ITEM
1. BUSINESS
General
Overview
Sparta
Commercial Services, Inc. (“Sparta,” “we,” “us,” or the “Company”) is a Nevada corporation
with headquarters in New York City, www.spartacommercial.com. We are a multi-disciplined parent corporation operating across three
business sectors – Financial Services, E-Commerce & Mobile Technology, and Health and Wellness, (www.spartacommercial.com).
Sparta’s
roots are in the Powersports industry. The Company provided retail installment loans and leases through authorized motorcycle dealerships
in 33 states, with financing provided by institutional lenders. The Company also maintained a full underwriting and servicing platform
for its portfolio. Notwithstanding the discontinuance of our initial focus on consumer loans and leases post Lehman and during the 2008
financial crisis; in 2007, the Company had introduced a new initiative, Municipal Financing, (www.spartamunicipal.com), which
has financed over 100 jurisdictions to date. Sparta’s Municipal Finance program is also currently available to all nonprofit organizations,
institutions and entities. All nonprofit organizations which adhere to IRS guidelines, including 501 (c) 3 of the Internal Revenue Code,
are eligible. Both public nonprofits, also known as public charities supported with publicly collected funds, and private nonprofits,
also known as private foundations supported by an individual or business entity, qualify for the program.
Vehicle
History Reports are a staple of Sparta’s E-Commerce Technology subsidiary iMobile Solutions, Inc. Whether a vehicle is intended
for business or recreational use, Sparta’s Vehicle History Reports are highly regarded for accuracy and completeness and have been
sold across all 50 states and in 62 countries worldwide. They provide a trusted layer of assurance to vehicle buyers and are available
on Kelley Blue Book, AllState Insurance and a range of various dealership websites. They include Cyclechex (Motorcycle History Reports
at www.cyclechex.com), RVchex (Recreational Vehicle History Reports at www.rvchex.com), and Truckchex (Heavy Duty Truck
History Reports at www.truckchex.com). Consumers, retailers, municipals, nonprofits, auction houses, banks and insurance companies
alike scrutinize title history reports for the vital information needed and factored into crucial business decisions that affect the
bottom line.
The Company’s E-Commerce and Mobile Technology subsidiary name change
to iMobile Solutions, Inc., from Specialty Reports, Inc., in 2016, signifies its ever-broadening service offerings in the evolving technology
landscape. With iMobile App (www.imobileapp.com), the Company provides mobile technology services, including web and mobile application
creation, development and management for a wide range of businesses to increase revenue, build brand recognition, and improve customer
engagement. Our ever-broadening business base of mobile application includes vehicle dealerships and racetracks, private clubs and country
clubs, schools and entertainment venues, restaurants and grocery stores, as well as various other merchant types. (www.imobileapp.com/app-gallery).
The Company also designs, launches, maintains and hosts websites for businesses incorporating SEO (search engine optimization), social
media marketing, and online reviews to improve their presence online. We provide specific, tailored action plans for our clients’
websites that include services such as eCommerce, CRM (Customer Relationship Management) development and integration. This custom software
not only helps businesses communicate with customers but can also be used for employees to communicate internally. The CRM software can
be web based, integrated with a mobile app, or both. We work with clients to understand their unique needs and incorporate the features
and requirements that are most important to them and will facilitate their business growth and success. Correspondingly, the Company designs
and builds custom kitchen ordering software for independent grocery stores, delicatessens, and other food service businesses. The software
can be designed for use in a combination of ways including mobile devices and in-store ordering. The kitchen ordering software is enabled
with payment integration, text messaging notification, wireless printing, and other features. iMobile Solutions, Inc. provides a turn-key
solution for any business looking to simplify or streamline their kitchen ordering process. Additionally, we offer text messaging services,
which supplement business marketing strategies both to gain and retain brand loyalty among its clients, customers and investors. Our text
messaging platform allows our clients to easily manage, schedule and analyze text message performance.
Sparta created its subsidiary, New World Health
Brands, Inc., in April 2019, on the heels of the Agriculture Improvement Act (also known as the Farm Bill), which was signed into
law the previous December 20, 2018. Consequently, hemp (CBD) was removed from Schedule 1 of the Controlled Substances Act. Company
management recognized the substantial business opportunity that lay ahead in the rapidly expanding hemp-CBD (cannabidiol) market in
the United States. During 2019-2020, we sourced, developed and tested 5 CBD product categories totalling 31 products. We procured
premium, domestic-grade, full-spectrum, broad-spectrum, and THC free hemp, created product packaging and labelling, and implemented
fulfilment to launch an online B to C website: www.newworldhealthcbd.com on December 21, 2019. The Company has since curated
its products and currently offers 15 products with plans to add complementary products to our product line. Our CBD products are
available in full spectrum, broad spectrum and non-detectable below the legal limit of .3 THC (ND-THC) and come in capsules, oils,
tablets, gel caps, tinctures, salves, creams, lotions, as well as pet chews and tinctures. We remain watchful of consumer needs,
adjusting our product line offerings either by adding new products, adjusting the potency levels of existing products or
discontinuing still others, as warranted. To ensure the safety and quality of our products, all CBD product offerings are
exclusively sourced, manufactured and tested at highly accredited testing facilities in the United States and adhere to strict U.S
standards and guidelines. Because of our high standards, in-depth quality testing and label transparency, consumers know they can
trust us.
Sparta’s
response to the onset of the COVID 19 pandemic in early 2020 quickly took shape with thorough investigations into evolving customer trends
in health and wellness. As a result, we expanded New World Health Brands and developed a new product line of natural dietary supplements.
In August 2020, we launched an online B to C website: www.newworldhealthbrands.com, featuring high quality dietary supplements,
including vitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Beetroot Extract, Selenium, Vitamin B Complex, Vitamin C and
PQQ. To ensure the safety and quality of our products, all health and wellness offerings are exclusively sourced and manufactured in
the United States and adhere to strict U.S standards and guidelines. Sparta’s commitment to high standards and transparency are
tantamount to being a trusted brand.
Sparta’s newest subsidiary, Sparta Crypto,
Inc., www.SpartaCrypto.com, was established September 25, 2020 and is in the process of completing a proprietary state-of-the-art platform
designed to connect users of widely adopted digital currencies with sellers of various goods and services. The platform has not launched
and the Company can make no assurances that the described plan will reach implementation. In addition, the Company has completed and
tested a cryptocurrency payment gateway called SpartaPayIQ, www.SpartaPayIQ.com, which is functional and was formally announced
on March 3, 2022.
