**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





[X]  ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934





**For
      the fiscal year ended April 30, 2006**





[
      ]  TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





For
      the
      transition period from __________ to __________.





Commission
      file number: **0-9483**





**SPARTA
      COMMERCIAL SERVICES, INC.**


(Exact
      name of registrant as specified in its charter)





**NEVADA**
            **30-0298178**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer Identification No.)





**462
      Seventh Ave, 20th Floor, New York, NY 10018**


(Address
      of principal executive offices) (Zip Code)





Issuer’s
      telephone number: **(212)
      239-2666**





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, par value $0.001


(Title
      of
      class)





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. [ ]





Indicate
      by check whether the registrant is a shell company (as defined in Rule 12b-2
      of
      the Exchange Act).


Yes
      [ ]
      No [X]





The
      issuer’s revenues for its most recent fiscal year: $169,106.





The
      aggregate market value of voting and non-voting stock of the issuer held by
      non-affiliates on July 31, 2006 was $9,099,623.83





As
      of
      July 31,, 2006, we had 121,216,180 shares of common stock issued and
      outstanding.


**DOCUMENTS
      INCORPORATED BY REFERENCE**





None.





Transitional
      Small Business Disclosure Format (check one): YES [ ] NO [X]





**Back
        to Table of Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**





**TABLE
      OF CONTENTS**





Page


**PART
                I**Item
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            11Item
                3.
            Legal
                Proceedings
            12Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            12**PART
                II**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            13Item
                6.
            Management’s
                Discussion and Analysis and Plan of
                Operation
            16Item
                7.
            Financial
                Statements
            24Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting
                and Financial Disclosure
            47Item
                8A.
            Controls
                and Procedures.
            48Item
                8B.
            Other
                Information
            48**PART
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control
                Persons; Compliance With Section 16(a) of the Exchange
                Act
            49Item
                10.
            Executive
                Compensation
            52Item
                11.
            Security
                Ownership of Certain Beneficial Owners and
                Management
            55Item
                12.
            Certain
                Relationships and Related
                Transactions
            57Item
                13.
            Exhibits
            59Item
                14.
            Principal
                Accountant Fees and Services
            61





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            to Table of
            Contents**




**PART
      I**





**ITEM
      1.****DESCRIPTION
      OF BUSINESS**





**General
      Overview**





Sparta
      Commercial Services, Inc. (“Sparta” “we,” “us,” or the “Company”) is a Nevada
      corporation.





Our
      business plan is to provide dealers of powersports vehicles with an alternative
      source of financing for new and used motorcycles. We developed proprietary
      web-based solutions for processing, financing and leasing of new and used
      powersports vehicles. **** Currently,
      we offer a private label program, lease and retail installment sales finance
      contracts to numerous dealerships in powersports industry. Our business model
      focuses on select motorcycles (i.e., 550cc and higher), 4-stroke all-terrain
      vehicles (ATVs), and select scooters. Our management believes that the emphasis
      on these products eliminates a number of vehicles that often under-perform
      due
      to the demographics of the purchaser and/or excessive depreciation in the market
      value of certain vehicle models.





Our
      offices are located at 462 Seventh Avenue, 20 th Floor,
      New York, NY 10018, telephone number: (212) 239-2666. We maintain a website
      at:
      www.spartacommercial.com.





**Our
      Organization History**





Our
      company was incorporated under the laws of the State of Nevada on May 13, 1980
      under the name Tomahawk Oil and Minerals, Inc. and engaged in oil and gas
      exploration activities.





On
      November 6, 1983, the company changed its corporate name to Tomahawk Industries,
      Inc.





In
      1984,
      Tomahawk entered the business of installing energy recovery and energy saving
      devices.





In
      July
      1987, Tomahawk filed for protection under Chapter 11 of the U. S. Bankruptcy
      Code and operated as a debtor-in-possession. The petition for bankruptcy
      protection was denied. Tomahawk ceased all business operations, liquidated
      its
      former subsidiary and abandoned all net assets remaining by April 30, 1988.
      Tomahawk effectively had no operations, assets or liabilities since its fiscal
      year ended April 30, 1988 through February 27, 2004.





On
      February 27, 2004, pursuant to an Agreement and Plan of Reorganization, we
      acquired Sparta Commercial Services, LLC, in a transaction viewed as a reverse
      acquisition. Under the terms of the agreement, we acquired all of the
      outstanding membership interests in Sparta Commercial Services, LLC in exchange
      for the agreement to issue such number of shares of our common stock as would
      represent approximately 91.75% percent of our outstanding shares. Sparta
      Commercial Services, LLC also entered into a consulting agreement for business
      and financial services with Glenn A. Little, the former principal of Tomahawk.
      The agreement is for a term of one year. Mr. Little received a fee of $100,000
      pursuant to the consulting agreement.





As
      a
      result of the acquisition, a change in control occurred in the ownership and
      management of Tomahawk. In connection with the acquisition, the managing member
      of Sparta, Anthony Havens, was appointed President and Chairman of Tomahawk.
      The
      former directors and officers of Tomahawk resigned as of the acquisition date.





On
      August
      25, 2004, we changed our corporate name from “Tomahawk Industries, Inc.” to
“Sparta Commercial Services, Inc.”





On
      September 13, 2004, we filed a Certificate of Amendment to the Articles of
      Incorporation with the Secretary of State of the State of Nevada increasing
      the
      authorized capital from 200,000,000 to 700,000,000 shares, of which 690,000,000
      shares are common stock, par value $0.001 and 10,000,000 shares are preferred
      stock, par value $0.001.


-3-
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            to Table of
            Contents**




Effective
      December 27, 2004, pursuant to a Certificate of Amendment to the Articles of
      Incorporation with the Secretary of State of the State of Nevada, our authorized
      capital was reduced from 700,000,000 shares, of which 690,000,000 shares were
      common stock and 10,000,000 shares are preferred stock, to 350,000,000 shares,
      of which 340,000,000 shares are common stock and 10,000,000 shares are preferred
      stock. In connection with the decrease in authorized capital, we effected a
      1:200 reverse stock split, with fractional shares paid in cash, followed
      immediately by a 25:1 forward stock split.





On
      December 28, 2004, we filed a Certificate of Designation with the Secretary
      of
      State of the State of Nevada in connection with its 10,000,000 shares are
      preferred stock, designating 35,850 shares as Series A Redeemable Preferred
      Stock.




**Our
      Business**





We
      are a
      specialized consumer finance company engaged primarily in the origination of
      leases and the purchase of retail installment sales contracts of new and used
      motorcycles, scooters, and ATVs. We believe that the market for consumer finance
      programs for motorcycles and ATVs is underserved by traditional lenders.





We
      are
      developing relationships with vehicle dealers and manufacturers to provide
      our
      financing programs to their customers. We also seek to provide motorcycle,
      scooter, and all-terrain vehicle manufacturers a private label version of our
      financing programs for their customers.




**Business
      Overview**





Sparta’s
      business model has been designed to generate revenue from several
      sources:





·
            Retail
                installment sales contracts and
                leases;


·
            Private
                label programs for manufacturers and
                distributors;


·
            Ancillary
                products and services, such as private label gap coverage and private
                label service contracts; and


·
            Remarketing
                of off-lease and repossessed
                vehicles.





Sparta’s
      management believes that by offering dealers (and their customers) the option
      of
      either financing or leasing, Sparta will be able to capture a greater share
      of
      the dealer’s business. Additionally, by offering both alternatives, once
      profitability is achieved, Sparta believes that it will be in a position to
      achieve greater cash-flow than it could by offering only one of these
      alternatives because depreciation generated by Sparta’s leasing activities will
      reduce income tax due on income resulting from Sparta’s retail installment sales
      contracts.




**Retail
      Installment Sales Contracts and Leases**





Retail
      Installment Sales - Sparta purchases retail installment sales contracts from
      both franchised and independent powersports dealers who qualify as Sparta
      Authorized Dealers and/or as Private Label Authorized Dealers under Sparta’s
      Private Label Programs. Sparta has developed policies and procedures for credit
      evaluation, collections, insurance follow up, and asset recovery. Sparta imposes
      strict credit criteria to determine which retail installment sales contract
      applications to approve. This credit criterion has been developed to be in
      compliance with the credit criterion required by our lenders. The dealers
      understand that if they consummate a credit transaction with a buyer on whose
      application we have given them a conditional approval that Sparta will purchase
      that contract if it is in full compliance with all terms and conditions of
      that
      approval and contained in our dealer agreement.  -4-
 **Back
            to Table of
            Contents**


To
      insure
      that Sparta’s Credit Evaluation Process and Collateral Guidelines are
      consistently applied and that the credit/underwriting decision process provides
      rapid decisioning to Sparta Authorized Dealers and the Private Label Dealers,
      Sparta has developed a point of sale credit application and contract decisioning
      system. This system is named “ ***iPLUS*** ”
and
      is
      structured as an Application Service Provider (“ASP”) and has the capability of
      providing the dealer with conditional approvals in less than sixty seconds,
      seven days a week, twenty-four hours a day. This technology provides quick,
      consistent credit decisions for our dealer network and reduces the number of
      credit analysts required, thereby, reducing Sparta’s personnel expense.
      Depending on Sparta’s arrangement with its lending sources, in the case of
      consumer finance contracts, Sparta may finance its purchase of the contracts
      by
      borrowing from a lending source and pledging the retail finance contracts as
      collateral for the loan.





All
      of
      the installment sale contracts will be secured by qualified, titled motorcycles
      with 550+cc and higher engines, 4-stroke all-terrain vehicles (ATVs), or select
      scooters. Customer financing needs are projected to range from approximately
      $2,000 to $35,000. Contract terms of 24 to 60 months will be offered.





Leases
      -
      Sparta purchases qualified vehicles for lease to customers of its Sparta
      Authorized Dealers and/or Private Label Dealers. While the steps in the leasing
      process are almost identical to those in the installment sales contract process,
      the major difference is that when a lease “approval” is transmitted to a dealer,
      the “approval” describes the terms and conditions under which Sparta will
      purchase a specific vehicle from the dealer and lease it to the applicant.
      Unlike an installment service contract which finances a customer’s purchase of a
      vehicle owned by the customer, the lease contract contains the payment terms
      and
      conditions under which Sparta will allow the customer to use (lease) the
      vehicle, which is owned by Sparta, and also contains a vehicle purchase price
      option which provides the customer with the right to purchase the vehicle at
      the
      lease-end. Depending on Sparta’s arrangement with its lending sources, in the
      case of leases, Sparta may finance its purchase of leased vehicles by borrowing
      from a lending source and assigning or pledging the lease and leased vehicle
      as
      collateral for the loan. Lease terms range from 24 to 60 months, although most
      lease terms are either 36 or 60 months. Leases generally have lower monthly
      payments than retail installment sales contracts because they finance only
      part
      of the vehicle with the balance being financed by the lessor.





**Private
      Label Programs for Manufacturers and Distributors**





To
      date,
      we have entered into four "private label" 5-year financing agreements with
      the
      U.S. distributors of major manufacturers of scooters and ATVs. Under these
      agreements, we allow the manufacturer to put its name on our finance and lease
      products, and offer such financing facilities to its dealers for their
      customers. We own the retail installment sales contracts and leases generated
      under these "private label" programs, and derive revenues from sales of the
      distributor's product line to the dealer's customers. The private label program
      also expands our dealer base by the number of dealerships in the distributor's
      chain, thereby generating additional opportunities to sell our own financial
      services to these dealers for their customers interested in non-"private label"
      vehicles.





These
      four distributors have over 1,200 dealers who, in addition to becoming our
      Private Label dealers, can sign up to become our Authorized Dealers, which
      will
      enable them to use us as a source for financing their non-private label
      vehicles.





**Revenue
      From Ancillary Products And Services**





We
      expect
      to receive additional revenue related to servicing our portfolio, such as lease
      acquisition fees, late payment fees, vehicle disposition fees at lease-end,
      early termination fees, charges for excess wear-and-tear on leased vehicles,
      and
      from ancillary products and services.





We
      are
      being positioned as a full service organization providing products and services
      to its dealers that are costly to obtain on an individual dealer basis. Also,
      we
      offer a private label GAP (Guaranteed Auto Protection) plan for our
      dealers:  -5-
 **Back
            to Table of
            Contents**


**Gap
      Coverage** - Sparta
      markets its private label gap coverage on a fee basis to customers through
      dealers. This coverage protects the customer should the vehicle be stolen or
      wrecked and the holder’s primary insurance is not adequate to cover their payoff
      to the creditor that holds the lien on the vehicle.





