See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(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 serving three markets. Sparta is a technology company that develops, markets and manages business mobile application (mobile apps) for smartphones and tablets. The Company also owns and manages websites which sell on-demand motorcycle, recreational vehicle, power-sport vehicle and truck title history reports for consumers, retail dealers, auction houses, insurance companies and banks/finance companies. Notwithstanding our discontinuance of consumer financing, we continue to offer, on a pass through basis, an equipment-leasing product for local and state agencies throughout the country seeking a better and more economical way to finance their essential equipment needs, including police motorcycles and cruisers, buses and EMS equipment.
Our roots are in the Powersports industry and our original focus was providing consumer and municipal financing to the powersports, recreational vehicle, and automobile industries (see Discontinued Operations). Presently, through our subsidiary, iMobile Solutions, Inc. ("IMS"), we offer mobile application development, sales, marketing and support, and Vehicle Title History Reports.
Our mobile application (mobile app) offerings have broadened our base beyond vehicle dealers to a wide range of businesses including, but not limited to, racetracks, private clubs, country clubs, restaurants and grocery stores. We also offer a private label version of our mobile app framework to enable other businesses to offer custom apps to their customers.
Our vehicle history reports 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of July 31, 2016 and for the three month periods ended July 31, 2016 and 2015 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, 2016 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 July 31, 2016 are not necessarily indicative of the results to be expected for any other interim period or the full year ending April 30, 2017.
The condensed consolidated balance sheet as of April 30, 2016 contained herein has been derived from the audited consolidated financial statements as of April 30, 2016, 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 subsidiary. All material intercompany transactions and balances have been eliminated in consolidation. The third party ownership of the Company's subsidiary is accounted for as noncontrolling interest in the consolidated financial statements. Changes in the noncontrolling interest are reported in the statement of changes in deficit.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
Estimates
These financial statements have been prepared in accordance with accounting principles generally accepted in United States of America which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of revenues and expenses for the reported period. Accordingly, actual results could differ from those estimates.
Included in these estimates are assumptions about collection of accounts receivable, useful life of property and equipment, beneficial conversion feature of convertible notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilities
Discontinued Operations
As discussed in Note C, in the second quarter of fiscal 2013 the Company's Board of Directors approved management's recommendation to discontinue the Company's consumer lease and loan lines of business and the sale of the Company's entire portfolio of performing RISCs, and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company's consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in the Company's consolidated statements of operations for all periods presented.
Revenue Recognition
The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured, and the fees are fixed or determinable. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.
Revenues from mobile app products are generally recognized upon delivery. Revenues from history reports are generally recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery.
Cash Equivalents
For the purpose of the accompanying unaudited condensed consolidated financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents.
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.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
Income Taxes
We utilize ASC 740 "Income Taxes" which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
Stock Based Compensation
We account for our stock based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
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 July 31, 2016 and 2015, 1,928,823,982 potential shares (including 9,605,000 shares to be issued included on the balance sheet) and 202,900,000 potential shares (including 2,275,638 shares to be issued included on the balance sheet), respectively, were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of July 31, 2016 and April 30, 2016, which consist of convertible instruments and rights to shares of the Company's common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for "Accounting for Derivative Instruments and Hedging Activities".
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when "Accounting for Convertible Securities with Beneficial Conversion Features," as those professional standards pertain to "Certain Convertible Instruments." Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity's control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Reclassifications
Certain reclassifications have been made to conform to prior periods' data to the current presentation. These reclassifications had no effect on reported losses.
Recent Accounting Pronouncements
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 July 31, 2016, the Company had an accumulated deficit of $55,952,313 and a working capital deficit (total current liabilities exceeded total current assets) of $8,641,627. 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.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
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 – DISCONTINUED OPERATIONS
In the second quarter of fiscal 2013, the Company's Board of Directors approved management's recommendation to discontinue the Company's consumer lease and loan lines of business and the sale of all of the Company's portfolio of performing RISCs and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company's consolidated balance sheets for all periods presented.
The operating results related to these lines of business have been included in discontinued operations in the Company's consolidated statements of operations for all periods presented. The following table presents summarized operating results for the discontinued operations.