MOBILE
APPS
Sparta
creates mobile applications (mobile apps) for small and medium-size businesses under the tradename iMobileApp. iMobileApp employs a subscription
business model and is positioned as a fast and affordable way for businesses to develop and launch a mobile app. The iMobileApp platform
allows businesses to have a high-quality, fully functioning custom mobile app often at a lower cost than traditional marketing efforts,
and typically at a significantly lower cost than a commercial quality website.
The
Company has developed and managed mobile apps since 2011, creating hundreds of mobile apps for a wide variety of businesses for customers
in 49 states and Canada. Today, iMobileApp is the largest provider of mobile app technology to the Harley-Davidson dealership network
in the United States.
Mobile
apps are one of the most important digital tools that a consumer-facing business can employ. Smartphones and tablets are now the leading
devices for accessing the internet, and it is estimated that upwards of 80% of mobile use time is dedicated to utilizing mobile apps.
As consumers become more mobile, businesses are increasingly seeing the need to as well. Currently, the mobile app development industry
serving small to medium-sized businesses is fragmented, and the Company believes that iMobileApp can become a brand leader in this category.
An
iMobileApp provides consumers easy access to a business website simply by touching the Company’s application icon. There is no
need to search for or type in a web address. iMobileApp has dozens of basic and advanced functions, including providing businesses the
ability to send a segmented promotional message that appears on the consumer’s mobile device front page, rather than in an email
or text message. “Geo-fencing” is a feature that allows businesses to message customers who are in the vicinity of their
store or event, or even when visiting a competitor.
The
iMobileApp pricing model includes a modest up-front development fee, and an auto-renewing monthly subscription. Once a business launches
an iMobileApp, the Company provides them with marketing tools to assist their customers in downloading the mobile app from the Apple
and Android app stores. The Company offers two levels of on-going maintenance and support. The basic subscription provides training,
technical support and software updates. The premium-priced program adds a fully managed feature, allowing businesses to contact iMobileApp
Customer Service who will initiate campaigns, promotional messaging, and other iMobileApp features on behalf of the client.
A
partial listing of iMobileApp features includes:
Mobile
Client Framework (“MCF”) - Our mobile framework software allows us to provide customized apps that can be installed on
the individual mobile devices and deployed through the Apple and Android app stores.
Content
Management System (CMS) -iMobileApp customers can use our web-based content management system to upload images to their mobile app,
change text content, change colors, organize the order of tabs, and publish updates to the app.
Customized
Registration System - iMobileApp customers can elect to present their users with a registration screen on startup that collects information
such as first name, last name, email address and telephone number in order to track marketing information and push individual notification
messages for future functionality.
Push
Notification System – A direct communication channel between businesses and their mobile app users. Allows brands to socialize
directly with their very best customers, anytime, anywhere, to build a relationship at a one-to-one level.
Geo-Fencing
Feature – Allows businesses to create an invisible “message fence” around a specific geographic area. When their
app users are within the fenced area, the user receives a pre-programmed message on their device. This is especially useful when businesses
have special promotions or events they would like to advertise to nearby users who are most likely to take advantage of them. Businesses
can also “geo-fence” around a competitor, offering their users special promotions before they enter the competitor’s
venue.
Inventory
Display Manager – Business can manage, display and sell from their inventory on their mobile app. Inventory can be integrated
through web link, hand-key, or inventory management data feed.
Event
Manager – Business can manage and display upcoming events on their mobile app. Customers can view the event calendar, RSVP
and Inventory can be integrated through web link, hand-key, or inventory management data feed.
Quick
Dial Feature – Users tap the Quick Dial option to get a list of the business phone numbers on their mobile phones. The user
selects the number to dial by putting their finger on the number. The business can add, remove, and edit phone numbers that appear in
the Quick Dial screen from their CMS.
Multi-Location
Management – Business can add and manage multiple locations on their app, each with distinct hours of operations, user database
and notification segmentation. Businesses pay subscription fees for each location they wish to include in their app. Customers can use
the client customization portal to add locations to their mobile app.
Marketing
and Branding of iMobileApp
Marketing
Materials - We provide customized marketing materials that app customers can download and display digitally or physically.
Embedded
Product Developer and SRI Branding - The “about” screen of the application contains information useful to the support
of the product. It also contains a powered-by-the-product-developer logo and text. iMS can choose to use a different logo, but the powered-by-the-product-developer
text remains on the “about” screen.
App
store and Google Android Distribution - All native applications are deployed through the product developer’s App store and
Android Market Place online accounts.
Marketing
information - If an app customer has enabled first-time user data collection then that information will be available to the app customer
on their portal.
WEBSITES
The Company designs, launches, maintains and hosts
websites for businesses incorporating SEO (search engine optimization), social media marketing, and online reviews to improve their presence
online. We provide specific, tailored action plans for our clients’ websites that include services such as eCommerce, CRM (Customer
Relationship Management) development and integration. This custom software not only helps businesses communicate with customers but can
also be used for employees to communicate internally. The CRM software can be web based, integrated with a mobile app, or both. We work
with clients to understand their unique needs and incorporate the features and requirements that are most important to them and will facilitate
their business growth and success. Correspondingly, the Company designs and builds custom kitchen ordering software for independent grocery
stores, delicatessens, and other food service businesses. The software can be designed for use in a combination of ways including mobile
devices and in-store ordering. The kitchen ordering software is enabled with payment integration, text messaging notification, wireless
printing, and other features. iMobile Solutions, Inc. provides a turn-key solution for any business looking to simplify or streamline
their kitchen ordering process. Additionally, we offer text messaging services, which supplement business marketing strategies both to
gain and retain brand loyalty among its clients, customers and investors. Our text messaging platform allows our clients to easily manage,
schedule and analyze text message performance.
VEHICLE
HISTORY REPORTS
The
vehicle history report group is currently marketing through its websites: Cyclechex Motorcycle History Reports© (www.cyclechex.com),
RVchex™ RV History Reports (www.rvchex.com), and Truckchex Heavy Duty Truck History Reports (www.truckchex.com).
These reports contain valuable information for consumers, dealers, insurers, auction houses, and lenders. The information includes a
vehicle’s history, such as disclosed damage, salvaged or rebuilt title brands, the number of previous owners, the last recorded
odometer reading, the manufacturer’s original equipment, and OEM recall data. We assemble the data for these reports from multiple
sources, including, but not limited to, governmental agencies, in order to provide the most current information available for the benefit
of all interested parties. We believe our products offer a compelling value because they are priced modestly and we provide a no-hassle,
90-day and 100% money-back guarantee. We are confident that our Specialty Reports provide buyers and sellers the peace of mind that comes
from being able to make an informed decision.
In
June 2010, iMobile Solutions, Inc. entered into an exclusive five-year agreement with a U.S. government authorized third-party distributor
of on-line data from National Motor Vehicle Title System (NMVTIS) for NMVTIS data on motorcycles, scooters, ATVs and recreational vehicles.
