs, $594,763; Accounting, audit and professional fees, $52,620; Consulting fees, $12,580 and Rent, utilities and telecommunication expenses $21,447. Expenses incurred during the comparative six month period in 2019 consisted primarily of the following expenses: Compensation and related costs, $151,421; Accounting, audit and professional fees, $17,130; Consulting fees, $7,134; and Rent, utilities and telecommunication expenses $22,244.

  July 31, 2021  July 31, 2020 
Compensation, option and related cost  133,615   594,763 
Accounting, audit and professional fees  19,060   52,620 
Consulting Fees  30,500   12,580 
Rent and Utilities  18,085   21,447 
General office expenses  48,764   32,266 
   250,024   713,676 

Other (income) expense

Other (income) expense is comprised primarily of interest and financing costs $180,750 and expenseincome related to the change in fair value of our derivative liabilities. Other loss was $1,557,678liabilities $760,068 for the ninethree months ended OctoberJuly 31, 2020,2021, compared to net other loss of $1,590,125$1,557,678 for the ninethree months ended OctoberJuly 31, 2019, a decrease in net other expense of $32,447 or 2.04%.2020. The decrease results were from the change in the fair value of our derivative liabilities.

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Net income (loss)

Our net lossincome attributable to common stockholders for the sixthree months ended OctoberJuly 31, 2020 increased by $1,513,061 or 26.81%2021 $380,140 compared to $2,380,122 from $867,061 for the six months ended October 31, 2019. This increase in net loss attributable to common stockholders for the six months ended October 31, 2020 wasof $2,217,058 primarily due to gain valuation of derivative liabilities incurred as of July 31, 2021 of $760,068 while in the factors discussed above.three months period July 31, 2020 loss in valuation of derivative liabilities was $1,310,307.

LIQUIDITY AND CAPITAL RESOURCES

As of OctoberJuly 31, 2020,2021, we had an accumulated deficit of $65,082,461$64,613,448 and a total net lossincome for the sixthree months of $2,380,122.$380,140. We generated a deficit in cash flow from operations of $71,255$71,611 for the sixthree months ended OctoberJuly 31, 2020.2021. This deficit results primarily from our net lossincome of $2,380,122, partially$379,802, offset by noncash expense of $2,070,754$25,000, amortization of debt discount $40,000, gain in fair value valuation of derivative liabilities and an increase of $346,763$225,595 in accounts payables and accrued expenses.

We met our cash requirements during the period through proceeds from the sale of preferred stock for proceeds of $90,000,$70,000 and the sale of notes payable in the amount of $130,944. We repaid notes in the amount of $500.bank overdraft $17,058.

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 OctoberJuly 31, 2020,2021, we had 6 full time employees. If we fully implement our business plan, we anticipate our employment base may increase during the next twelve months. As we continue to expand, we will incur additional cost for personnel. This potential increase in personnel is dependent upon our generating increased revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the potential increase in the number of employees. Our employees are not represented by a union.

While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and potential future cash flow deficits from operations.

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We continue to seek additional financing, which may be in the form of senior debt, subordinated debt or equity. We currently have no commitments for financing that are not at the investor’s election. There is no guarantee that we will be successful in raising the funds required to support our operations.

We estimate that we will need approximately $1,000,000 in addition to our normal operating cash flow to conduct operations during the next twelve months. However, there can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common or preferred stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. However, if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition, and we will have to adjust our planned operations and development on a more limited scale.

The effect of inflation on our revenue and operating results was not significant. Our operations are located in North America and there are no seasonal aspects that would have a material effect on our financial condition or results of operations.

GOING CONCERN ISSUES

The independent auditors report on our April 30, 2020 and 2019 consolidated financial statements included in the Company’s Annual Report states that the Company’s historical losses and the lack of revenues raise substantial doubts about the Company’s ability to continue as a going concern, due to the losses incurred and its lack of significant operations.concern. If we are unable to develop our business, we have to discontinue operations or cease to exist, which would be detrimental to the value of the Company’s common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.

In order to improve the Company’s liquidity, the Company’s management is actively pursuing additional financing through discussions with investment bankers, financial institutions and private investors. There can be no assurance the Company will be successful in its effort to secure additional financing.

We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to develop profitable operations. We are devoting substantially all of our efforts to developing our business and raising capital. Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

The primary issues management will focus on in the immediate future to address this matter include: seeking additional credit facilities from institutional lenders; seeking institutional investors for debt or equity investments in our Company; short term interim debt financing: and private placements of debt and equity securities with accredited investors.

To address these issues, we have engaged a financial advisory firm to advise and assist us in negotiating and raising capital.

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INFLATION

The impact of inflation on the costs of the Company, and the ability to pass on cost increases to its customers over time is dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact on the Company’s operations over the past quarter, and the Company does not anticipate that inflationary factors will have a significant impact on future operations.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not maintain off-balance sheet arrangements, nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.

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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

Information Technology:

During the first quarter of 2019, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the cumulative-effect method. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption did not have an impact in our consolidated financial statements, other than the enhancement of our disclosures related to our revenue-generating activities. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.