Sparta
      intends to continue to evaluate additional ancillary products and services
      and
      believes that it can create products and services to meet dealers' needs,
      creating company brand loyalty in the dealer community and generating other
      revenue streams.





**Revenue
      From Remarketing** **Off-Lease
      And Repossessed Vehicles** ****





**Re-leasing
      to Original Lessees** -
      Management commences its re-leasing efforts as early as eleven months prior
      to
      the end of the scheduled lease term. Lessees’ options are expected to include:
      extending the lease, returning the vehicle to Sparta or buying the vehicle
      at
      the buy-out option price established at the beginning of the lease. Sparta’s
      policy requires lessees who wish to return their vehicles, return the vehicle
      to
      the originating dealer. If the lessee has moved, then the vehicle should be
      returned to the Sparta Authorized Dealer closest to the lessee. If this is
      impracticable, then Sparta will arrange to have the vehicle transported at
      the
      lessee’s expense.





**Returned
      Leased Vehicles** -
      When a
      vehicle is returned to a Sparta Authorized Dealer at the end of the scheduled
      lease term, the dealer will inspect it for excessive wear and mileage over
      maximum levels specified under the lease agreement and prepare it for
      resale/lease. All Sparta Authorized Dealers and all Sparta Private Label Dealers
      are contractually bound to charge no more than cost plus ten-percent for repairs
      and to provide free storage for all consignment vehicles. Thereafter, Sparta
      plans to consign the vehicle to the originating dealer for sale or re-lease
      to a
      new party. Should the dealer decline to take the vehicle on consignment, it
      will
      be electronically marketed on the Classified Pages of the Sparta web site.
      Sparta believes the market for used vehicles is significant, and the opportunity
      to remarket the same vehicle numerous times is a key selling point with
      prospective dealerships. Sparta believes that using its dealer network in such
      a
      manner will result in a better overall economic return on its portfolio as
      well
      as strengthen dealer relationships.





**Repossessed
      Vehicles** -
      All
      repossessed vehicles are similarly returned to the originating Sparta Authorized
      Dealer to be reconditioned (if needed) for consignment sale or re-lease in
      the
      same manner and conditions as returned vehicles.





**Second
      Chance Express** -
      Sparta
      allows its Authorized Dealers to offer its inventory of returned or repossessed
      vehicles not only to customers with approved credit applications but, also
      to
      customers with less than prime credit. Applicants with low credit scores are
      evaluated under Sparta’s Second Chance Express Program. This unique
      finance/lease product is designed to offer a financing program tailored to
      this
      non-prime customer. The program allows Sparta to serve those customers who
      can
      offset their credit risk with higher down payments. A key benefit of this
      program to Sparta is that the minimum down-payment requirement is 20% in order
      to bring the amount financed in line with the current wholesale value of the
      vehicle. Under the Second Chance Express Program, Sparta pays its dealers a
      commission on any Sparta inventory vehicle, held on consignment on their “floor”
or offered on the Sparta Classified Web Page, for which they arrange a sale
      or
      finance.





**Credit
      and Collections**





**Policies
      and Procedures**





Based
      on
      management's experience in vehicle financing and leasing, we have developed
      policies and procedures for credit evaluation, collections, insurance follow
      up,
      and asset recovery. We impose strict credit and demographic criteria to
      determine which retail installment sales contracts and lease applications are
      approved.





**Credit
      Evaluation Process and Collateral Guidelines**





To
      insure
      that Sparta’s Credit Evaluation Process and Collateral Guidelines are
      consistently applied and that the credit/underwriting decision process provides
      rapid decisioning to Sparta Authorized Dealers and the Private Label Dealers,
      Sparta has worked closely with a leading provider of interactive credit
      accessing and decisioning solutions, to develop the ***iPLUS*** point of
      sale credit application and contract decisioning system.  -6-
 **Back
            to Table of
            Contents**


***iPLUS*** **Internet
      Purchasing Leasing Underwriting Servicing)**





Sparta’s
      retail installment sales contract and leasing programs are delivered through
      a
      proprietary, web-based, credit application processing system. This system is
      named ***iPLUS*** ** and
      is
      structured as an Application Service Provider (“ASP”) and has the capability of
      providing the dealer with conditional approvals seven days a week, twenty-four
      hours a day. This system also provides the powersports dealer with system
      capabilities comparable to those of new car franchises. Sparta believes ***iPLUS*** will
      provide the Sparta Authorized Dealers and Private Label Dealers with a
      competitive advantage and will increase Sparta’s ability to garner a larger
      share of the dealer’s business. Although we intend to add additional
      features, ***iPLUS*** is
      currently being utilized by us.





Major
      features of ***iPLUS*** include:





·
            100%
                WEB Browser Based (www.spartacommercial.com)


·
            User
                friendly system


·
            No
                costly software required by the
                users


·
            Operates
                on any dial-up connection as slow as
                28.8


·
            Requires
                Internet Explorer 5.5 or above, Adobe Acrobat Reader 5.0 or above,
                both
                available at no charge on the
                Internet


·
            Integrated
                scorecard and decision engine


·
            Integrated
                credit bureau retrieval and review (can access any of the 3 major
                bureaus)


·
            Once
                application is submitted; decisions in seconds/7 Days a Week /24
                Hours a
                Day


·
            Easy
                to complete customer application


·
            Dealer
                application management


·
            Dealer
                Desking Tool - Profit Manager (Assists dealer in structuring any
                approved
                application.)


·
            Prints
                approved customer contract and contract
                package


·
            Captures
                information in electronic format


·
            Complete
                underwriting documentation and control
                system


·
            Dealer
                communication


·
            Allows
                the dealer to track the entire decisioning, underwriting, and funding
                process in real time.





Additionally,
      this technology provides quick, consistent credit decisions for our dealer
      network and reduces the number of credit analysts required, thereby, reducing
      Sparta’s personnel expense.





Sparta
      has established program guidelines that are an integral function of the ***iPLUS*** decision
      process. These program guidelines establish and clarify credit criteria such
      as
      credit tiers, maximum amount financed, term and rate, dealer rate participation,
      deal structure, buyer profile, credit bureau parameters, budget parameters,
      and
      eligible collateral, including maximum loan-to-value ratios for each of its
      retail installment sales contracts and lease contracts, depending on the
      applicant’s credit rating and stability. Sparta has developed its own credit
      rating system by using an empirical score card and then assigning its own rating
      based on Sparta’s experience. This rating is used as the basis to determine the
      terms and conditions under which an applicant is approved or
      declined.





Sparta
      conducts both applicant credit risk and asset evaluation before approving
      financing. Sparta’s policy is that it will not finance more than 100% of a
      vehicle’s retail value, but Sparta may lend an additional 10% above retail value
      to cover add-ons, extended warranty and other costs. Should the customer seek
      financing above this threshold, Sparta intends to ask for a down payment from
      the borrower or lessee to close the gap between selling price and retail value.
      The size of the down payment will be a function of the applicant’s credit
      rating, stability, budget, and the value of the underlying asset.  -7-
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            to Table of
            Contents**


**Collection
      Procedures**





Approving
      retail installment sales contracts and leases that comply with the policies
      and
      procedures established by Sparta is just the first step. A principal factor
      in
      the success of Sparta’s business model is its ability to track contract and
      lease performance.





A
      third
      party provides the software Sparta uses to manage its assets, customer base,
      collections, insurance, and accounting systems. Using a variety of basic and
      customized reports generated by this software, Sparta monitors its customers’
compliance with their obligations under retail installment sales contracts
      or
      lease contracts. These reports are accessed on a real-time basis by employees
      of
      Sparta and are distributed to management personnel for review. The reports
      include delinquency reports, collection tickler (promises) reports, insurance
      status reports, termination reports, inventory reports, maturing contract
      reports, etc.





Sparta
      requires continuous physical damage insurance on all financed vehicles and
      continuous liability and physical damage insurance coverage on all leased
      vehicles. In addition, Sparta is required to be listed as Additional Named
      Insured and Loss Payee. Continuous insurance is critical, and Sparta intends
      to
      quickly repossess a vehicle if coverage lapses. Lapsed or cancelled policies
      will be covered by a “blanket” VSI insurance policy, which Sparta intends to
      purchase. Any lapse in insurance coverage for any reason will lead to automatic
      repossession of leased vehicles.





**Using
      Diversification to Reduce Portfolio Risk**





Management
      will reduce portfolio risk not only by carefully screening applicants and
      monitoring covenant compliance, but also by diversifying its financing
      activities across credit tiers and Sparta’s list of motorcycle, ATV and scooter
      models that it will finance or lease.





**Credit
      Tiers** -
      Sparta
      expects that it will maintain a portfolio dominated by A/B credit applicants
      over C applicants in the ratio of at least 70/30. Management anticipates that
      it
      will be able to rebalance its portfolio by training its sales force to work
      closely with dealerships in their territories to help Sparta maintain its
      conservative 70/30 target.





Sparta
      will also be able to manage this ratio by revising the variables in its various
      programs (terms and conditions under which Sparta will lease vehicles or
      purchase retail installment contracts), such as minimum income, debt ratios,
      payment to income ratios, minimum down payment required, acquisition fees (paid
      by dealer), discounts (paid by dealer), etc.





**Sparta
      Approved Vehicle Models** -
      Advance rates and other credit restrictions will be in effect for certain models
      and years based on the relevant facts and circumstances.





**Market
      Information**





As
      reported in the 2005 Annual Statistical Report of the Motorcycle Industry
      Council), retail sales of new motorcycles have grown steadily from 1991 through
      2005. North American registrations of new 651cc and higher motorcycles reached
      517,600 in 2005. This represents a 5% increase over 2004. Registrations have
      increased for 14 consecutive years. Retail sales of new and used motorcycles
      reached $10.7 billion in 2004.





U.S.
      sales of new ATVs were estimated to be 780,435 units in 2005 with a market
      value
      of $1.6 billion and scooter sales approached 57,000 in 2005 and are growing
      at a
      17% annual rate, as reported in Powersports Business Magazine in the April
      3,
      2006 issue.


-8-
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            to Table of
            Contents**




**Sales
      and Marketing**





Normally,
      vehicle finance programs are sold primarily at the dealer level, rather than
      the
      consumer level. Our strategy is to utilize a direct sales force that promotes
      our products and services to qualified dealers, train them, and provide them
      with point-of-sale marketing materials. Our vehicle financing programs are
      already gaining market acceptance as evidenced by the four Private Label
      Contracts. This direct sales force will be comprised of Marketing Group and
      a
      Dealer Support Group.





The
      Marketing Group will continue to work directly with the manufacturers and
      distributors to obtain additional Private Label affiliations and to monitor
      our
      competition. The Private Label partners will assist us directly in training
      the
      Private Label Dealers. This will be done at the manufacturers/distributors
      place
      of business, at industry shows, or with a group of dealers in a common
      geographic area.





The
      Dealer Support Group accepts dealer application packages from dealers that
      want
      to be either or both our Authorized Dealers or Private Label Dealers. They
      then
      notify the approved dealers that they have been approved and provide them with
      the required information to process applications and print contracts through
      iPLUS, including a Dealer Sign Up packet. The Dealer Support Group is available
      to directly assist dealers by telephone and follow up with dealers on
      conditional approvals to assist dealers in forwarding the funding packages
      to us
      for purchase. This group will also accept all incoming calls from dealers,
      answering their inquiry or directing them, if necessary, to the appropriate
      department.





Authorized
      dealers are able to advertise both new and used vehicles in the Classified
      Section of our website, at no cost to the dealer. Sparta plans to use this
      feature of the website to remarket its own inventory (both repossessed and
      returned end-of-term vehicles) throughout the country. Our exclusive
“Second-Chance Express” program for customers with a poor or limited credit
      history was created to help re-market our inventory. Incentives are in place
      for
      authorized dealers who sell or lease either our inventory vehicle at their
      dealership or one that is at another dealership in our network.





While
      we
      do not market or sell directly to consumers, we expect consumers to visit our
      website. We have provided a consumer oriented PowerPoint presentation for their
      review. Additionally, visiting consumers will be able to view our advertising,
      news and find general information about vehicle makes and models, road rallies,
      and other areas of powersports interest. They will also be able to utilize
      our
      Dealer Locator to find the nearest Authorized dealer or Private Label Dealer
      in
      their area. Consumers will be able to view the Classified Section of the website
      and any consumer inquiring about the program will be directed to our nearest
      authorized dealer.