This agreement has been renewed on a year to year basis.
NMVTIS
is an information system that federal law required the United States Department of Justice to establish and to provide an electronic
means to verify vehicle title, brand, and theft data among motor vehicle administrators, law enforcement officials, prospective purchasers
and insurance carriers. NMVTIS was initially authorized in the Anti-Car Theft Act of 1992 and reauthorized by the Anti-Car Theft Improvements
Act of 1996. After passage of the 1996 reauthorization, responsibility was transferred from the U.S. Department of Transportation to
the U.S. Department of Justice. The NMVTIS system is a Department of Justice program currently operated by the American Association of
Motor Vehicle Administrators (AAMVA). The system also provides a means for states to share title information in order to prevent fraud
and other crime.
NMVTIS
was created to:
● |
Prevent
the introduction or reintroduction of stolen motor vehicles into interstate commerce |
|
|
● |
Protect
states, consumers (both individual and commercial), and other entities from fraud |
|
|
● |
Reduce
the use of stolen vehicles for illicit purposes including funding of criminal enterprises |
|
|
● |
Provide
consumer protection from unsafe vehicles |
NMVTIS
information is supplied by state motor vehicle agency records and entire sectors (e.g., insurance, auto recyclers/junk/salvage, etc.)
addressed by the Anti-Car Theft Act. As opposed to purchasing information from specific businesses or companies, entities are required
to provide specific information to NMVTIS in a specific format. NMVTIS is intended to serve as a reliable source of title and brand history
for automobiles, motorcycles and other vehicles. However, there are certain pieces of vehicle history data that NMVTIS’ database
does not contain; for example, a vehicle’s repair history. Currently the data provided to NMVTIS by states is provided in a variety
of time frames; while some report and update NVMTIS data in real-time (as title transactions occur) others send updates less frequently,
such as once every 24 hours or within a period of days.
Vehicle
History Reports benefit consumers:
● |
Consumers can purchase reports directly from the Cyclechex, RVchex, or
Truckchex website |
|
|
● |
Consumers
can purchase reports via an Affiliate website |
Vehicle
History Reports benefit dealers:
● |
Dealers can purchase a block of history reports from Cyclechex, RVchex,
or Truckchex (with pricing incentives to purchase a larger quantity of reports) |
|
|
● |
Reports
facilitate acceptance of trade-in vehicles and add value to the purchase of any pre-owned motorcycle, RV, automobile, light truck
or heavy-duty truck |
|
|
● |
Dealers
can provide reports to customers |
Vehicle
History Reports Affiliate Program:
● |
Dealers and other industry sources can incorporate the Cyclechex, RVchex,
or Truckchex website linking their sales and marketing strategies |
|
|
● |
Affiliates earn commission on Cyclechex, RVchex, or Truckchex history reports
generated from their sites |
Cyclechex
Motorcycle History Reports®
Cyclechex
Motorcycle History Reports (Cyclechex.com) contain valuable information for consumers, motorcycle dealers, insurers, auction houses,
and lenders including whether a pre-owned motorcycle is a specific model year, make and model, if it has reported damage, its title history
including the last recorded odometer reading, any salvage or damaged titles, the manufacturer’s original equipment, and OEM recall
data.
For
consumers looking to buy a pre-owned motorcycle or a retail motorcycle dealer considering a trade-in or the purchase of other used motorcycles,
a Cyclechex Motorcycle History Report can be invaluable. Moreover, for those dealers who want to provide a higher level of confidence
to a potential buyer about the true history of the motorcycle being considered for purchase, the Cyclechex Motorcycle History Report
is an outstanding sales support tool.
Our
system extracts information from multiple sources, including, but not limited to, governmental agencies, in order to provide the most
current information available for the benefit of all interested parties. With a no-hassle, 90-day, 100% money-back guarantee, and at
a modest cost, a Cyclechex Motorcycle History Report provide buyers and sellers peace of mind for decision-making. This critical information
is available to any interested party by entering a seventeen digit Vehicle Identification Number (VIN), which covers vehicles dating
back to 1981, on our website.
In
February 2014, we announced a reciprocal marketing agreement with Allstate insurance company that makes Cyclechex Motorcycle History
Reports a recommended tool for Allstate customers. The Company also enjoys reciprocal a marketing agreement with Kelley Blue Book.
RVchex™
Recreational Vehicle History Reports
RV
History Reports (RVchex.com) contains important and valuable information about any reported damage, salvage, and other relevant data
concerning a particular pre-owned RV. Our system extracts information from multiple data sources, including, but not limited to, government
agencies throughout the United States. RVchex.com delivers up-to-date, accurate information to consumers, RV dealers, lenders, insurers,
and other interested parties, and we offer a no-hassle, 100% money-back guarantee. This critical information is available to any interested
party by entering a seventeen digit Vehicle Identification Number (VIN) on our website.
Truckchex
Heavy Duty Truck History Reports
The
Truckchex Heavy Duty Truck History Report (Truckchex.com) contains valuable information for truck drivers, trucking companies, dealers,
insurers, auction houses, and lenders, including whether a specific pre-owned commercial truck has reported damage, recorded accidents,
post-accident inspections, inspection violations, the last recorded odometer reading, any salvage or damaged titles, the manufacturer’s
original equipment, and OEM recall data. Our system extracts information from multiple data sources, including, but not limited to, governmental
agencies throughout the United States. Truckchecks.com delivers up-to-date, accurate to consumers, truck dealers, lenders, insurers,
and other interested parties, and we offer a no-hassle, 100% money-back guarantee. This critical information is available to any interested
party by entering a seventeen digit Vehicle Identification Number (VIN) on our website.
The
following websites are among those affiliated with iMobile Solutions, Inc. used to appropriately direct customer inquiries to our history
report products:
www.kbb.com
https://www.nationalpowersports.net/
www.motorcycle-histories.com
www.motorcycleshippers.jcmotors.com
www.cyclepedia.com
http://www.allstateridernews.com/offers
Each
of our four-vehicle history reports search government databases for over 90 types of vehicle title problems and over 28 million Salvage
or Loss title records. Our reports provide some, if not all, of the following information:
Crushed
Vehicles
Disclosed
Damage
Last
Recorded Odometer Reading
Manufacturers’
Recall History
Manufacturers’
Specifications
Multi-State
Searches
Rebuilt
Titles
Salvage-Stolen
Titles
Salvaged
or Damaged Titles
VIN
Decoding
Crash
Data
Inspection
Data
MUNICIPAL
AND NON-PROFIT LEASING OF ESSENTIAL EQUIPMENT
Notwithstanding our discontinuance of consumer financing,
we continue to offer, on a pass through basis, an equipment-leasing product for local and state agencies as well as non-profit organizations
throughout the country seeking a better and more economical way to finance their essential equipment needs, including, but not limited
to, police motorcycles, cruisers, buses, fire trucks, and EMS equipment. We are continuing to expand our roster of equipment manufacturers
and the types of equipment we lease to agencies.