|
Three Months Ended
|
|
|
July 31,
|
|
July 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,209
|
|
|
$
|
18,416
|
|
Net loss
|
|
$
|
(10,964
|
)
|
|
$
|
(12,548
|
)
|
LIABILITIES INCLUDED IN DISCONTINUED OPERATIONS
Included in liabilities from discontinued operations are the following:
SECURED NOTES PAYABLE
|
July 31,
|
|
April 30,
|
|
|
2016
|
|
2016
|
|
|
|
|
|
|
Secured, subordinated individual lender
|
|
$
|
-
|
|
|
$
|
2,590
|
|
Secured, subordinated individual lender
|
|
|
12,080
|
|
|
|
12,080
|
|
Total
|
|
$
|
12,080
|
|
|
$
|
14,670
|
|
At July 31, 2016 and April 30, 2016, the notes have maturities due within one year. We make payments on the notes as we collect on the underlying leases and loans.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
NOTE D – NOTES PAYABLE AND DERIVATIVES
The Company has outstanding numerous notes payable to various parties. The notes bear interest at rates of 5% - 20% per year and are summarized as follows:
Notes Payable
|
|
July 31,
2016
|
|
|
April 30,
2016
|
|
Notes convertible at holder's option
|
|
$
|
2,716,568
|
|
|
$
|
2,625,105
|
|
Notes convertible at Company's option
|
|
|
225,000
|
|
|
|
225,000
|
|
Non-convertible notes payable
|
|
|
1,265,500
|
|
|
|
1,197,500
|
|
Subtotal
|
|
|
4,207,068
|
|
|
|
4,047,605
|
|
Less debt discount
|
|
|
(448,511
|
)
|
|
|
(556,885
|
)
|
Total
|
|
|
3,758,557
|
|
|
|
3,490,720
|
|
Less: Current portion of notes payable
|
|
|
(3,648,474
|
)
|
|
|
(3,394,033
|
)
|
Long-term portion of notes payable
|
|
$
|
110,083
|
|
|
$
|
96,687
|
|
At July 31, 2016, notes payable due after one year mature as follows:
Year ending April 30,
|
Amount
|
|
2018
|
|
$
|
398,500
|
|
Certain of the notes payable contain variable conversion rates and the conversion features are classified as derivative liabilities. The conversion prices are based on the market price of the Company's common stock, at discounts of 30% - 48% to market value. At July 31, 2016 the Company has reserved 266,334,875 shares of its common stock for issuance upon the conversion of debentures.
Amortization of debt discount for the three month periods ended July 31, 2016 and 2015 was $200,374 and $712,477, respectively.
The Company's derivative financial instruments consist of embedded derivatives related to the outstanding short term Convertible Notes Payable. These embedded derivatives include certain conversion features indexed to the Company's common stock. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related items at their fair values as of the inception date of the Convertible Notes Payable and at fair value as of each subsequent balance sheet date. In addition, under the provisions of Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity's Own Equity ("ASC 815-40"), as a result of entering into the Convertible Notes Payable, the Company is required to classify all other non-employee stock options and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.
The change in fair value of the derivative liabilities at July 31, 2016 was calculated with the following average assumptions, using a Black-Scholes option pricing model are as follows:
Significant Assumptions:
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
Ranging from
|
|
0.325 % to 0.75
|
%
|
Expected stock price volatility
|
Ranging from
|
|
242% to 409
|
%
|
Expected dividend payout
|
|
|
|
0
|
%
|
Expected life in years
|
Ranging from
|
|
0.25 year to 1.92
|
years
|
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
The change in fair value of the derivative liabilities of convertible notes outstanding at July 31, 2015 was calculated with the following average assumptions, using a Black-Scholes option-pricing model are as follows:
Significant Assumptions:
|
|
|
|
|
|
|
|
Risk free interest rate
|
Ranging from
|
0.101% to 0.752
|
%
|
Expected stock price volatility
|
|
|
|
248
|
%
|
Expected dividend payout
|
|
|
|
0
|
%
|
Expected life in years
|
Ranging from
|
0.34 years to 2.24
|
years
|
During the three months ended July 31, 2016 and 2015, the Company recorded expense of $258,064 and $75,465, respectively, related to the change in value of the derivative liabilities.
Changes in derivative liability during the three months ended July 31, 2016 and 2015 were:
|
|
July 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance, beginning of year
|
|
$
|
2,170,976
|
|
|
$
|
1,605,535
|
|
Derivative liability extinguished
|
|
|
(100,593
|
)
|
|
|
(477,540
|
)
|
Derivative financial liability arising on the issuance of convertible notes
|
|
|
275,300
|
|
|
|
823,201
|
|
Fair value adjustments
|
|
|
258,064
|
|
|
|
75,465
|
|
Balance, end of period
|
|
$
|
2,603,747
|
|
|
$
|
2,026,661
|
|
NOTE E – LOANS PAYABLE TO RELATED PARTIES
As of July 31, 2016 and April 30, 2016, aggregated loans and notes payable, without demand and with no interest, to officers and directors were $418,853 and $395,853, respectively.