**Competition**





The
      consumer finance industry is highly fragmented and highly competitive. Broadly
      speaking, Sparta competes with commercial banks, savings & loans, industrial
      thrift and credit unions, and a variety of local, regional and national consumer
      finance companies. While there are numerous financial service companies that
      provide consumer credit in the automobile markets, including banks, other
      consumer finance companies, and finance companies owned by automobile
      manufacturers and retailers, most financial service companies are reluctant
      to
      lend to motorcyclists. Customers who approach these lending sources to take
      out
      installment loans are often encouraged to pursue personal loans
      instead.





There
      are
      few companies that provide nationwide dealer-based leasing options in the
      motorcycle industry segment, and these tend to be private label factory programs
      supporting their own brands. Because of their narrow focus (such as requiring
      that the equipment be covered by the brand's warranty); these companies have
      met
      with limited success.





Independent
      consumer financial services companies and large commercial banks that
      participated in this market have withdrawn substantially from the motorcycle
      loan niche over the past two years or have toughened their underwriting
      criteria. Sparta believes that those companies may have suffered as a result
      of
      compromising their underwriting criteria for the sake of volume. In addition,
      management believes that our competitors' practice of financing all makes and
      models of a particular manufacturer results in lower overall portfolio
      performance because of the poor demographics associated with some of those
      product lines. The marketplace also includes small competitors such as local
      credit unions, local banks and a few regional players.  -9-
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            to Table of
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Sparta
      competes for customers with commercial banks, savings and loans, credit unions,
      consumer financing companies, and manufacturers finance subsidiaries.
      Additionally, some powersports manufacturers such as Harley-Davidson and BMW
      have subsidiaries that provide financing.





The
      more
      significant competitors of Sparta include: GE Retail Services, Capital One
      and
      HSBC/Household Bank. To management’s knowledge, none of these firms offer leases
      for powersports vehicles.





The
      largest of these firms, GE Retail Services, markets both directly to dealers
      in
      Powersports market and through Co Branded private label programs. GE recently
      has co-branded with Yamaha, Moto Guzzi, Aprillia Brands and other national
      manufacturers and distributors of Powersports and recreational products such
      as
      Coachmen Industries. GE also offers dealer and distributor floor plan financing
      and private label credit cards.





Capital
      One markets a product for Capital One Bank, offering consumer direct and dealer
      indirect consumer contracts to the powersports industry. They offer smaller
      dealers the ability to have customers apply via the web site affiliate program
      and larger dealers can go direct to Capital One finance. Capital One recently
      announced the purchase of Onyx Finance and truly entered the vehicle financing
      arena with the purchase of Peoples First Finance. Typical terms range from
      30 to
      60 months with a minimum of individuals approved for a product named “The Blank
      Check”. Capital
      One Auto Finance, America's largest online vehicle lender, provides vehicle
      loans to customers directly via the Internet, as well as through a nationwide
      dealership network.





While
      some of Sparta’s larger competitors have vast sources of capital and may be able
      to offer lower interest rates due to lower borrowing costs, Sparta believes
      that
      the combination of management’s experience, expedient service, availability of
      the lease option and ***iPLUS*** give
      Sparta an advantage over its competitors.





**Regulation**





Our
      planned financing operations are subject to regulation, supervision and
      licensing under various federal, state and local statutes and ordinances.
      Additionally, the procedures that we must follow in connection with the
      repossession of vehicles securing contracts are regulated by each of the states
      in which we plan to do business. Accordingly, the laws of such states, as well
      as applicable federal law, govern our operations. Compliance with existing
      laws
      and regulations has not had a material adverse affect on our operations to
      date.
      Our management believes that we maintain all requisite licenses and permits
      and
      are in material compliance with all applicable local, state and federal laws
      and
      regulations. We will periodically review our office practices in an effort
      to
      ensure such compliance.





The
      following constitute certain of the federal, state and local statutes and
      ordinances with which we must comply:





·
            Fair
                Debt Collection Act. The Fair Debt Collection Act and applicable
                state law
                counterparts prohibit us from contacting customers during certain
                times
                and at certain places, from using certain threatening practices and
                from
                making false implications when attempting to collect a
                debt.





·
            Truth
                in Lending Act. The Truth in Lending Act requires us and the dealers
                we do
                business with to make certain disclosures to customers, including
                the
                terms of repayment, the total finance charge and the annual percentage
                rate charged on each Contract or direct
                loan.





·
            Consumer
                Leasing Act. The Consumer Leasing Act applies to any lease of consumer
                goods for more than four months. The law requires the seller to disclose
                information such as the amount of initial payment, number of monthly
                payments, total amount for fees, penalties for default, and other
                information before a lease is
                signed.





·
            The
                Consumer Credit Protection Act of 1968. The Act required creditors
                to
                state the cost of borrowing in a common language so that the consumer
                could figure out what the charges are, compare costs, and shop for
                the
                best credit deal.




-10-
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·
            Equal
                Credit Opportunity Act. The Equal Credit Opportunity Act prohibits
                creditors from discriminating against loan applicants on the basis
                of
                race, color, sex, age or marital status. Pursuant to Regulation B
                promulgated under the Equal Credit Opportunity Act, creditors are
                required
                to make certain disclosures regarding consumer rights and advise
                consumers
                whose credit applications are not approved of the reasons for the
                rejection.




·
            Fair
                Credit Reporting Act. The Fair Credit Reporting Act requires us to
                provide
                certain information to consumers whose credit applications are not
                approved on the basis of a report obtained from a consumer reporting
                agency.





·
            Gramm-Leach-Bliley
                Act. The Gramm-Leach-Bliley Act requires us to maintain privacy with
                respect to certain consumer data in our possession and to periodically
                communicate with consumers on privacy
                matters.





·
            Soldiers'
                and Sailors' Civil Relief Act. The Soldiers' and Sailor's Civil Relief
                Act
                requires us to reduce the interest rate charged on each loan to customers
                who have subsequently joined, enlisted, been inducted or called to
                active
                military duty.





·
            Electronic
                Funds Transfer Act. The Electronic Funds Transfer Act prohibits us
                from
                requiring our customers to repay a loan or other credit by electronic
                funds transfer ("EFT"), except in limited situations that do not
                apply to
                us. We are also required to provide certain documentation to our
                customers
                when an EFT is initiated and to provide certain notifications to
                our
                customers with regard to preauthorized
                payments.





·
            Telephone
                Consumer Protection Act. The Telephone Consumer Protection Act prohibits
                telephone solicitation calls to a customer's home before 8 a.m. or
                after 9
                p.m. In addition, if we make a telephone solicitation call to a customer's
                home, the representative making the call must provide his or her
                name, our
                name, and a telephone number or address at which our representative
                may be
                contacted. The Telephone Consumer Protection Act also requires that
                we
                maintain a record of any requests by customers not to receive future
                telephone solicitations, which must be maintained for five
                years.





·
            Bankruptcy.
                Federal bankruptcy and related state laws may interfere with or affect
                our
                ability to recover collateral or enforce a deficiency
                judgment.





**Employees**





As
      of May
      12, 2006, we had 15 full-time employees.





None
      of
      our employees are covered by a collective bargaining agreement. We have never
      experienced a work stoppage and we believe that we have satisfactory working
      relations with our employees.





**ITEM
      2.****DESCRIPTION
      OF PROPERTY**





Our
      executive offices are located at 462 Seventh Avenue, 20th Floor, New York,
      NY
      10018. We have an agreement for use of office space at this location under
      a
      lease expiring on November 30, 2007. The office space contains approximately
      7,000 square feet. The annual rate is $167,280 (annualized) for the first six
      months of calendar year 2006, $174,080 (annualized) for the second six months
      of
      calendar year 2006, and $178,432 for the calendar year 2007.





We
      believe that our existing facilities will be adequate to meet our needs for
      the
      foreseeable future. Should we need additional space, management believes it
      will
      be able to secure additional space at commercially reasonable rates. Our offices
      are adequately covered by insurance for claims arising out of such
      occupancies.


-11-
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**ITEM
      3.****LEGAL
      PROCEEDINGS**





As
      at
      April 30, 2006, we were not a party to any material pending legal proceeding.
      From time to time, we may become involved in various lawsuits and legal
      proceedings, which arise in the ordinary course of business.




**ITEM
      4.****SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





Not
      applicable.  -12-
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            to Table of
            Contents**


**PART
      II**





**ITEM
      5.****MARKET
      FOR THE COMPANY’S COMMON EQUITY AND RELATED****STOCKHOLDER
      MATTERS**





**Market
      Information**





Our
      common stock is currently quoted on the OTC Bulletin Board under the symbol
      “SRCO”. The following table sets forth, for the calendar periods indicated, the
      range of the high and low last reported bid prices of our common stock, as
      reported by the OTCBB. The quotations represent inter-dealer prices without
      retail mark-ups, mark-downs or commissions, and may not necessarily represent
      actual transactions.





High
            
            LowFiscal
                Year 2005 (May 1, 2004 - April 30, 2005)First
                quarter (May 1, 2004 - July 31, 2004)
            
            $
            1.60
            
            $
            0.80Second
                quarter (August 1, 2004 - October 31, 2004)
            
            $
            0.96
            
            $
            0.48Third
                quarter (November 1, 2004 - January 31, 2005)
            
            $
            0.96
            
            $
            0.48Fourth
                quarter (February 1, 2005 - April 30, 2005)
            
            $
            1.05
            
            $
            0.45Fiscal
                Year 2006 (May 1, 2005 - April 30, 2006)First
                quarter (May 1, 2005 - July 31, 2005)
            
            $
            1.01
            
            $
            0.25Second
                quarter (August 1, 2005 - October 31, 2005)
            
            $
            0.96
            
            $
            0.59Third
                quarter (November 1, 2005 - January 31, 2006)
            
            $
            0.81
            
            $
            0.41Fourth
                quarter (February 1, 2006 - April 30, 2006)
            
            $
            0.73
            
            $
            0.42





**Holders**





The
      approximate number of holders of record of our common stock as of April 30,
      2006
      was 3,004, excluding stockholders holding common stock under nominee security
      position listings.





**Dividends**





We
      have
      never declared any cash dividends on our common stock. Future cash dividends
      on
      the common stock, if any, will be at the discretion of our Board of Directors
      and will depend on our future operations and earnings, capital requirements
      and
      surplus, general financial condition, contractual restrictions, and other
      factors that the Board of Directors may consider important. The Board of
      Directors does not intend to declare or pay cash dividends in the foreseeable
      future. It is the current policy to retain all earnings, if any, to support
      future growth and expansion.





As
      of
      April 30, 2006, we had outstanding 19,795 shares of Series A Convertible
      Preferred Stock, $.001 par value. The shares pay a 6% annual dividend which
      may
      be paid in cash or shares of common stock at the Company’s option. We have not
      as of July 30, 2006 distributed any dividends, in cash or in shares of common
      stock.





**Transfer
      Agent**





The
      transfer agent for our common stock is Executive Registrar & Transfer
      Inc.


-13-
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            Contents**




**Recent
      Sales of Unregistered Securities**





In
      July
      2005, in a transaction deemed to be exempt from registration under the
      Securities Act in reliance on Section 4(2) of the Securities Act, we entered
      into an agreement with an individual for business consulting services for a
      term
      of one year pursuant to which we agreed to issue 250,000 shares of common stock
      as compensation. These shares were issued in July 2006.





In
      July
      2005, in a transaction deemed to be exempt from registration under the
      Securities Act in reliance on Section 4(2) of the Securities Act, we entered
      into an agreement with an individual for investor relations consulting services
      for a term of two years, with services beginning in August 2005, pursuant to
      which we agreed to issue 600,000 shares of common stock per year as
      compensation. We issued 300,000 shares in September 2005 and 300,000 shares
      in
      October 2005 to the consultant as compensation for the first year of services.
      We issued 250,000 shares in March 2006, in advance for the second year of the
      agreement.





In
      October 2005, in a transaction deemed to be exempt from registration under
      the
      Securities Act in reliance on Section 4(2) of the Securities Act, we sold to
      an
      accredited investor 300,000 units of our securities at $0.60 per unit, for
      gross
      proceeds of $180,000. Each unit consists of (i) one share of common stock and
      (ii) a warrant to purchase one share of common stock, exercisable for three
      years at $0.80 per share. These shares have not yet been issued as of April
      30,
      2006. We used the proceeds for working capital purposes.





In
      November 2005, in transactions deemed to be exempt from registration under
      the
      Securities Act in reliance on Section 4(2) of the Securities Act, we sold to
      two
      accredited investors an aggregate of 250,001 units for gross proceeds of
      $150,000. Each unit consists of (i) one share of common stock and (ii) a warrant
      to purchase one share of common stock, exercisable for three years at $0.80
      per
      share. These shares have not yet been issued as of April 30, 2006. We used
      the
      proceeds for working capital purposes.