NEW
WORLD HEALTH BRANDS CBD
During
2019-2020, management sourced, developed and tested 5 CBD product categories totaling 31 products, procured product packaging, created
clear-transparency labeling, implemented fulfillment and launched an on-line B2C website, www.newworldhealthcbd.com. The Company
has since curated its products and currently offers 15 products with plans to add complementary products to our product line.
Sourcing
CBD Products
All
of our CBD products are sourced through third party suppliers in Arizona, Colorado, and Wyoming. NWHB carries single compound isolates,
as well as products made from high quality, whole-plant, industrial hemp extracts, containing a full-spectrum of phytocannabinoids, including
CBD, terpenes, flavonoids, and other minor, but valuable hemp compounds. Hemp extracts from Industrial Hemp are generally cannabis with
less than 0.3% tetrahydrocannabinol (“THC”). Cannabis, which contains THC, causes psychoactive effects when consumed. NWHB
does not produce or sell any products derived from high-THC cannabis/marijuana plants. Our products come from domestic seed, have clean
label transparency and are third party tested for CBD potency, heavy metals, pesticides, microbials, and more, by ISO/IEC 17025 accredited
labs.
NWHB
manages risks that are associated with third-party suppliers and manufacturers by identifying and qualifying alternative providers. NWHB
regularly assess its supply chain for any threats to business continuity. None of the third party suppliers are considered to be material
to the business on a standalone basis and as any given supplier is lost in a specific region, NWHB has replaced supplier without material
disruption as it can contract with multiple alternative suppliers and manufacturers.
CBD
Product Categories
Our
product line consists of only industrial hemp-based CBD containing zero or less than 0.03% THC. We do not manufacture or market
edibles. We do not manufacture or market CBD vapes. Our present product base consists of products in 5 categories: tinctures,
capsules & tablets, topicals, Zero THC and tinctures and chews for pets. The per serving dosage of CBD products ranges from
3.3mg to 50mg, depending on the dose. Our product line includes: tinctures of various sizes and flavors: capsules of differing
potency and quantity; tablets of differing potency and quantity; salve of differing potency and quantity; creams and lotions of
differing potency and quantity; and pet chews and tinctures.
NEW
WORLD HEALTH BRANDS - WELLNESS
Our
Wellness products feature high quality dietary supplements, including vitamins and minerals, such as, Zinc, Magnesium, Boron, Iodine, Selenium, Vitamin B Complex, Vitamin C and PQQ. In addition to our B to C website: www.newworldhealthbrands.com,
our Wellness products are also offered on on-line marketplaces such as Amazon. We continue to study the market as we consider new products
to add to our offerings.
Strategic
Advantage
NWHB
benefits from the parent Company’s vertical integration of supply and service chains providing support of its on demand web/mobile
application development/maintenance, accounting, corporate governance, and real time customer support across the NWHB product line. This
relationship results in significant time and cost efficiencies and fosters a mutually beneficial parent/subsidiary relationship.
As
the NWHB subsidiary grows, the Company will help NWHB develop its own managerial control group at such time as the subsidiary can afford
an incremental building of a dedicated management team.
MARKETING
AND SALES
Our
marketing starts with product development. We create compelling products that: (i) in the case of iMobile Solutions, Inc. and iMobileApp,
provide a variety of small to mid-sized businesses with a state-of-the-art website and mobile application solutions, and (ii) in the
case of our four vehicle history report products, provide historical title information that assists consumers in purchase decision-making
and dealers, auction houses, or other entities in making a sale or evaluating a vehicle.
iMobile
Solutions, Inc. (iMS)
The
primary marketing objective for iMS is to continue penetrating new business verticals and to be the leader is mobile app development
for growing businesses. While an iMobileApp can benefit any business, the Company identifies and focuses marketing efforts on specific
verticals, currently comprised of vehicle dealers, country clubs, racetracks, restaurants, etc., to build a presence in certain industries
and become the “go-to” mobile app developer for those markets. As we continue to target franchised vehicle dealers by type
of product and manufacturer by specifically approaching each dealership in their dealer network to promote our iMS mobile application
we are gaining market share of the vehicle dealer marketplace. By selling our mobile applications throughout one manufacturer’s
dealer network, we benefit from “word of mouth” referrals while building a recognizable presence in that particular market.
For example, a leading motorcycle manufacturer has over 1,400 authorized dealers worldwide. By penetrating this market, we significantly
improve our credibility with their entire dealer network, resulting in the individual dealers being more receptive to our sales call,
and making them more likely to purchase an iMobileApp and refer us to other dealers.
Additional
marketing has been done through targeted advertising as well as news stories in relevant trade publications.
iMobileApp
(iMA)
There
are two primary areas of focus to continue gaining market share for iMA – digital marketing and targeted sales efforts.
The
digital marketing strategy is predicated on the fact that the business mobile app marketplace is emerging and highly fragmented. In parallel,
the web is not yet dominated by any one business mobile app competitor. Our strategy is to build a strong digital web presence that will
help grow our business in the short term, and establish iMA as the market leader in web search as the industry consolidates. The cornerstone
of our digital strategy is a state-of-the-art web management platform (see www.iMobileApp.com) that is highly search engine optimized
(SEO) in structure and content. Page rank and traffic will increase over time as we support the website with traffic building efforts
through blogging, social networking, ad-clicks, remarketing, and continual technical and content optimization. The goal is to have a
leadership market share in organic and accidental search for businesses seeking mobile application solutions.
Traditional
sales and marketing efforts will be employed against key categories that have an established high level of acceptance for mobile apps
and/or in which iMA has already established market share. Efforts will include inside sales calls, email campaigns, category trade association
marketing, and customer referrals.
Vehicle
History Reports
The
vehicle categories that we are targeting - motorcycles, recreational vehicles and commercial trucks – are not the focus of our
largest competitors (CARFAX®, AutoCheck®). Distribution in the vehicle history reports industry is web-based, and digital competition
in our targeted categories is relatively weak and fragmented. Our digital strategy is to become the leading search result for consumers
seeking information on used powersports vehicles RV’s, and heavy-duty trucks. We employ an advanced web management platform that
is highly search engine optimized (SEO). Page rank and traffic will increase over time as we support the website with traffic building
efforts through blogging, social networking, ad-clicks, remarketing, and continual technical and content optimization.