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

New World Health Brands (“NWHB”):

Revenues from NWHB 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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Convertible Instruments

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

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

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Derivative Liabilities

The Company assessed the classification of its derivative financial instruments as of OctoberJuly 31, 20202021 and April 30, 2020,2021, 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.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note A to the unaudited condensed consolidated financial statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our unaudited condensed consolidated financial statements, which is incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of OctoberJuly 31, 2020.2021. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls, the Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. In our assessment of the effectiveness of internal control over financial reporting as of October 31, 2020, we determined that control deficiencies existed that constituted material weaknesses, as described below:

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●lack of documented policies and procedures;
●we have no audit committee;
●there is a risk of management override given that our officers have a high degree of involvement in our day-to-day operations.
●there is no effective separation of duties, which includes monitoring controls, between the members of management.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. As a result, we have not been able to take steps to improve our internal controls over financial. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. Management is currently evaluating what steps can be taken in order to address these material weaknesses.

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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 OctoberJuly 31, 20202021 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In light of these significant deficiencies, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the three months ended OctoberJuly 31, 20202021 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the three months ended OctoberJuly 31, 20202021 are fairly stated, in all material respects, in accordance with U.S. GAAP.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As at OctoberJuly 31, 2020,2021, we were not a party to any material pending legal proceeding except as stated below. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.

The Company has received notices dated April 1, 2016, May 13, 2016 and July 22, 2016 from two lenders claiming defaults relating to conversion requests of $8,365 principal and $643 interest and $5,000 principal, with regard to notes in the total amounts of $55,125 and $27,500, respectively, which the Company has refused to process and believes it has defenses in that regard. The company believes these claims are contingent, unliquidated and disputed. There can be no assurance that the Company would prevail should litigation with regard to any of these requests occur. These liabilities have been recorded in the unaudited condensed consolidated financial statements.

On September 22, 2016, a motion for summary judgment in lieu of complaint was filed in the Supreme Court of The State of New York County of Kings, against the Company by a lender for the amount of $102,170.82 in principal and interest; accrued and unpaid interest thereupon in the amount from the date of filing to entry of judgment herein; lender’s reasonable attorney’s fees, costs, and expenses; and any such other relief as the Court deems just and proper. Plaintiff’s motion for summary judgment in lieu of complaint was denied on May 5, 2017. On August 22, 2018, Plaintiff brought a second motion seeking summary judgment on the issue of liability which was denied on March 14, 2019. The Court found that there existed issues of fact warranting a trial. The most recent appearance in this matter was scheduled for March 13, 2020 at which time the Court marked the case “adjourned without a date” due to the restrictions imposed on the Courts from the COVID-19 pandemic. The Company believes the claim is contingent, unliquidated and disputed. There is no assurance that the Company will prevail in this litigation. These liabilities have been recorded in the unaudited condensed consolidated financial statements.

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On October 26, 2018, a lender commenced an action in the Supreme Court of the State of New York in New York County alleging damages from unpaid principal and interest, attorney’s fees, costs, and expenses arising from a promissory note dated February 26, 2015, in the amount of $50,000.00. The case is presently in theAll discovery phase of the litigation.has been completed. A motion for summary judgment and cross motion to dismiss were fully submitted on September 15, 2021. The Company believes the claim is contingent, unliquidated, and disputed.

ITEM 1A. RISK FACTORS

We are subject to certain risks and uncertainties in our business operations including those which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not presently known or which are currently deemed immaterial may also impair our business operations. A description of factors that could materially affect our business, financial condition or operating results were included in Item 1A “Risk Factors” of our Form 10-K for the year ended April 30, 2020,2021, and is incorporated herein by reference.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Each of the issuance and sale of securities described below was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act of 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.

Sales of Preferred Stock, Common Stock and Warrants:

During the sixthree months ended OctoberJuly 31, 20202021 the Company:

●Sold 206 Units C Convertible Preferred stock for $103,000. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share.
●Issued 92 Units C Convertible Preferred stock upon the conversion of $45,829 of notes payable and accrued interest thereon. Each Unit consists of 1 share of Series C Preferred stock (convertible at any time into 300 shares of the Company’s common stock) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.005 per share.
●Issued 125 Units D Convertible Preferred stock upon the conversion of $125,000 of the Company’s subsidiary’ preferred stock. Each Unit consists of 1 share of Series D Preferred stock (convertible at any time into 400 shares of the Company’s common stock) and 150 two year Warrants to purchase one share of the Company’s common stock at $0.01 per share.

Sold to twofour accredited investors 13,333,3341,134,697 shares of common stock and two-year warrants, to purchase 6,666,667 shares of common stock at $0.004 per share, for $20,000.stock. 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

The following exhibits are filed with this report:

Exhibit
No.		Description
31.1*Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
31.2*Certification of Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32.1*Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS*Inline XBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*InlineXBRL Taxonomy Extension Label Linkbase
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SPARTA COMMERCIAL SERVICES, INC.
Date: December 21, 2020September 20, 2021By:/s/ Anthony L. Havens
Anthony L. Havens, Chief Executive Officer,
Principal financial and accounting officer

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