NOTE F
–
EQUITY TRANSACTIONS
The Company is authorized to issue 10,000,000 shares of preferred stock with $0.001 par value per share, of which 35,850 shares have been designated as Series A convertible preferred stock with a $100 stated value per share, 1,000 shares have been designated as Series B Preferred Stock with a $10,000 per share liquidation value, and 200,000 shares have been designated as Series C Preferred Stock with a $10 per share liquidation value. The Company is authorized to issue 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 July 31, 2016 and April 30, 2016. The Company had no shares of Series B preferred stock issued and outstanding as of July 31, 2016 and April 30, 2016. The Company had no shares of Series C preferred stock issued and outstanding as of July 31, 2016 and April 30, 2016. The Company had 483,665,125 and 419,912,451 shares of common stock issued and outstanding as of July 31, 2016 and April 30, 2016, respectively.
Common Stock
During the three months ended July 31, 2016, the Company issued 63,752,674 shares of common stock, valued at $166,610, upon the conversion of $66,016 of note principal and accrued interest.
During the three months ended July 31, 2015, the Company expensed $82,115 for non-cash charges related to stock and option compensation expense.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
During the three months ended July 31, 2015, the Company:
·
|
issued 2,043,180 shares of common stock which had been classified as to be issued at April 30, 2015,
|
·
|
sold 760,456 shares of restricted common stock to an accredited investor for $20,000,
|
·
|
is sued 24,395,940 shares of common stock upon the conversion of $420,052 principal amount of convertible notes,
|
·
|
accrued 1,962,220 shares as shares to be issued for the conversion of $29,806 of accrued interest, which shares were issued subsequent to July 31, 2015,
|
·
|
issued 391,059 shares of common stock valued at $11,078 pursuant to terms of various notes,
|
·
|
issued 2,846,000 shares of common stock valued at $82,080 pursuant to consulting agreements,
|
·
|
issued 35,056 shares of common stock to three employees pursuant to vesting provisions of prior stock awards.
|
NOTE G – FAIR VALUE MEASUREMENTS
The Company follows the guidance established pursuant to ASC 820 which established a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The table below summarizes the fair values of financial liabilities as of July 31, 2016:
|
|
|
Fair Value Measurement Using
|
|
|
Fair Value at
July 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
2,603,747
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,603,747
|
|
Fair values of financial liabilities as of April 30, 2016 are as follows:
|
|
|
Fair Value Measurement Using
|
|
|
Fair Value at
April 30, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
2,170,976
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,170,976
|
|
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".
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
NOTE H – NON-CASH INVESTING AND FINANCING INFORMATION
During the three months ended July 31, 2016, the Company issued 63,752,674 shares of common stock, valued at $166,610, upon the conversion of $66,016 of note principal and accrued interest.
During the three months ended July 31, 2015, the Company:
·
|
Issued 391,059 shares of common stock valued at $11,078 pursuant to the terms of the notes
|
·
|
Issued 340,000 shares of common stock in settlement of $14,450 in accounts payable
|
·
|
Issued 24,055,940 shares of common stock upon conversion of $405,602 of interest and notes and accounts payable
|
·
|
Issued 35,056 shares of common stock to three employees pursuant to vesting schedules of prior stock awards
|
·
|
Issued 2,846,000 shares of common stock valued at $82,080 to two consultants.
|
NOTE I – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
Our executive offices are located in New York, NY. We have an agreement for use of office space at this location under a lease expiring on July 30, 2017. The monthly base rent is $8,750.
Rent expense was $51,234 and $57,457 for the three month periods ended July 31, 2016 and 2015, 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 July 31, 2016, 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 was involved in three litigation matters in the Supreme Court of the State of New York wherein the Company had alleged that the respective lenders have charged the Company excessive and improper fees and penalties on its loans. These matters have since been discontinued.
On December 18, 2012, the Company filed suit in the United States District Court for the Southern District Court of New York against a former credit provider. The suit sought damages arising out of the credit provider's termination of the Company's credit line in 2009. The defendant counterclaimed for recovery of legal fees of $2 million under an indemnification clause contained in one of the loan documents. The matter proceeded to trial in May 2015, and the Court thereafter issued decisions dismissing the Company's claims and the defendant's counterclaim. On January 15, 2016 the complaint, the amended complaint and the defendant's counterclaim were dismissed. On February 12, 2016, the Company filed a Notice of Appeal to the United States Court of Appeals for the Second Circuit from the judgment dismissing the complaint and amended complaint. On February 18, 2016 the defendant filed a Notice of Cross-Appeal of the dismissal of its counterclaim. Sparta can make no representations about the potential outcome of the appeal or cross-appeal, but believes that the decision of the lower court dismissing the defendant's counterclaim was properly decided in holding that the indemnification clause did not apply to defendant's claim.
The Company has received notice 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. 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.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2016
(Unaudited)
NOTE J – SUBSEQUENT EVENTS
Subsequent to July 31, 2016 the Company:
Issued 36,008,092 shares of common stock upon the conversion of $23,207 of note principal and accrued interest.
Issued 1,000,000 shares of common stock for services.
Entered into new notes payable aggregating $124,500.