An
equally important digital strategy is our affiliate and cross-marketing programs. By working with leading companies that serve this category
– like AutoTrader®, National Powersports Distributors, Kelley Blue Book®, and AllState® Insurance – we are able
to cross-promote our powersports and RV history reporting products on their websites. Consumers who are on affiliate or marketing partner
sites can become aware of our reporting services and click through to our websites. If a purchase is completed, the referring affiliate
receives a commission on the sale or in some cases may extend a discount to their customers.
In
December 2010, Powersports Business chose Cyclechex as one of their “Nifty 50” winners, recognizing it as one of the top
50 new powersports products introduced during the year.
SRI
has considerable opportunity to increase brand awareness and grow traffic through product development, targeted marketing programs and
strategic partnerships.
Municipal
and Non-Profit Leasing
In
2011, the Company launched a website (www.spartamunicipal.com) exclusively dedicated to the Company’s municipal
business line that began in 2007. With this site, agency heads, police and fire department chiefs, dealerships, and other municipal
financing decision makers as well as non-profits have direct online access to information about the Municipal Lease Program,
including how it benefits governmental agency economic interests, and specifics about terms and options. Marketing efforts, when
budgets allow, include attending tradeshows, advertising in industry publication, direct mail/email campaigns, and indirect
marketing such as referrals by prior municipal customers or dealerships. Sparta’s municipal program is also included in the
corporate sites of Harley-Davidson© and BMW Motorrad USA Police Motors for government fleet leasing which results in direct
inquiries from municipalities.
New
World Health Brands CBD
Our
initial marketing strategy has been a direct-to-consumer online sales approach via our website www.newworldhealthcbd.com within
the United States, by using e-commerce to reach consumers to introduce and guide them through the CBD buying process. Starting with a
solid foundation of content and robust product offerings, our marketing strategy will continue to be supplemented with social media exposure,
(Facebook and Instagram) and ultimately retail distribution as the strategy evolves. At present, NWHB has developed preliminary distribution
within the New York City metro area within independent pharmacies, medical supply stores, smoke shops, spas, and independent retail food
stores. Using data collection and customer analysis from e-commerce sales will continue to be a significant component of NWHB’s
marketing strategy. Direct-to-consumer e-commerce sales give an unprecedented opportunity to gain significant insight into how to better
support the customer based on data, including buying habits, purchase frequency, and in many cases, how the product is being used, whether
it be general wellness, health conditions, etc. By building customer trust with a focus on premium, quality products and live customer
service, we expect to build a well-recognized brand. Through our own social media and blogging platforms, management expects New World
Health Brands will continue to grow CBD organic sales and revenue by promoting our products as trusted brands for consumers who desire
premium CBD products.
Sales
and Customer Support
An
internal team is responsible for closing sales on leads generated from web inquires, email responses, inside sales calls and customer
referrals. A future sales team will target businesses, trade associations, national chains, manufacturers, vehicle dealers and vehicle
auction houses.
Customer
service is based in our New York City office.
Competition
While
there are numerous entities offering customized mobile apps, we believe that iMobileApp is a leading pre-packaged customizable mobile
app for small to medium sized business, such as restaurants, country clubs, social clubs, racetracks, grocery stores, agriculture dealers,
vehicle dealers, and more, at a price point significantly below other vendors of customized apps for the vehicle dealer industry.
Because
of our strong commitment to customer service and our compelling product, we believe that our iMobileApp product can be effectively and
competitively marketed.
The
two major providers of used automobile history reports, CARFAX® and AutoCheck® do not provide motorcycle, recreational vehicle
or heavy duty truck history reports. In fact, CARFAX® states on their website FAQ’s that their database contains records primarily
of cars and light trucks and “for heavy trucks, RVs, or motorcycles, CARFAX® recommends checking with your DMV, enthusiast
forums, and of course a pre-purchase vehicle inspection.” AutoCheck® states on its web site “AutoCheck® only reports
on information for cars and light trucks.” We have not identified direct competition of the RV space and do not intend to compete
directly with either CarFax® or AutoCheck®.
Competition
within the CBD-based hemp products industry is very fragmented and highly competitive. The competition is comprised of publically and
privately-owned companies and tend to be diverse in terms of geographic market coverage and variety of product mix offered. The “CBD
industry” includes tinctures, capsules and tablets, topicals, patches, edibles, vapes, smokables and drinkables all based on pure
CBD, defined as containing less than 0.3% THC; blended CBD and THC. NWHB is focused on marketing only hemp-based CBD products. To our
knowledge there are only four public companies selling only CBD products. Because of this fragmented market where there is not one sole
widely recognized brand, we believe that by focusing on high quality, gluten free, non-GMO, pure CBD products using targeted brand marketing
programs we can make New World Health Brands initially a regionally recognized brand and then, potentially, a nationally recognized brand.
Employees
As
of April 30, 2022, we had 6 full-time employees, 1 part-time employee, and 5 interns.
ITEM
1A. RISK FACTORS
The
Company’s forward-looking statements are subject to uncertainties and risks, among them the adverse effects of the COVID-19 pandemic.
The Company’s operations — from supply chain and distribution – are impacted by government regulations and legislation,
the economic landscape, revenue fluctuations, diminished customer base, competing products, regulatory changes, common share price volatility,
availability of capital, successful integration of new businesses, and including but not limited to risks and uncertainties discussed
under the heading “Risk Factors” in this MD&A and the Company’s other filings with the SEC. The impact of any risk,
uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent, and the
Company’s future course of action depends on Management’s assessment of all relevant information available at the time. Except
to the extent required by law, the Company assumes no obligation to publicly update or revise any forward-looking statements made in
this MD&A, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements, whether
written or oral, attributable to the Company or persons acting on the Company’s behalf, are expressly qualified in their entirety
by these cautionary statements.
We
are subject to certain risks and uncertainties in our business operations that are described below. The risks and uncertainties described
below are not the only risks we face. Additional risks and uncertainties not presently known or that are currently deemed immaterial
may also impair our business operations.
Risks
Related To Our Financial Condition
We
have a history of operating losses.
Through
our fiscal year ended April 30, 2022, we have incurred significant expenses and have sustained significant losses. We have an accumulated
deficit of $71,661,656 at April 30, 2022 and a negative working capital of $17,024,467.
Our
business requires additional amounts of capital, and we will need to obtain additional financing in the near future.
To
expand our business, we need raise additional capital to support our operations until we become cash flow positive. We will have to raise
approximately $1 million over the next twelve months to support our business. As our business grows, we will need to seek additional
financing to fund growth. There can be no assurance that we will have sufficient capital or be able to secure credit facilities when
needed. The failure to obtain additional funds, when required, on satisfactory terms and conditions, would have a material and adverse
effect on our business, operating results, and financial condition, and ultimately could result in the cessation of our business.