In
      December 2005, in transactions deemed to be exempt from registration under
      the
      Securities Act in reliance on Section 4(2) of the Securities Act, we entered
      into agreements with three accredited investors for bridge loans in the
      aggregate amount of $175,000. The bridge loans were to mature on March 31,
      2006,
      together with simple interest at the rate of 10% per annum. As part of the
      loan,
      we agreed to issue the lenders as an equity kicker an aggregate of 70,000 shares
      of our common stock. These shares were issued in July 2006. In the event of
      default on repayment, as penalty, the simple interest rate on the unpaid
      principal shall be increased to a rate of 20% per annum commencing from the
      date
      of default, and the number of shares issuable as an equity kicker shall be
      increased by 50% for each month that such default has not been cured. The loans
      were repaid in January 2006.





On
      December 21, 2005, in a transaction deemed to be exempt from registration under
      the Securities Act in reliance on Section 4(2) of the Securities Act, the
      Company granted stock options to purchase an aggregate of 160,000 shares of
      the
      Company's common stock, exercisable for a period of up to ten years from the
      date of grant at $0.59 per share, subject to vesting criteria through March
      2009, to two employees.





On
      December 22, 2005, in a transaction deemed to be exempt from registration under
      the Securities Act in reliance on Section 4(2) of the Securities Act, the
      Company entered into an agreement with Maxim Group, a placement agent, pursuant
      to which Maxim was granted 2,650,000 shares of the Company's common stock as
      payment for services rendered and to be rendered. These shares were in the
      quarter ended April 30, 2006.





In
      March
      2006, we concluded a private placement, commenced in December 2005, to raise
      up
      to $3,500,000 through the sale of our common stock in which sold at a price
      of
      $0.195 per share. In transactions with accredited investors exempt from
      registration pursuant to Section 4(2) of the Securities Act we sold an aggregate
      of 17,555,369 shares for proceeds of $3,423,297. The private placement was
      conducted by a placement agent on a best efforts basis. The common stock was
      being offered solely to accredited investors. The placement agent received
      10%
      of the cash proceeds from the private placement and reimbursement for expenses,
      and warrants to purchase 1,755,537 shares of our common stock, exercisable
      for
      five years at $0.2145 per share from the date of issuance.





In
      March
      2006, in a transaction deemed to be exempt from registration under the
      Securities Act in reliance on Section 4(2) of the Securities Act, we entered
      into an agreement with an individual for business consulting services for a
      term
      of one year, with services beginning in March 2006, pursuant to which we agreed
      to issue 70,000 shares of common stock as compensation. We issued the shares
      in
      July 2006.  -14-
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            Contents**


In
      April
      2006, in a transaction deemed to be exempt from registration under the
      Securities Act in reliance on Section 4(2) of the Securities Act, we entered
      into an agreement with American Capital Ventures, Inc. for investor relations
      consulting services for a term of thirty six months, with services beginning
      in
      April 2006. Pursuant to the agreement, we agreed to issue, during the course
      of
      the consulting term, unless earlier terminated, up to 3,050,000 shares of common
      stock as compensation, as follows: 550,000 shares upon the execution of the
      agreement; and 69,500 shares per month for the first thirty four months, and
      68,500 shares per month for the final two months of the consulting term. We
      issued 550,000 shares in May 2006, 139,000 shares in June 2006, and 69,500
      shares in July 2006. We agreed to include in our next registration statement
      the
      shares of common stock issued pursuant to the agreement.  -15-
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            Contents**


**ITEM
      6.****MANAGEMENT’S
      DISCUSSION AND ANALYSIS**





**“FORWARD** - **LOOKING”
      INFORMATION**





This
      report on Form 10-KSB contains certain "forward-looking statements" within
      the
      meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
      which
      represent our expectations and beliefs, including, but not limited to statements
      concerning the Company's expected growth. The words "believe," "expect,"
      "anticipate," "estimate," "project," and similar expressions identify
      forward-looking statements, which speak only as of the date such statement
      was
      made. These statements by their nature involve substantial risks and
      uncertainties, certain of which are beyond our control, and actual results
      may
      differ materially depending on a variety of important factors.





The
      following discussion and analysis should be read in conjunction with the
      information set forth in the audited consolidated financial statements for
      the
      years ended April 30, 2006 and April 30, 2005 and footnotes found in the
      Company's Annual Report on Form 10-KSB.





Unless
      otherwise stated, the discussion and analysis refers to the business of Sparta
      Commercial Services, Inc. and does not refer to the operations for our former
      business which was essentially a non-operating shell company.





**INTRODUCTORY
      STATEMENT**





During
      the period from inception till January 31, 2005 we were a developmental stage
      company, setting up credit procedures, setting our arrangements with vehicle
      distributors, obtaining personnel, seeking financing to support our
      developmental efforts, and seeking credit facilities. In fiscal year 2005,
      we
      began to obtain regulatory approval in several states, where required, prior
      to
      commencing active operations. We were actively signing up dealers to participate
      in our financing programs, including our private label financing programs.
      In
      July 2005, we completed a $3 million private placement of units consisting
      of 6%
      Series A convertible, redeemable preferred stock, and three-year common stock
      warrants. Also in July 2005, we obtained a secured senior credit facility with
      an institutional lender on an offering basis and subject to the performance
      of
      our portfolio. This facility provides us with an open-ended, flexible funding
      source for the origination of lease and finance receivables. In March 2006,
      we
      completed a private placement of $3.4 million of our common stock.





To
      date,
      we have generated limited sales revenues, have incurred expenses and have
      sustained losses. Consequently, our operations are subject to all the risks
      inherent in the establishment of a new business enterprise. For the period
      from
      October 1, 2001 (date of Sparta's inception) through April 30, 2006, we have
      accumulated losses of $14,150,429. Of such losses, $5,541,248 was attributable
      to non-cash charges for stock and warrant issuance and $3,585,000 of these
      charges were for the intrinsic value of the imbedded beneficial conversion
      feature for the Preferred Stock holders.





We
      are
      now approved to do business in 31 states. In February 2006, we attended, for
      the
      first time as an exhibitor, the dealer only trade show, “Dealer EXPO 2006,” Over
      250 dealer personnel visited our booth and were given individual on-line
      demonstrations of our ***iPLUS*** credit
      decisioning system. As of April 30, 2006, 1,110 dealers have logged onto our
      web
      site and downloaded dealer applications and of that number, 273 have been
      approved as Sparta Authorized Dealers. We have signed four manufacturers to
      our
      private label programs, and are in negotiations with other manufacturers who
      have indicated an interest in a private label program. Additionally, we have
      signed third party marketing arrangements with recognized industry leaders,
      Lemco Management Group/RPM Management, 700Credit, Inc. and Innovative Business
      Solutions Group. These firms will introduce our finance and lease programs
      to
      their combined 1,000+ dealer base and will assist in the training and servicing
      of our new and existing dealers. As a result of this rapid expansion, we have
      quadrupled our field marketing staff.  -16-
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**RESULTS
      OF OPERATIONS**


**COMPARISON
      OF THE YEAR ENDED APRIL 30, 2006 TO THE YEAR ENDED APRIL 30,
      2005**





For
      the
      year ended April 30, 2006, we have generated limited sales revenues, have
      incurred significant expenses, and have sustained significant losses. We believe
      we will begin to earn increasing revenues from operations in fiscal 2007 as
      we
      have completed our transition to an operating company.





**Revenues**





Revenues
      totaled $169,106 in fiscal 2006 compared to $65,833 revenues in fiscal 2005.
      Fiscal 2006 revenue was comprised of 136,700 in income from Operating Leases
      and
      Retail Installment Sales Contracts, $13,200 in private label fees, $7,347 in
      dealer fees, $506 in interest income and $11,353 in other fees and
      income.





**Costs
      and Expenses**





The
      Company incurred licensing fees of $67,000 for the year ended April 30, 2006
      and
      $150,663 for the year ended April 30, 2005, respectively. The costs incurred
      were for the licensing of certain proprietary software, operating systems and
      processes for use in connection with the extension of credit and underwriting
      techniques for the purchase and lease of motor vehicles. The decrease from
      fiscal 2005 to fiscal 2006 reflects the fact that this process is
      completed.





The
      Company incurred organization costs of $197,507 for the year ended April 30,
      2006, and $294,408 for the year ended April 30, 2005, respectively.
      Organizational costs consist of establishing business procedures, filing to
      do
      business web site development and related activities. The year to year decrease
      in organization costs is primarily attributed to the wind down of organizational
      activity.





The
      Company incurred compensation costs of $1,228,856 for the year ended April
      30,
      2006 compared with $828,298 in fiscal 2005. The increase is related to the
      costs
      of the Company increasing its employee base during the year from 8 employees
      at
      fiscal year end 2005 to 15 at fiscal year end 2006. Additionally, for the fiscal
      year ended 2006 we incurred $93,436 in costs for temporary help versus $4,317
      for fiscal year ended April 30, 2005. As the Company continues to expand, the
      Company will incur additional costs for personnel. In order for the Company
      to
      attract and retain quality personnel, management anticipates it will continue
      to
      offer competitive salaries and issue common stock to consultants and
      employees.





The
      Company paid $337,221and $233,333 to its Chairman and Chief Executive Officer,
      in fiscal 2006 and 2005, respectively. These payments were charged to
      operations, and are included in the compensation costs shown above.





In
      connection with placement transactions, the Company expensed non-cash costs
      of
      $406,665 for the year ended April 30, 2006 and $383,284 to issue warrants to
      the
      private placement agent for the year ended April 30, 2005 These amounts were
      charged to financing costs. The Company has expensed non-cash costs of
      $1,775,000 and $1,810,000 respectively for the fiscal years ended April 30,
      2006
      and 2005. These charges were for the intrinsic value of the imbedded beneficial
      conversion feature for the Preferred Stock holders. At April 30, 2006 and April
      30, 2005, accrued preferred dividends of $141,255 and $28,906 respectively
      were
      charged to retained earnings. Additionally, for the fiscal year ended April
      30,
      2006 the Company charged $652,910 to financing costs representing the value
      of
      shares issued to settle debts and shares issuable for the Company’s failure to
      timely file a registration statement in connection with a private placement.
      .





The
      Company incurred consulting costs of $2,552,304 for the year ended April 30,
      2006, as compared to $84,365 for the year ended April 30, 2005. Of the costs
      incurred in fiscal 2006, $2,285,604 were non-cash charges representing the
      market value of shares of the Company’s common stock issued to a private
      placement agent and to consultants.





The
      Company incurred legal and accounting fees of $335,938 for the year ended April
      30, 2006, as compared to $197,384 for the year ended April 30, 2005. The
      increase in costs is related to legal and accounting expenses associated with
      finalizing the private placement and complying with various federal and state
      securities statutes, rules and regulations.  -17-
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The
      Company incurred other operating expenses of $879,193 for the year ended April
      30, 2006. Notable expenses in this category are rent of $142,584, depreciation
      and amortization of $112,904, repairs, maintenance and equipment of $86,807,
      travel of $63,030, filing fees of $57,561, advertising of $36,594, loss reserve
      of 36,152, telephone of $33,023, meals and entertainment of $29,084, utilities
      of $28,671, insurance of $23,067, interest of $22,684, postage of $19,411,
      printing of $15,184 and other normal operating costs totaling $172,437. In
      fiscal 2005, other operating costs totaled $791,647. Notable expenses in this
      category are the cost of a purchase option for a portfolio of equipment leases
      of $250,000, rent of $125,214, consulting expenses of $84,365, travel of
      $79,547, advertising of $28,107, telecommunications of $21,476 and depreciation
      of $22,626. The remainder is comprised of expenses for postage, shipping,
      storage, repairs and other normal operating costs





**Net
      Loss**





Our
      net
      loss attributable to common shareholders for the year ended April 30, 2006
      was
      $7,872,772 in contrast to a loss attributable to common shareholders of
      $4,418,727 for the year ended April 30, 2005. The increase in net loss
      attributable to common shareholders was primarily due to increased compensation
      costs associated with an almost 100% increase in the number of employees as
      well
      as temporary employees, the fact that the Company incurred expenses related
      to
      the private placement transaction, consisting of a non-cash expense of a
      beneficial conversion discount of $1,775,000, non-cash expense of $2,285,604
      for
      shares issued to our placement agent and consultants and non-cash expense of
      $406,665 for warrants issued to the placement agent in 2006 and to the fact
      that
      the Company has increased its resources and spending in 2006 as it completed
      the
      transition from a development stage to an operating entity.