To
the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. In addition,
any new equity securities may have greater rights, preferences or privileges than our existing common stock. A material shortage of capital
will require us to take drastic steps such as reducing our level of operations, disposing of selected assets or seeking an acquisition
partner. If cash is insufficient, we will not be able to continue operations.
We
have a significant amount of debt which could impact our ability to continue to implement our business plan.
We
have incurred total liabilities of $17,287,217 as of April 30, 2022. Unless we can restructure some or all this outstanding debt, and
raise sufficient capital to fund our continued development, we will be unable to pay these obligations as our current operations do not
generate significant revenue.
Our
auditor’s opinion expresses doubt about our ability to continue as a “going concern”.
The
independent auditor’s report on our April 30, 2022, and April 30, 2021 consolidated financial statements state that our historical
losses raise substantial doubts about our ability to continue as a going concern. We cannot assure you that we will be able to generate
revenues or maintain any line of business that might prove to be profitable. Our ability to continue as a going concern is subject to
our ability to generate a profit or obtain necessary funding from outside sources, including obtaining additional funding from the sale
of our securities, increasing sales, or obtaining credit lines or loans from various financial institutions where possible. If we are
unable to develop our business, we may have to discontinue operations or cease to exist, which would be detrimental to the value of our
common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.
Risks
Related to the Company
We
are a small company in the information technology business.
We
are a relatively new entrant into the businesses of providing vehicle history reports and building mobile apps. We indirectly compete
with major, well capitalized, suppliers of automobile history reports. While these companies do not presently offer motorcycle or RV
history reports, there is no guaranty they will not do so in the future. Many small “players” characterize the mobile app
development business. While we believe we are better suited to build, service, and market mobile apps than our competitors, there is
no assurance that we can continue to do so.
We
will require additional capital to implement our business plan and marketing strategies which we may be unable to secure.
Under
our business plan, we intend to build and expand our operations substantially over the next several years. Our cash on hand is insufficient
for our operational needs. We therefore need additional financing for working capital purposes and to grow our business. There is no
assurance that additional financing will be available on acceptable terms, or at all. If we fail to obtain additional financing as needed,
we may be required to reduce or halt our anticipated expansion plans and our business and results of operations could be materially,
adversely affected. There can be no assurance that additional financing will be available on terms deemed to be acceptable by us, and
in our stockholders’ interests.
We
face security risks related to our electronic processing of sensitive and confidential customer and associate data.
Given
the nature of our business, we and/or our service providers collect process and retain sensitive and confidential customer data, including
credit card information. Despite our current security measures, our facilities and systems, and those of our third-party service providers,
may be vulnerable to information security breaches, acts of vandalism, computer viruses or other similar attacks. An information security
breach involving the disclosure of confidential data could damage our reputation and our customers’ willingness to shop on our
websites, and subject us to possible legal liability. In addition, we may incur material remediation costs as a result of an information
security breach, including liability for stolen customer or associate data, repairing system damage or providing credit monitoring or
other benefits to customers or associates affected by the breach.
We
could be harmed by data loss or other security breaches
As
a result of our services being web-based and the fact that we process and/or our service providers, store and transmit large amounts
of data, including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches, including
breaches of our vendors’ technology and systems, could expose us or our customers to a risk of loss or misuse of such information,
adversely affect our operating results, result in litigation or potential liability for us and otherwise harm our business. We use third
party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee
email, content delivery to customers, back-office support and other functions. Although we and our service providers have developed systems
and processes that are designed to protect customer information and prevent data loss and other security breaches, such measures cannot
provide absolute security.
A
variety of factors and economic forces may affect our operating results.
Our
operating results may differ from current forecasts and projections significantly in the future because of a variety of factors, many
of which are outside our control. These factors include, without limitation, the receipt of revenues, which is difficult to forecast
accurately, the amount and timing of capital expenditures and other costs relating to the expansion of our operations, the introduction
of new products or services by us or our competitors, borrowing costs, pricing changes in the industry, technical difficulties, general
economic conditions, and economic conditions specific to our marketplace. The success of an investment in a vehicle history report and
mobile app-based venture is dependent, at least, in part, on extrinsic economic forces, including the supply of and demand for such services.
No assurance can be given that we will be able to generate sufficient revenue to cover our cost of doing business. Furthermore, our revenues
and results of operations will be subject to fluctuations based upon general economic conditions. Economic factors like unemployment,
interest rates, and the availability of credit generally, municipal government and corporate budget constraints affecting equipment and
technology purchases, the rate of inflation, and consumer perceptions of the economy may affect the volume of history report purchases.
We
are dependent on our management and the loss of any officer could hinder our implementation of our business plan.
We
are heavily dependent upon management, the loss of any one of whom could have a material adverse effect on our ability to implement our
business plan. While we have entered into an employment agreement with our Chief Executive Officer, this employment agreement could be
terminated for a variety of reasons. We do not presently carry key man insurance on the life of any employee. If, for some reason, the
services of management, or of any member of management, were no longer available to us, our operations and proposed businesses and endeavors
may be materially adversely affected. Any failure of management to implement and manage our business strategy may have a material adverse
effect on us. There can be no assurance that our operating and financial control systems will be adequate to support our future operations.
Furthermore, the inability to continue to upgrade the operating and financial control systems, the inability to recruit and hire necessary
personnel or the emergence of unexpected expansion difficulties could have a material adverse effect on our business, financial condition
or results of operations.
Our
business is dependent on intellectual property rights and we may not be able to protect such rights successfully.
Our
intellectual property, including our license agreements and other agreements, which establish our rights to proprietary intellectual
property, our Cyclechex, RVchex, and Truckchex vehicle history reports and our SMA and iMA mobile apps are of great value to
our business operations. Infringement or misappropriation of our intellectual property could materially harm our business. We rely on
a combination of trade secret, copyright, trademark, and other proprietary rights laws to protect our rights to this valuable intellectual
property. Third parties may try to challenge our intellectual property rights. In addition, our business is subject to the risk of third
parties infringing or circumventing our intellectual property rights. We may need to resort to litigation in the future to protect our
intellectual property rights, which could result in substantial costs and diversion of resources. Our failure to protect our intellectual
property rights could have a material adverse effect on our business and competitive position.
COVID-19.
In December 2019, a novel coronavirus disease (“COVID-19”)
was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International
Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the
continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.
COVID-19 has impacted some of our customers. Our
business, results and financial condition will depend on current and future developments, which are highly uncertain and cannot be
predicted at this time. While the Company’s day-to-day operations beginning March 2020 have been impacted, we have suffered
less immediate impact as most staff can work remotely and can work remotely and can continue to develop our product offerings.
Notwithstanding, revenues relating to mobile applications in certain verticals such as dealerships and racetracks fell and resulted
in forebearance or cancellations during the pandemic.
Risks Related to our Subsidiary, New World Health
Brands, Inc. (NWHB)
NWHB has limited operating
history.
NWHB is still in an early phase and is just beginning
to implement its business plan. There can be no assurance that it will ever operate profitably. The likelihood of its success should be
considered in light of the problems, expenses, difficulties, complications and delays usually encountered by companies in their early
stages of development, with low barriers to entry. NWHB may not be successful in attaining the objectives necessary for it to overcome
these risks and uncertainties.
We
need to raise additional capital to meet our future business requirements and such capital raising may be costly or difficult to obtain
and could dilute current stockholders’ ownership interests.
At
this time, we have not secured or identified any additional financing to support NWHB. We do not have any firm commitments or other identified
sources of additional capital from third parties or from our officers and directors or from other shareholders. There can be no assurance
that additional capital will be available to us, or that, if available, it will be on terms satisfactory to us. Any additional financing
will involve dilution to our existing shareholders. If we do not obtain additional capital on terms satisfactory to us, or at all, it
may cause us to delay, curtail, scale back or forgo some or all of our business operations, which could have a material adverse effect
on our business and financial results and investors would be at risk to lose all or a part of any investment in our Company.
Our
future success will depend on our ability to increase revenues.
NWHB
is in a highly fragmented market for the delivery CBD based products and faces numerous risks and uncertainties in achieving sustainable
revenues and positive cash flow. We launched our website, located at www.newworldhealthcbd.com, in November 2018. We have engaged
in identifying reliable sources of quality inventory, package design, launched a business to consumer website, implemented affiliate
software, and designed brochures and other such marketing materials to enable us to carry out our business plan. These expenditures have
resulted in operating losses. In order to be successful, we must increase our revenues from the sale of our products to individuals and
marketing affiliates. In order to increase our revenues, we must successfully:
|
● |
create
and implement a marketing plan to attract individuals and retailers to our CBD products; |
|
● |
increase
traffic to our website by developing relationships with popular websites; |
|
● |
convert
online visitors to clients; |
|
● |
attract,
retain, and motivate qualified personnel with marketing and product development experience to serve in various capacities, including
sales and marketing positions; |
|
● |
respond
effectively to competitive pressures from other providers of CBD products; |
If
we are not successful in the execution of these strategies, our business, results of operations and financial condition will be materially
adversely affected.
NWHB
has losses which we expect to continue and there is no assurance our future operations will result in profitable revenues. If we cannot
generate sufficient revenues to operate profitably or are unable to raise additional funds, we may consider a merger, acquisition, joint venture, strategic alliance, a roll-up, or other business combination to
increase business.
We
face intense competition from within the hemp-based CBD industry.
NWHB
competes with many providers of hemp-based CBD products because our market poses no substantial barriers to entry. We expect this competition
to continue to intensify. The types of companies with which we compete include:
|
● |
fully
integrated companies such as Aphria Inc., Charlotte’s Web™ and Curaleaf Holdings Inc.; and |
|
● |
start-up
companies entering the market |
Our
future success will depend on our ability to increase and enhance our market position by: (1) maintaining the quality of our product
offerings, (2) developing new products, (3) keeping our pricing models on par with those of our competitors, (4) increasing our online
visibility, and (5) developing a nationally recognized and respected brand.
Many
of our existing competitors, as well as several potential competitors, may have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical, and marketing resources than we do. This may enable them to respond
more quickly to new or emerging consumer demands, or to devote greater resources to the development, promotion, and sale of their products
than we can. These competitors and potential competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies and make more attractive offers to potential employees. In addition, current and prospective competitors may establish
cooperative relationships among themselves or with third parties to improve their ability to address the needs of our existing and prospective
customers. If these events occur, they could have a materially adverse effect on our revenue. Increased competition could also result
in price reductions, reduced margins or loss of market share, any of which would adversely affect our business, results of operations
and financial condition. See “Description of Business” and “Competition.”
We
also believe our ability to compete depends on several factors outside of our control, including:
|
● |
the
prices at which others offer competitive products, including aggressive price competition and discounting; |
|
● |
the
ability of our competitors to undertake more extensive marketing campaigns than we can; and |
|
● |
the
extent of our competitors’ responsiveness to customer needs. |
In
order to be competitive, we must have the ability to respond promptly and efficiently to the ever-changing marketplace. We must establish
our name as a reliable and constant source of the highest quality products.
We
may not be successful in increasing our brand awareness which would adversely affect our business, result of operations, and financial
condition.
Our
future success will depend, in part, on our ability to increase the brand awareness of our website and the products we offer. If our
marketing efforts are unsuccessful or if we cannot increase our brand awareness, our business, financial condition, and results of operations
would be materially adversely affected. In order to build our brand awareness, we must succeed in our marketing efforts, provide high
quality products and increase traffic to our website.
We
may not be able to successfully manage our growth.
For
NWHB to succeed, it needs to experience significant expansion. There can be no assurance that it will achieve this expansion. This expansion,
if accomplished, may place a significant strain on the Company’s management, operational and financial resources. To manage any
material growth, the Company will be required to implement operational and financial systems, procedures and controls. It also will be
required to expand its finance, administrative and operations staff. There can be no assurance that the Company’s current and planned
personnel, systems, procedures and controls will be adequate to support its future operations at any increased level. The Company’s
failure to manage growth effectively could have a material adverse effect on its business, results of operations and financial condition.
If
we do not successfully establish and maintain our brand as highly trusted and respected or are unable to attract and retain clients,
we could sustain loss of revenues, which could significantly affect our business, financial condition, and results of operations.
In
order to attract and retain a client base and increase business, we must establish, maintain and strengthen our name and the products
we provide. In order to be successful in establishing our reputation, clients must perceive us as a trusted source for quality products
and customer service. If we are unable to attract and retain clients with our current marketing plans, we may not be able to successfully
establish our name and reputation, which could significantly affect our business, financial condition and results of operations.
Uninsured
Losses
NWHB
may obtain comprehensive insurance, including liability, fire and extended coverage, as is customarily obtained by business entities.
Certain types of losses of a catastrophic nature, however, such as losses from floods, tornados, thunderstorms, hurricanes and earthquakes,
are uninsurable or not economically insurable to the full extent of potential loss. Other uninsurable events such as “Acts of God”,
work stoppages, pandemics, regulatory actions, or other causes, could interrupt operations and adversely affect NWHB’s results
of operations.
RISKS
RELATED TO OUR INDUSTRY
We
are dependent on third party merchant credit card processors.