Our
      net
      loss per common share (basic and diluted) attributable to common shareholders
      was $0.08 for the year ended April 30, 2006 and $0.05 for the year ended April
      30, 2005.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      April 30, 2006, the Company had working capital of $345,246. The Company
      generated a deficit in cash flow from operations of $3,132,887 for the year
      ended April 30, 2006. This deficit is primarily attributable to the Company's
      net loss from operations of $5,956,517, adjusted for equity based compensation
      of $2,418,134, stock based financing costs of $973,607, depreciation and
      amortization of $112,904 allowance for loss reserve of $36,152 and a decrease
      in
      warrant liability of $198,176 and to changes in the balances of current assets,
      primarily an increase in loan proceeds receivable of $389,998 and pre-paid
      expenses of $51,939 and current liabilities, primarily a decrease in accounts
      payable of $213,717.





Cash
      flows used in investing activities for the year ended April 30, 2006 was
      $1,533,890, primarily due to investment in vehicle leases of $815,942, payments
      for motorcycles and other vehicles of $658,842, and the purchase of property
      and
      equipment of $52,606





The
      Company met its cash requirements during the period through net proceeds from
      the issuance of equity of $4,570,462 and obtaining net loans of $539,348 and
      common stock subscription of $330,000





While
      we
      have raised capital to meet our working capital and financing needs in the
      past,
      additional financing is required in order to meet our current and projected
      cash
      flow deficits from operations and development. We are seeking financing in
      the
      form of equity in order to provide the necessary working capital. We currently
      have no commitments for financing. There is no guarantee that we will be
      successful in raising the funds required.  -18-
 **Back
            to Table of
            Contents**


We
      estimate that we will need approximately $1,800,000 in addition to our normal
      operating cash flow to conduct operations during the next twelve months. Based
      on capital received from equity financing to date, and certain indications
      of
      interest to purchase our equity, we believe that we have a reasonable chance
      to
      raise sufficient capital resources to meet projected cash flow deficits through
      the next twelve months. There can be no assurance that additional private or
      public financing, including debt or equity financing, will be available as
      needed, or, if available, on terms favorable to the Company. Any additional
      equity financing may be dilutive to shareholders and such additional equity
      securities may have rights, preferences or privileges that are senior to those
      of the Company's existing common or preferred stock. Furthermore, debt
      financing, if available, will require payment of interest and may involve
      restrictive covenants that could impose limitations on the operating flexibility
      of the Company. However, if we are not successful in generating sufficient
      liquidity from operations or in raising sufficient capital resources, on terms
      acceptable to us, this could have a material adverse effect on our business,
      results of operations, liquidity and financial condition, and we will have to
      adjust our planned operations and development on a more limited scale.





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





**AUDITOR'S
      OPINION EXPRESSES DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A "GOING
      CONCERN"**





The
      independent auditors report on our April 30, 2006 and 2005 financial statements
      included in the Company’s Annual Report states that the Company's historical
      losses and the lack of revenues raise substantial doubts about the Company's
      ability to continue as a going concern, due to the losses incurred and its
      lack
      of significant operations. If we are unable to develop our business, we have
      to
      discontinue operations or cease to exist, which would be detrimental to the
      value of the Company's common stock. We can make no assurances that our business
      operations will develop and provide us with significant cash to continue
      operations.





**PLAN
      OF OPERATIONS**





**Addressing
      the Going Concern Issues**





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





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





The
      primary issues management will focus on in the immediate future to address
      this
      matter include:





·
            seeking
                additional credit facilities from institutional
                lenders;


·
            seeking
                institutional investors for equity investments in our company;
                and


·
            initiating
                negotiations to secure short term financing through promissory notes
                or
                other debt instruments on an as needed
                basis.





To
      address these issues, we are negotiating the potential sale of securities with
      investment banking companies to assist us in raising capital. We are also
      presently in discussions with several institutions about obtaining additional
      credit facilities.





**Product
      Research and Development**





We
      do not
      anticipate incurring significant research and development expenditures during
      the next twelve months.  -19-
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            to Table of
            Contents**


**Acquisition
      or Disposition of Plant and Equipment**





We
      do not
      anticipate the sale of any significant property, plant or equipment during
      the
      next twelve months. We do not anticipate the acquisition of any significant
      property, plant or equipment during the next twelve months.





**Number
      of Employees**





From
      our
      inception through the period ended April 30, 2006, we have relied on the
      services of outside consultants for services and currently have fifteen
      full-time employees. In order for us to attract and retain quality personnel,
      we
      anticipate we will have to offer competitive salaries to future employees.
      If we
      fully implement our business plan, we anticipate our employment base may
      increase by approximately 50% during the next twelve months. As we continue
      to
      expand, we will incur additional cost for personnel. This projected increase
      in
      personnel is dependent upon our generating revenues and obtaining sources of
      financing. There is no guarantee that we will be successful in raising the
      funds
      required or generating revenues sufficient to fund the projected increase in
      the
      number of employees.





**Inflation**





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





**CRITICAL
      ACCOUNTING POLICIES**





The
      preparation of our consolidated financial statements in conformity with
      accounting principles generally accepted in the United States requires us to
      make estimates and judgments that affect our reported assets, liabilities,
      revenues, and expenses, and the disclosure of contingent assets and liabilities.
      We base our estimates and judgments on historical experience and on various
      other assumptions we believe to be reasonable under the circumstances. Future
      events, however, may differ markedly from our current expectations and
      assumptions. While there are a number of significant accounting policies
      affecting our consolidated financial statements; we believe the following
      critical accounting policy involves the most complex, difficult and subjective
      estimates and judgments:





**Revenue
      Recognition**





We
      originate leases on new and used motorcycles and other powersports vehicles
      from
      motorcycle dealers throughout the United States. Our leases are accounted for
      as
      either operating leases or direct financing leases. At the inception of
      operating leases, no lease revenue is recognized and the leased motorcycles,
      together with the initial direct costs of originating the lease, which are
      capitalized, appear on the balance sheet as "motorcycles under operating
      leases-net". The capitalized cost of each motorcycle is depreciated over the
      lease term, on a straight-line basis, down to the original estimate of the
      projected value of the motorcycle at the end of the scheduled lease term (the
      "Residual"). Monthly lease payments are recognized as rental income. An
      acquisition fee classified as fee income on the financial statements is received
      and recognized in income at the inception of the lease. Direct financing leases
      are recorded at the gross amount of the lease receivable, and unearned income
      at
      lease inception is amortized over the lease term.





We
      realize gains and losses as the result of the termination of leases, both at
      and
      prior to their scheduled termination, and the disposition of the related
      motorcycle. The disposal of motorcycles, which reach scheduled termination
      of a
      lease, results in a gain or loss equal to the difference between proceeds
      received from the disposition of the motorcycle and its net book value. Net
      book
      value represents the residual value at scheduled lease termination. Lease
      terminations that occur prior to scheduled maturity as a result of the lessee's
      voluntary request to purchase the vehicle have resulted in net gains, equal
      to
      the excess of the price received over the motorcycle's net book
      value.  -20-
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            to Table of
            Contents**


Early
      lease terminations also occur because of (i) a default by the lessee, (ii)
      the
      physical loss of the motorcycle, or (iii) the exercise of the lessee's early
      termination. In those instances, the Company receives the proceeds from either
      the resale or release of the repossessed motorcycle, or the payment by the
      lessee's insurer. We record a gain or loss for the difference between the
      proceeds received and the net book value of the motorcycle.





We
      charge
      fees to manufacturers and other customers related to creating a private label
      version of our financing program including web access, processing credit
      applications, consumer contracts and other related documents and processes.
      Fees
      received are amortized and booked as income over the length of the
      contract.





**Stock-Based
      Compensation**





On
      December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
      Statement No. 123R (revised 2004), "Share-Based Payment" which is a revision
      of
      FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
      123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
      and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
      approach in Statement 123R is similar to the approach described in Statement
      123. However, Statement 123R requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the income
      statement based on their fair values. Pro-forma disclosure is no longer an
      alternative. On April 14, 2005, the SEC amended the effective date of the
      provisions of this statement. The effect of this amendment by the SEC is that
      the Company will have to comply with Statement 123R and use the Fair Value
      based
      method of accounting no later than the fourth quarter of 2006. Management has
      elected to apply Statement 123R in the third quarter of fiscal year
      2006.





**Website
      Development Costs**




We
      have
      incurred costs to develop a proprietary web-based private label financing
      program for processing including web access, processing credit applications,
      consumer contracts and other related documents and processes. We elected to
      recognize the costs of developing its website and related intellectual property
      the website development costs in accordance with Emerging Issue Task Force
      ("EITF") No. 00-02, "Accounting for Website Development Costs."" As such, the
      Company expenses all costs incurred that relate to the planning and post
      implementation phases of development of its website. Direct costs incurred
      in
      the development phase are capitalized and recognized over the estimated useful
      life. Costs associated with repair or maintenance for the website are included
      in cost of net revenues in the current period expenses.





**RECENT
      ACCOUNTING PRONOUNCEMENTS**




In
      March
      2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
      Financial Assets - an amendment to FASB Statement No. 140. Statement 156
      requires that an entity recognize a servicing asset or servicing liability
      each
      time it undertakes an obligation to service a financial asset by entering into
      a
      service contract under certain situations. The new standard is effective for
      fiscal years beginning after September 15, 2006. The Company does not
      expect its adoption of this new standard to have a material impact on its
      financial position, results of operations or cash flows.





In
      February 2006, the FASB issued SFAS 155, which applies to certain "hybrid
      financial instruments," which are instruments that contain embedded derivatives.
      The new standard establishes a requirement to evaluate beneficial interests
      in
      securitized financial assets to determine if the interests represent
      freestanding derivatives or are hybrid financial instruments containing embedded
      derivatives requiring bifurcation. This new standard also permits an election
      for fair value remeasurement of any hybrid financial instrument containing
      an
      embedded derivative that otherwise would require bifurcation under SFAS 133.
      The
      fair value election can be applied on an instrument-by-instrument basis to
      existing instruments at the date of adoption and can be applied to new
      instruments on a prospective basis. Management is assessing the implications
      of
      this standard, which may materially impact the Company's results of operations
      in the fourth quarter of fiscal year 2006 and thereafter.





In
      February 2006, the FASB issued FASB Staff Position ("FSP") No. FAS 123(R)-4,
      "Classification of Options and Similar Instruments Issued as Employee
      Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent
      Event," which amends SFAS No. 123(R) to require that options issued with a
      cash
      settlement feature that can be exercised upon the occurrence of a contingent
      event that is outside the employee's control should not be classified as
      liabilities until it becomes probable that the event will occur. For companies
      that adopted SFAS No. 123(R) prior to the issuance of the FSP, application
      is
      required in the first reporting period beginning after February 3,
      2006.
      Currently, the Company has no stock options outstanding with contingent cash
      settlement features, and as a result, the FSP will not impact the Company's
      consolidated financial statements.


-21-
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            Contents**




In
      November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      151,
      Inventory Costs-- an amendment of ARB No. 43, Chapter 4. This Statement amends
      the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
      accounting for abnormal amounts of idle facility expense, freight, handling
      costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
      previously stated that ". . . under some circumstances, items such as idle
      facility expense, excessive spoilage, double freight, and rehandling costs
      may
      be so abnormal as to require treatment as current period charges. . . ." This
      Statement requires that those items be recognized as current-period charges
      regardless of whether they meet the criterion of "so abnormal." In addition,
      this Statement requires that allocation of fixed production overheads to the
      costs of conversion be based on the normal capacity of the production
      facilities. This Statement is effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. Management does not believe the
      adoption of this Statement will have any immediate material impact on the
      Company.





In
      December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
      Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
      152) The amendments made by Statement 152 This Statement amends FASB Statement
      No. 66, Accounting for Sales of Real Estate, to reference the financial
      accounting and reporting guidance for real estate time-sharing transactions
      that
      is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
      Estate Time-Sharing Transactions. This Statement also amends FASB Statement
      No.
      67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
      to state that the guidance for (a) incidental operations and (b) costs incurred
      to sell real estate projects does not apply to real estate time-sharing
      transactions. The accounting for those operations and costs is subject to the
      guidance in SOP 04-2. This Statement is effective for financial statements
      for
      fiscal years beginning after June 15, 2005. with earlier application encouraged.
      The Company does not anticipate that the implementation of this standard will
      have a material impact on its financial position, results of operations or
      cash
      flows.