Our
future success will depend, in significant part, upon third party credit card processing firms. Loss of our merchant services credit
card processing firm and the inability to rapidly replace that firm could have a substantial negative effect on our business.
We
are dependent on the Internet infrastructure.
Our
future success will depend, in significant part, upon the maintenance of the various components of the Internet infrastructure, such
as a reliable backbone network with the necessary speed, data capacity and security, and the timely development of enabling products,
such as high-speed modems, which provide reliable and timely Internet access and services. To the extent that the Internet continues
to experience increased numbers of users, frequency of use or increased user bandwidth requirements, we cannot be sure that the Internet
infrastructure will continue to be able to support the demands placed on it or that the performance or reliability of the Internet will
not be adversely affected. Furthermore, the Internet has experienced a variety of outages and other delays as a result of damage to portions
of its infrastructure or otherwise, and such outages or delays could adversely affect our website and the websites of our co-branded
partners, as well as the Internet service providers and online service providers our customers use to access our services. In addition,
the Internet could lose its viability as a commercial medium due to delays in the development or adoption of new standards and protocols
that can handle increased levels of activity. We cannot predict whether the infrastructure and complementary products and services necessary
to maintain the Internet as a viable commercial medium will be developed or maintained. The threat of hacking is an ongoing one and to
the best of our ability we will monitor our servers, maintain up-to-date anti-virus and anti-malware programs and keep our employees
advised as to proper computer security.
Cannabis
and hemp are subject to government regulation at the federal, state, and local level.
The passage of the 2018 farm bill or Agricultural
Improvement Act of 2018 resulted in the removal of hemp (CBD) from Schedule 1 of the Controlled Substances Act, the most tightly restricted
category reserved for drugs that have “no currently accepted medical use”. Marijuana (cannabis) remains a federally controlled
substance. The farming of hemp is now legal, and CBD is readily obtainable in most parts of the United States. As of February 3, 2022,
37 states, three territories, and Washington, DC have passed Legal Medical Marijuana Laws and as of May 27, 2022, 19 states, two territories,
and Washington DC have passed Legal Recreational Marijuana Laws. In December 2015, the FDA eased the regulatory requirements to allow
researchers to conduct CBD trials. While the trend toward continued legalization of industrial hemp-based CBD products is favorable, there
is no guarantee that this trend will continue.
Risks
Related to Investment in our Company
The
market for our common stock could be volatile and could decline when you want to sell your holdings.
Our
common stock trades on the OTC Pink under the symbol SRCO. Numerous factors, many of which are beyond our control, may cause the market
price of our common stock to fluctuate significantly. These factors include but are not limited to: (i) actual or anticipated changes
in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investor;
(ii) changes in financial estimates by us or by any securities analysts who might cover our stock; (iii) speculation about our business
in the press or the investment community; (iv) stock market price and volume fluctuations of other publicly traded companies and, in
particular, those that are in our industry; (v) our potential inability to pay back outstanding notes or debentures, or contractual obligations
related to the cancellation thereof; (vi) investor perceptions of our respective industries in general and our Company in particular;
(vii) the operating and stock performance of comparable companies; (viii) general economic conditions and trends; (ix) major catastrophic
events; (x) announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
(xi) changes in accounting standards, policies, guidance, interpretation or principles; (xii) sales of our common stock, including sales
by our directors, officers or significant stockholders; and (xiii) additions or departures of key personnel.
Moreover,
securities markets may from time-to-time experience significant price and volume fluctuations for reasons unrelated to operating performance
of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company
at a time when you want to sell your interest in us.
Our
common stock will be subject to the “penny stock” rules of the SEC, which may make it more difficult for stockholders to
sell our common stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes
relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00
per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require (i) that a broker
or dealer approve a person’s account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor
a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must (i) obtain financial information
and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating
to the penny stock market, which, in highlight form (i) sets forth the basis on which the broker or dealer made the suitability determination;
and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
The
regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit an investor’s
ability to sell our common stock in the secondary market.
We
are subject to variable conversion prices and adjustments related to certain of our convertible notes and our common stock purchase warrants
which could cause significant dilution to stockholders and adversely impact the price of our common stock.
Certain
of our securities are subject to variable conversion prices and adjustments. As a result, future conversion of debt into shares of common
stock or issuance of new convertible debt may result in significant dilution to our shareholders. There were approximately 42 million
potential shares at April 30, 2022. The number of potential shares will likely vary based on fluctuations in the trading price of our
stock. We are negotiating potential settlements of debt to reduce the number of potential shares. (SEE ITEM # 3 LEGAL PROCEEDINGS).
Failure
to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect
on our business and operating results and stockholders could lose confidence in our financial reporting.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, our operating results could be harmed. Failure to achieve and maintain an effective internal control
environment, regardless of whether we are required to maintain such controls, could also cause investors to lose confidence in our reported
financial information, which could have a material adverse effect on our stock price. Because of our limited resources, management has
concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles. Furthermore, we have not obtained an independent audit of our internal controls and, as a result, we are not aware of any
deficiencies which would result from such an audit. Further, at such time as we are required to comply with the internal controls’
requirements of the Sarbanes-Oxley Act, we may incur significant expenses in having our internal controls audited and in implementing
any changes which are required.
We
have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future.
Any return on investment may be limited to the value of our common stock.
No
cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations
and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our
profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If
we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if
our stock price appreciates.
The
requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract
and retain qualified board members.
We
are a public company and are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley
Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and
financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures
and internal controls for financial reporting. For example, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management
report on, and our independent auditors attest to, the effectiveness of our internal controls structure and procedures for financial
reporting. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We
may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the time we
will be required to do so. If we fail to do so, or if in the future our Chief Executive Officer, Chief Financial Officer or independent
registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section
404, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions
of our Company may suffer, and this could cause a decline in the market price of our common stock. Irrespective of compliance with Section
404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation.
If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial
results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional
employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, which will increase
costs. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to
meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which
could have a material adverse effect on our business, financial condition and results of operations.
Future
sales of our equity securities could result in downward selling pressure on our securities, and may adversely affect the stock price.
In
the event that our equity securities are sold or convertible debt is converted into equity securities, there is a risk of downward pressure
may result, making it difficult for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial
amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure
on our securities, and adversely affect the market price of our common stock.
We
have authorized a class of preferred stock that may alter the rights of common stockholders by giving preferred stockholders greater
dividend rights, liquidation rights and voting rights than our common stockholders have.
Our
board is empowered to issue, without stockholder approval, preferred stock, on one or more series, with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other rights of the holders of common stock. From time to time,
we have designated, and may in the future designate, series of preferred stock carrying various preferences and rights different from,
and greater than, our common stock. As of April 30, 2022, we have three series of preferred stock outstanding. Preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.