On
      December 16, 2004, the Financial Accounting Standards Board ("FASB") published
      Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
      Payment ("SFAS 123R"). SFAS 123R requires that compensation cost related to
      share-based payment transactions be recognized in the financial statements.
      Share-based payment transactions within the scope of SFAS 123R include stock
      Warrants, restricted stock plans, performance-based awards, stock appreciation
      rights, and employee share purchase plans. On April 14, 2005, the SEC amended
      the effective date of the provisions of this statement. Accordingly, the Company
      will implement the revised standard in the forth quarter of fiscal year 2006.
      Currently, the Company accounts for its share-based payment transactions under
      the provisions of APB 25, which does not necessarily require the recognition
      of
      compensation cost in the financial statements. Management is assessing the
      implications of this revised standard, which may materially impact the Company's
      results of operations in the third quarter of fiscal year 2006 and thereafter.





On
      December 16, 2004, FASB issued Statement of Financial Accounting Standards
      No.
      153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
      Accounting for Nonmonetary Transactions (" SFAS 153"). This statement amends
      APB
      Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. Under SFAS 153, if
      a
      nonmonetary exchange of similar productive assets meets a commercial-substance
      criterion and fair value is determinable, the transaction must be accounted
      for
      at fair value resulting in recognition of any gain or loss. SFAS 153 is
      effective for nonmonetary transactions in fiscal periods that begin after June
      15, 2005. The Company does not anticipate that the implementation of this
      standard will have a material impact on its financial position, results of
      operations or cash flows.





In
      March
      2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for
      Conditional Asset Retirement Obligations, an interpretation of FASB Statement
      No. 143,” which requires an entity to recognize a liability for the fair value
      of a conditional asset retirement obligation when incurred if the liability’s
      fair value can be reasonably estimated. The Company is required to adopt the
      provisions of FIN 47 no later than the end of its fiscal 2006. The Company
      does
      not expect the adoption of this Interpretation to have a material impact on
      its
      consolidated financial position, results of operations or cash flows.  -22-
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            to Table of
            Contents**


In
      May
      2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No.
      154,
“Accounting Changes and Error Corrections, a replacement of APB Opinion No.
      20
      and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior
      periods’ financial statements for changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change. SFAS 154 also requires that retrospective application
      of a
      change in accounting principle be limited to the direct effects of the change.
      Indirect effects of a change in accounting principle, such as a change in
      non-discretionary profit-sharing payments resulting from an accounting change,
      should be recognized in the period of the accounting change. SFAS 154 also
      requires that a change in depreciation, amortization, or depletion method for
      long-lived, non-financial assets be accounted for as a change in accounting
      estimate effected by a change in accounting principle. SFAS 154 is effective
      for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. Early adoption is permitted for accounting changes
      and
      corrections of errors made in fiscal years beginning after the date this
      Statement is issued. The Company does not expect the adoption of this SFAS
      to
      have a material impact on its consolidated financial position, results of
      operations or cash flows.





**Off-Balance
      Sheet Arrangements**





We
      do not
      maintain off-balance sheet arrangements nor do we participate in non-exchange
      traded contracts requiring fair value accounting treatment.  -23-
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            to Table of
            Contents**


**ITEM
      7****FINANCIAL
      STATEMENTS**





PageReport
                of Registered Independent Certified Public Accounting
                Firm
            25Consolidated
                Balance Sheets as of April 30, 2006 and 2005
            26Consolidated
                Statements of Losses for the years ended April
                30, 2006 and 2005
            27Consolidated
                Statement of Deficiency in Stockholders’ Equity
                for the two years ended April 30, 2006
            28Consolidated
                Statements of Cash Flows for the years ended April
                30, 2006 and 2005
            29Notes
                to Consolidated Financial
                Statements
            30
                - 46





-24-
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            Contents**




RUSSELL
      BEDFORD STEFANOU MIRCHANDANI LLP


CERTIFIED
      PUBLIC ACCOUNTANTS







REPORT
      OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING
      FIRM





Board
      of
      Directors


Sparta
      Commercial Services, Inc.


New
      York,
      New York





We
      have
      audited the accompanying consolidated balance sheet of Sparta Commercial
      Services, Inc., as of April 30, 2006 and 2005, and the related consolidated
      statements of losses, deficiency in stockholders' equity and cash flows for
      each
      of the two years in the period ended April 30, 2006. These financial statements
      are the responsibility of the company's management. Our responsibility is to
      express an opinion on the financial statements based upon our
      audits.





We
      have
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States of America). Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Sparta Commercial
      Services, Inc. at April 30, 2006 and 2005, and the results of its operations
      and
      its cash flows for each of the two years in the period ended April 30, 2006,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying financial statements have been prepared assuming the company will
      continue as a going concern. As discussed in the Note M to the accompanying
      financial statements, the company has suffered recurring losses from operations
      that raises substantial doubt about the company's ability to continue as a
      going
      concern. Management's plans in regard to these matters are also described in
      Note M. The financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.














/s/
      RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP


Russell
      Bedford Stefanou Mirchandani LLP


Certified
      Public Accountants


New
      York,
      New York


July
      15,
      2006


-25-
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            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**APRIL
      30, 2006 AND 2005**


2006
            
            2005**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            856,382
            
            $
            108,365Lease
                and Retail installment sale contract receivables-current, net of
                reserve
                of $5,090 and $0 at April 30, 2006 and April 30, 2005 respectively
                (Note
                C)
            
            
            206,986
            
            
            14,764Loan
                proceeds receivable
            
            
            389,998
            
            
            —Prepaid
                expenses
            
            
            51,939
            
            
            —Other
                current assets, net
            
            
            4,250
            
            
            6,700Total
                current assets
            
            
            1,509,555
            
            
            129,829Motorcycles
                and other vehicles under operating leases, net of accumulated depreciation
                of $75,873 and $13,392 at April 30, 2006 and April 30, 2005, respectively
                (Note B) and loss reserve of $16,409 and $0 at April 30, 2006 and
                April
                30, 2005, respectively
            
            
            667,286
            
            
            99,886Property
                and equipment, net of accumulated depreciation and amortization of
                $53,249
                and $15,378 at April 30, 2006 and 2005, respectively (Note
                D)
            
            
            121,544
            
            
            106,809Lease
                and Retail installment sale contract receivables, net of current
                portion
                and loss reserve of $14,653 and $0 at April 30, 2006 and April 30,
                2005,
                respectively (Note C)
            
            
            595,895
            
            
            21,521Restricted
                cash
            
            
            112,503
            
            
            —Deposits
            
            
            48,967
            
            
            48,967Total
                assets
            
            $
            3,055,750
            
            $
            407,012**LIABILITIES
                AND (DEFICIENCY IN) STOCKHOLDERS’ EQUITY**Current
                Liabilities:Accounts
                payable and accrued expenses
            
            $
            424,692
            
            $
            509,936Accrued
                equity based compensation
            
            
            333,600
            
            
            —Accrued
                equity bases penalties
            
            
            47,468
            
            
            —Note
                payable, current (Note E)
            
            
            358,549
            
            
            300,000Due
                to related party (Note F)
            
            
            —
            
            
            25,000Total
                current liabilities
            
            
            1,164,309
            
            
            834,936Deferred
                revenue (Note A)
            
            
            186,245
            
            
            23,100Notes
                payable, long term
            
            
            330,799
            
            
            —Warrant
                liability
            
            
            834,924
            
            
            —Total
                liabilities
            
            
            2,516,277
            
            
            858,036(Deficiency
                in) Stockholders' Equity: (Note G)Preferred
                Stock, $0.001 par value: 10,000,000 shares authorized of which 35,850
                shares have been designated as Series A convertible preferred stock,
                with
                a stated value of $100. 19,795 and 18,100 shares of convertible preferred
                stock are issued and outstanding at April 30, 2006 and 2005, respectively.
            
            
            1,979,500
            
            
            1,810,000Common
                Stock, $0.001 par value; 340,000,000 shares authorized, 114,180,301
                and
                86,005,415 shares issued and outstanding at April 30, 2006 and 2005,
                respectively
            
            
            114,180
            
            
            86,005Common
                stock to be issued, 5,838,302
            
            
            5,838
            
            
            —Common
                stock - subscribed
            
            
            330,000
            
            
            —Additional
                paid-in-capital
            
            
            12,553,884
            
            
            3,930,629Deferred
                compensation
            
            
            (293,500
            )
            
            —Accumulated
                deficit
            
            
            (14,150,429
            )
            
            (6,277,658
            )Total
                (deficiency in) stockholders’ equity
            
            
            539,473
            
            
            (451,024
            )Total
                liabilities and (deficiency in) stockholders’ equity
            
            $
            3,055,750
            
            $
            407,012


See
      accompanying notes to consolidated financial statements


-26-
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**SPARTA
      COMMERCIAL SERVICES, INC.**


**CONSOLIDATED
      STATEMENT OF LOSSES**


For
                the Year Ended
              April
                30,2006
            
            2005Revenue
            
            $
            169,106
            
            $
            65,833Operating
                Expenses:General
                and administrative
            
            
            5,127,040
            
            
            2,366,914Payment
                for option to purchase portfolio from a related party
            
            
            —
            
            
            250,000Depreciation
                and amortization (Note D)
            
            
            112,904
            
            
            28,740Total
                Operating Expenses
            
            
            5,239,944
            
            
            2,645,654Loss
                from Operations
            
            
            (5,070,838
            )
            
            (2,579,821
            )Other
                expensesInterest
                expense and financing cost, net
            
            
            (1,077,355
            )
            
            —Change
                in value of warrant liability
            
            
            198,176
            
            
            —Loss
                on sale of asset
            
            
            (6,500
            )
            
            —Net
                Loss
            
            
            (5,956,517
            )
            
            (2,579,821
            )Preferred
                dividend payable
            
            
            141,255
            
            
            28,906Preferred
                dividend-beneficial conversion discount onconvertible
                preferred
            
            
            1,775,000
            
            
            1,810,000Net
                Loss Available to Common Stockholders
            
            $
            (7,872,772
            )
            $
            (4,418,727
            )Basic
                and diluted loss per share
            
            $
            (0.06
            )
            $
            (0.03
            )Basic
                and diluted loss per share attributed to common stockholders (Note
                I)
            
            $
            (0.08
            )
            $
            (0.05
            )Weighted
                average common shares outstanding (basic and diluted), asrestated
                for splits
            
            
            95,479,102
            
            
            85,812,006


See
      accompanying notes to consolidated financial statements


-27-
 **Back
          to Table of Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**CONSOLIDATED
      STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS’
EQUITY**


**FOR
      THE TWO YEARS ENDED APRIL 30, 2006**


Preferred
              Shares
            
            Stock
            
            Common
              Shares
            
            Stock
              Amount
            
            Common
                Stock
              Shares
            
            To
                be issued
              Amount
            
            Stock
              Subscribed
            
            Additional
              Paid-in
              Capital
            
            Deferred
              Compensation
            
            Accumulated
              Deficit
            
            Total
              Stockholders’
              Equity
              (Deficiency)Balance
                at April 30, 2004
            
            
            —
            
            $
            —
            
            
            7,079,654
            
            $
            7,080
            
            
            17,920,346
            
            $
            17,920
            
            $
            —
            
            $
            1,754,870
            
            $
            —
            
            $
            (1,858,931
            )
            $
            (79,061
            )Shares
                issued to Sparta members in relation to merger with Sparta Commercial
                Services LLC in February 2004 (Note B)
            
            
            —
            
            
            —
            
            
            17,920,346
            
            
            17,920
            
            
            (17,920,346
            )
            
            (17,920
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Balance
                of shares issued to members
            
            
            —
            
            
            —
            
            
            60,795,625
            
            
            60,796
            
            
            —
            
            
            —
            
            
            —
            
            
            (60,796
            )
            
            —
            
            
            —
            
            
            —Preferred
                shares sold for cash
            
            
            18,100
            
            
            1,810,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,810,000Warrants
                issued to placement agent
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            383,284
            
            
            —
            
            
            —
            
            
            383,284Beneficial
                conversion feature and warrants deemed preferred dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,810,000
            
            
            —
            
            
            —
            
            
            1,810,000Warrants
                Issued for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            89,980
            
            
            —
            
            
            —
            
            
            89,980Shares
                Issued For Notes Payable
            
            
            —
            
            
            —
            
            
            96,155
            
            
            96
            
            
            —
            
            
            —
            
            
            —
            
            
            (129,000
            )
            
            —
            
            
            —
            
            
            (128,904
            )Shares
                issued to employees
            
            
            —
            
            
            —
            
            
            113,635
            
            
            113
            
            
            —
            
            
            —
            
            
            
            
            
            82,291
            
            
            —
            
            
            —
            
            
            82,404Net
                Loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (4,418,727
            )
            
            (4,418,727
            )Balance
                at April 30, 2005
            
            
            18,100
            
            $
            1,810,000
            
            
            86,005,415
            
            $
            86,005
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            3,930,629
            
            $
            —
            
            $
            (6,277,658
            )
            $
            (451,024
            )Preferred
                shares sold for cash
            
            
            17,750
            
            
            1,775,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            1,775,000Cost
                of preferred shares
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (182,484
            )
            
            —
            
            
            —
            
            
            (182,484
            )Shares
                issued upon conversion of preferred
            
            
            (16,055
            )
            
            (1,605,500
            )
            
            10,291,666
            
            
            10,291
            
            
            —
            
            
            —
            
            
            —
            
            
            1,595,209
            
            
            —
            
            
            —
            
            
            —Sale
                of shares for cash
            
            
            —
            
            
            —
            
            
            11,717,067
            
            
            11,717
            
            
            5,838,302
            
            
            5,838
            
            
            -
            
            
            2,960,391
            
            
            —
            
            
            —
            
            
            2,977,946Common
                stock subscribed
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            330,000
            
            
            —
            
            
            —
            
            
            —
            
            
            330,000Warrants
                issued for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            406,665
            
            
            —
            
            
            —
            
            
            406,665Warrants
                issued to placement agent
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,033,100
            )
            
            —
            
            
            —
            
            
            (1,033,100
            )Shares
                issued for financing cost
            
            
            —
            
            
            —
            
            
            464,745
            
            
            465
            
            
            —
            
            
            —
            
            
            —
            
            
            242,805
            
            
            —
            
            
            —
            
            
            243,270Shares
                issued for repayment of notes and accrued interest
            
            
            —
            
            
            —
            
            
            651,124
            
            
            651
            
            
            —
            
            
            —
            
            
            —
            
            
            485,802
            
            
            —
            
            
            —
            
            
            486,453Shares
                issued for severance
            
            
            —
            
            
            —
            
            
            113,637
            
            
            114
            
            
            —
            
            
            —
            
            
            —
            
            
            85,114
            
            
            —
            
            
            —
            
            
            85,228Shares
                issued for services
            
            
            —
            
            
            —
            
            
            3,500,000
            
            
            3,500
            
            
            —
            
            
            —
            
            
            —
            
            
            2,235,500
            
            
            (293,500
            )
            
            —
            
            
            1,945,500Shares
                issued upon cashless exercise of warrants
            
            
            —
            
            
            —
            
            
            1,436,647
            
            
            1,437
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,437
            )
            
            —
            
            
            —
            
            
            —Employee
                options expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            53,806
            
            
            —
            
            
            —
            
            
            53,806Beneficial
                conversion feature and warrants deemed preferred dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,775,000
            
            
            —
            
            
            (1,775,000
            )
            
            —Payments
                for fractional shares
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (16
            )
            
            —
            
            
            —
            
            
            (16
            )Accrued
                preferred dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (141,254
            )
            
            (141,254
            )Net
                Loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (5,956,517
            )
            
            (5,956,517
            )Balance
                at April 30, 2006
            
            
            19,795
            
            $
            1,979,500
            
            
            114,180,301
            
            $
            114,180
            
            
            5,838,302
            
            $
            5,838
            
            $
            330,000
            
            
            12,553,884
            
            $
            (293,500
            )
            $
            (14,150,429
            )
            $
            539,473




See
      accompanying notes to consolidated financial statements


-28-
 **Back
            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**FOR
      THE YEARS ENDED APRIL 30, 2006 AND 2005**


2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (5,956,517
            )
            $
            (2,579,821
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Depreciation
                and amortization
            
            
            112,904
            
            
            28,740Allowance
                for loss reserve
            
            
            36,152
            
            
            —Amortization
                of deferred revenue
            
            
            (13,200
            )
            
            —Amortization
                of deferred compensation
            
            
            362,004
            
            
            —Equity
                based compensation
            
            
            2,056,130
            
            
            82,500Stock
                based finance cost
            
            
            973,607
            
            
            473,264Change
                in warrant liability
            
            
            (198,176
            )
            
            —Loss
                on sale of assets
            
            
            6,500
            
            
            —Changes
                in operating assets and liabilities:(Increase)
                decrease in:Lease
                payments receivable
            
            
            29,603
            
            
            —Prepaid
                expenses
            
            
            (51,939
            )
            
            —Loan
                proceeds receivable
            
            
            (389,998
            )
            
            —Other
                current assets
            
            
            2,450
            
            
            (6,700
            )Restricted
                cash
            
            
            (112,503
            )
            
            —Deposits
            
            
            —
            
            
            (48,967
            )Increase
                (decrease) in:Accounts
                payable and accrued expenses
            
            
            (213,717
            )
            
            399,309Deferred
                revenue
            
            
            176,345
            
            
            23,100Accrued
                registration penalty
            
            
            47,468
            
            
            —Net
                cash used in operating activities
            
            
            (3,132,887
            )
            
            (1,628,575
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Proceeds
                from sale of asset
            
            
            25,000
            
            
            —Cost
                of asset sold
            
            
            (31,500
            )
            
            —Payments
                for motorcycles and other vehicles
            
            
            (658,842
            )
            
            (113,278
            )Investment
                in leases
            
            
            (815,942
            )
            
            (36,285
            )Purchases
                of property and equipment
            
            
            (52,606
            )
            
            (120,964
            )Net
                proceeds from marketable securities
            
            
            —
            
            
            13,379Net
                cash used by investing activities
            
            
            (1,533,890
            )
            
            (257,148
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from sale of preferred stock, net
            
            
            1,592,517
            
            
            1,681,000Proceeds
                from sale of common stock, net
            
            
            2,977,945
            
            
            —Advances
                from affiliate
            
            
            —
            
            
            25,000Repayment
                of affiliate advances
            
            
            (25,000
            )
            
            (23,885
            )Proceeds
                from notes
            
            
            737,271
            
            
            300,000Payments
                on notes
            
            
            (197,923
            )
            
            —Common
                stock subscription
            
            
            330,000
            
            
            —Payments
                for fractional shares
            
            
            (16
            )
            
            —Net
                cash provided by financing activities
            
            
            5,414,794
            
            
            1,982,115Net
                increase in cash
            
            
            748,017
            
            
            96,392Cash
                and cash equivalents, beginning of year
            
            $
            108,365
            
            $
            11,973Cash
                and cash equivalents, end of year
            
            $
            856,382
            
            $
            108,365Cash
                paid for:Interest
            
            $
            15,788
            
            $
            —Income
                taxes
            
            
            —
            
            
            —


See
      accompanying notes to consolidated financial statements


-29-
 **Back
            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      A - SUMMARY OF ACCOUNTING POLICIES**





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





**Business
      and Basis of Presentation**





Sparta
      Commercial Services, Inc., formerly known as Tomahawk Industries, Inc. (the
      "Company" or "Tomahawk") was formed on May 13, 1980 under the laws of the State
      of Nevada. On February 27, 2004, the Company entered into an Agreement of Plan
      and Reorganization ("Agreement") with Sparta Commercial Services, LLC
      ("Sparta"), a limited liability company formed on October 1, 2001 under the
      laws
      of the State of Delaware under the name of Sparta Financial Services, LLC.
      .In
      accordance with SFAS No. 141, Sparta was the acquiring entity. While the
      transaction is accounted for using the purchase method of accounting, in
      substance the Agreement is a recapitalization of the Company's capital
      structure. As a result of the Agreement, there was a change in control of the
      Company. Also, subsequently, the Company's name was changed from Tomahawk
      Industries, Inc. to Sparta Commercial Services, Inc. From April 1988 until
      the
      date of the Agreement, the Company was an inactive publicly registered shell
      corporation with no significant assets or operations.





The
      Company is in the business as an originator and indirect lender for retail
      installment loan and lease financing for the purchase or lease of new and used
      motorcycles (specifically 550cc and higher) and utility-oriented 4-stroke all
      terrain vehicles (ATVs). The Company was in the development stage till January
      31, 2005, as defined by Statement of Financial Accounting Standards No. 7 ("SFAS
      No. 7").





The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiary, Sparta Commercial Services, LLC. Sparta Commercial
      Services, LLC was inactive during the periods presented. All significant
      intercompany transactions and balances have been eliminated in the consolidated
      financial statements.





**Estimates**





The
      preparation of the financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect certain reported amounts and disclosures. Accordingly, actual results
      could differ from those estimates.





**Revenue
      Recognition**





The
      Company originates leases on new and used motorcycles and other powersports
      vehicles from motorcycle dealers throughout the United States. The Company’s
      leases are accounted for as either operating leases or direct financing leases.
      At the inception of operating leases, no lease revenue is recognized and the
      leased motorcycles, together with the initial direct costs of originating the
      lease, which are capitalized, appear on the balance sheet as “motorcycles under
      operating leases-net”. The capitalized cost of each motorcycle is depreciated
      over the lease term, on a straight-line basis, down to the Company’s original
      estimate of the projected value of the motorcycle at the end of the scheduled
      lease term (the “Residual”). Monthly lease payments are recognized as rental
      income. Direct financing leases are recorded at the gross amount of the lease
      receivable, and unearned income at lease inception is amortized over the lease
      term.  -30-
 **Back
            to Table of
            Contents**


**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      A - SUMMARY OF ACCOUNTING POLICIES (continued)**





The
      Company realizes gains and losses as the result of the termination of leases,
      both at and prior to their scheduled termination, and the disposition of the
      related motorcycle. The disposal of motorcycles, which reach scheduled
      termination of a lease, results in a gain or loss equal to the difference
      between proceeds received from the disposition of the motorcycle and its net
      book value. Net book value represents the residual value at scheduled lease
      termination. Lease terminations that occur prior to scheduled maturity as a
      result of the lessee’s voluntary request to purchase the vehicle have resulted
      in net gains, equal to the excess of the price received over the motorcycle’s
      net book value.





Early
      lease terminations also occur because of (i) a default by the lessee, (ii)
      the
      physical loss of the motorcycle, or (iii) the exercise of the lessee’s early
      termination. In those instances, the Company receives the proceeds from either
      the resale or release of the repossessed motorcycle, or the payment by the
      lessee’s insurer. The Company records a gain or loss for the difference between
      the proceeds received and the net book value of the motorcycle.





The
      Company charges fees to manufacturers and other customers related to creating
      a
      private label version of the Company’s financing program including web access,
      processing credit applications, consumer contracts and other related documents
      and processes. Fees received are amortized and booked as income over the length
      of the contract. At April 30, 2006 and 2005, the Company had recorded deferred
      revenue related to these contracts of $9,900 and $23,100,
      respectively.





The
      Company evaluates its operating and retail installment sales leases on an
      ongoing basis and has established reserves for losses, based on current and
      expected future experience.





**Website
      Development Costs**





The
      Company recognizes website development costs in accordance with Emerging Issue
      Task Force ("EITF") No. 00-02, "Accounting for Website Development Costs."
      As
      such, the Company expenses all costs incurred that relate to the planning and
      post implementation phases of development of its website. Direct costs incurred
      in the development phase are capitalized and recognized over the estimated
      useful life. Costs associated with repair or maintenance for the website are
      included in cost of net revenues in the current period expenses.





**Cash
      Equivalents**





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





**Income
      Taxes**





Deferred
      income taxes are provided using the asset and liability method for financial
      reporting purposes in accordance with the provisions of Statements of Financial
      Standards No. 109, "Accounting for Income Taxes". Under this method, deferred
      tax assets and liabilities are recognized for temporary differences between
      the
      tax bases of assets and liabilities and their carrying values for financial
      reporting purposes and for operating loss and tax credit carry forwards.
      Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be removed or settled. The effect on deferred tax
      assets and liabilities of a change in tax rates is recognized in the statements
      of operations in the period that includes the enactment date. Temporary
      differences between taxable income reported for financial reporting purposes
      and
      income tax purposes are insignificant.


-31-
 **Back
            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      A - SUMMARY OF ACCOUNTING POLICIES (continued)**





**Impairment
      of Long-Lived Assets**





The
      Company has adopted Statement of Financial Accounting Standards No. 121 (SFAS
      121). The Statement requires that long-lived assets and certain identifiable
      intangibles held and used by the Company be reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. SFAS No. 121 also requires assets to be disposed of
      be
      reported at the lower of the carrying amount or the fair value less costs to
      sell.





**Comprehensive
      Income**





Statement
      of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
      Income," establishes standards for reporting and displaying of comprehensive
      income, its components and accumulated balances. Comprehensive income is defined
      to include all changes in equity except those resulting from investments by
      owners and distributions to owners. Among other disclosures, SFAS 130 requires
      that all items that are required to be recognized under current accounting
      standards as components of comprehensive income be reported in a financial
      statement that is displayed with the same prominence as other financial
      statements. At April 30, 2006 and 2005, the Company has no items of other
      comprehensive income.





**Segment
      Information**





The
      Company does not have separate, reportable segments under Statement of Financial
      Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
      Related Information ("SFAS 131"). SFAS establishes standards for reporting
      information regarding operating segments in annual financial statements and
      requires selected information for those segments to be presented in interim
      financial reports issued to stockholders. SFAS 131 also establishes standards
      for related disclosures about products and services and geographic areas.
      Operating segments are identified as components of an enterprise about which
      separate discrete financial information is available for evaluation by the
      chief
      operating decision maker, or decision making group, in making decisions how
      to
      allocate resources and assess performance. The information disclosed herein,
      materially represents all of the financial information related to the Company's
      principal operating segment.





**Stock
      Based Compensation**





On
      December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
      Statement No. 123R (revised 2004), "Share-Based Payment" which is a revision
      of
      FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
      123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
      and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
      approach in Statement 123R is similar to the approach described in Statement
      123. However, Statement 123R requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the income
      statement based on their fair values. Pro-forma disclosure is no longer an
      alternative. On April 14, 2005, the SEC amended the effective date of the
      provisions of this statement. The effect of this amendment by the SEC is that
      the Company will have to comply with Statement 123R and use the Fair Value
      based
      method of accounting no later than the fourth quarter of 2006. Management has
      elected to apply Statement 123R in the third quarter of fiscal year 2006. During
      the year ended April 30, 2006, the Company had no employee stock options for
      the
      period prior to the adoption of Statement 123R.


-32-
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            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      A - SUMMARY OF ACCOUNTING POLICIES (continued)**





Had
      compensation costs for the Company's stock options been determined based on
      the
      fair value at the grant dates for the awards, the Company's net loss and losses
      per share would have been as follows (transactions involving stock options
      issued to employees and Black-Scholes model assumptions are presented in Note
      G):





2006
            
            2005Net
                loss - as reported
            
            $
            (5,956,517
            )
            $
            (2,579,821
            )Add:
                Total stock based employee compensation expense as reported under
                intrinsic value method (APB. No. 25)
            
            
            —
            
            
            82,500Deduct:
                Total stock based employee compensation expense as reported under
                fair
                value based method (SFAS No. 123)
            
            
            (24,710
            )
            
            (49,420
            )Net
                loss - Pro Forma
            
            $
            (5,981,227
            )
            $
            (2,546,741
            )Net
                loss attributable to common stockholders - Pro forma
            
            $
            (7,897,482
            )
            $
            (4,385,647
            )Basic
                (and assuming dilution) loss per share - as reported
            
            $
            (0.08
            )
            $
            (0.05
            )Basic
                (and assuming dilution) loss per share - Pro forma
            
            $
            (0.08
            )
            $
            (0.05
            )




**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
      trade receivables. The Company places its cash and temporary cash investments
      with high credit quality institutions. At times, such investments may be in
      excess of the FDIC insurance limit. The Company periodically reviews its trade
      receivables in determining its allowance for doubtful accounts. At April 30,
      2006 and 2005, allowance for doubtful accounts receivables was $19,743 and
      $0,
      respectively.





**Allowance
      for Loan Losses**




The
      Company has loss reserves for its portfolio of Leases and for its portfolio
      of
      Retail Installment Sales Contracts (“RISC”). The allowance for Lease and RISC
      losses is increased by charges against earnings and decreased by charge-offs
      (net of recoveries). To the extent actual credit losses exceed these reserves,
      a
      bad debt provision is recorded; and to the extent credit losses are less than
      the reserve, additions to the reserve are reduced or discontinued until the
      loss
      reserve is in line with the Company’s reserve ratio policy. Management’s
      periodic evaluation of the adequacy of the allowance is based on the Company’s
      past lease and RISC experience, known and inherent risks in the portfolio,
      adverse situations that may affect the borrower’s ability to repay, the
      estimated value of any underlying collateral, and current economic conditions.






The
      Company charges-off receivables when an individual account has become more
      than
      120 days contractually delinquent. In the event of repossession, the asset
      is immediately sent to auction or held for release. If the asset is not disposed
      of prior to being 120 days contractually delinquent it will be charged-off
      at
      that time.




**Derivative
      Financial Instruments**





In
      connection with the private placement described above, the Company granted
      1,755,537 common stock purchase warrants to the placement agent. The warrants
      are exercisable immediately, have an exercise price of $0.215 per share and
      expire in five years. The warrants were valued at $1,033,100 using the
      Black-Sholes pricing model. The assumption ranges used in the Black-Scholes
      model are as follows:  (1) dividend yield of 0%;
      (2) expected volatility of 174% - 177%, (3) risk-free interest
      rate of 3.65% - 4.7%, and (4) expected life of 2
      years.





Since
      the
      warrants contain registration rights for the underlying shares and since the
      delivery of such registered  -33-
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            Contents**


shares
      was not deemed controllable by the Company, we recorded the net value of the
      warrants at the date of issuance as a warrant liability on the balance sheet
      ($1,033,100) and included the change in fair value from the date of issuance
      to
      April 30, 2006 in other income (expense), in accordance with EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company’s Own Stock”. The fair value of the warrants
      was $834,924 at April 30, 2006.





**Property
      and Equipment**





Property
      and equipment are recorded at cost. Minor additions and renewals are expensed
      in
      the year incurred. Major additions and renewals are capitalized and depreciated
      over their estimated useful lives. Depreciation is calculated using the
      straight-line method over the estimated useful lives. Estimated useful lives
      of
      major depreciable assets are as follows:





Leasehold
                improvements
            
            
            3
                yearsFurniture
                and fixtures
            
            
            7
                yearsWebsite
                costs
            
            
            3
                yearsComputer
                Equipment
            
            
            5
                years




**Advertising
      Costs**





The
      Company follows a policy of charging the costs of advertising to expenses
      incurred. During the years ended April 30, 2006 and 2005, the Company incurred
      advertising costs of $36,594 and $28,107, respectively.  -34-
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            to Table of
            Contents**


**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      A - SUMMARY OF ACCOUNTING POLICIES (continued)**





**Net
      Loss Per Share**





The
      Company uses SFAS No. 128, “ *Earnings
      Per Share* ”
for
      calculating the basic and diluted loss per share. We compute basic loss per
      share by dividing net loss and net loss attributable to common shareholders
      by
      the weighted average number of common shares outstanding. Diluted loss per
      share
      is computed similar to basic loss per share except that the denominator is
      increased to include the number of additional common shares that would have
      been
      outstanding if the potential shares had been issued and if the additional shares
      were dilutive. Common equivalent shares are excluded from the computation of
      net
      loss per share if their effect is anti-dilutive.





Per
      share
      basic and diluted net loss attributable to common stockholders amounted
      to $0.08 and $0.05 for the years ended April 30, 2006 and 2005,
      respectively. At April 30, 2006 and 2005, 27,069,527 and 19,263,642 potential
      shares, respectively, were excluded from the shares used to calculate diluted
      earnings per share as their inclusion would reduce net loss per share.





**Reclassifications**





Certain
      reclassifications have been made to conform to prior periods' data to the
      current presentation. These reclassifications had no effect on reported
      losses.





**New
      Accounting Pronouncements**




In
      March
      2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
      Financial Assets - an amendment to FASB Statement No. 140. Statement 156
      requires that an entity recognize a servicing asset or servicing liability
      each
      time it undertakes an obligation to service a financial asset by entering into
      a
      service contract under certain situations. The new standard is effective for
      fiscal years beginning after September 15, 2006. The Company does not
      expect its adoption of this new standard to have a material impact on its
      financial position, results of operations or cash flows.





In
      February 2006, the FASB issued SFAS 155, which applies to certain "hybrid
      financial instruments," which are instruments that contain embedded derivatives.
      The new standard establishes a requirement to evaluate beneficial interests
      in
      securitized financial assets to determine if the interests represent
      freestanding derivatives or are hybrid financial instruments containing embedded
      derivatives requiring bifurcation. This new standard also permits an election
      for fair value remeasurement of any hybrid financial instrument containing
      an
      embedded derivative that otherwise would require bifurcation under SFAS 133.
      The
      fair value election can be applied on an instrument-by-instrument basis to
      existing instruments at the date of adoption and can be applied to new
      instruments on a prospective basis. Management is assessing the implications
      of
      this standard, which may materially impact the Company's results of operations
      in the fourth quarter of fiscal year 2006 and thereafter.




In
      May
      2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No.
      154,
“Accounting Changes and Error Corrections, a replacement of APB Opinion No.
      20
      and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior
      periods’ financial statements for changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change. SFAS 154 also requires that retrospective application
      of a
      change in accounting principle be limited to the direct effects of the change.
      Indirect effects of a change in accounting principle, such as a change in
      non-discretionary profit-sharing payments resulting from an accounting change,
      should be recognized in the period of the accounting change. SFAS 154 also
      requires that a change in depreciation, amortization, or depletion method for
      long-lived, non-financial assets be accounted for as a change in accounting
      estimate effected by a change in accounting principle. SFAS 154 is effective
      for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. Early adoption is permitted for accounting changes
      and
      corrections of errors made in fiscal years beginning after
      the
      date this Statement is issued. The Company does not expect the adoption of
      this
      SFAS to have a material impact on its consolidated financial position, results
      of operations or cash flows.


-35-
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          to Table of Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      B - MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING LEASES**





Motorcycles
      and other vehicles under operating leases at April 30, 2006 and 2005 consist
      of
      the following:





2006
            
            2005Motorcycles
                and other vehicles
            
            $
            759,568
            
            $
            113,278Less:
                accumulated depreciation
            
            
            (75,873
            )
            
            (13,392
            )Motorcycles
                and other vehicles, net of accumulated depreciation
            
            
            683,695
            
            
            99,886Less:
                estimated reserve for residual values
            
            
            (16,409
            )
            
            —Motorcycles
                and other vehicles under operating leases, net
            
            $
            667,286
            
            $
            99,886




At
      April
      30, 2006, motorcycles and other vehicles are being depreciated to the estimated
      residual values of $395,869 over the lives of their lease contracts.
      Depreciation expense for the years ended April 30, 2006 and 2005 was $75,033
      and
      $13,392, respectively. Certain of the assets are pledged as collateral for
      the
      note described in Note E.





The
      following is a schedule by years of minimum future rentals on non cancelable
      operating leases as of April 30, 2006:





Year
                ending April 30,2007
            
            $
            226,9152008
            
            
            81,6082009
            
            
            52,7332010
            
            
            36,4372011
            
            
            19,144Total
            
            $
            416,837





**NOTE
      C - RETAIL INSTALLMENT RECEIVABLES**





Retail
      installment sale receivables, which are carried at cost, were $822,624 and
      $36,285 at April 30, 2006 and 2005, respectively. The following is a schedule
      by
      years of future payments related to these receivables. Future payments include
      amortization of cost as well as a profit margin. Certain of the assets are
      pledged as collateral for the note described in Note E.





Year
                ending April 30,2007
            
            $
            279,8392008
            
            
            240,8562009
            
            
            200,0392010
            
            
            168,9862011
            
            
            109,249998,969Less:
                interest portion
            
            
            (176,345
            )822,624Less:
                allowance for doubtful receivables
            
            
            (19,743
            )802,881Less:
                current receivables
            
            
            (206,986
            )$
            595,895





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            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      D - PROPERTY AND EQUIPMENT**





Major
      classes of property and equipment at April 30, 2006 and 2005 consist of the
      followings:





2006
            
            2005Computer
                equipment , web site and furniture
            
            $
            174,793
            
            $
            122,187Less:
                accumulated depreciation and amortization
            
            
            (53,249
            )
            
            (15,378
            )Net
                property and equipment
            
            $
            121,544
            
            $
            106,809





Depreciation
      and amortization expense was $37,871 and $15,348 for the years ended April
      30,
      2006 and 2005, respectively.





**NOTE
      E - NOTES PAYABLE**





The
      company finances certain of its leases through a third party. The repayment
      terms are generally one year to five years and the notes are secured by the
      underlying assets. The assets securing the notes have an aggregate book value
      of
      $674,064 at April 30, 2006. The weighted average interest rate at April 30,
      2006
      is 8.879%.





At
      April
      30, 2006, the notes payable mature as follows:





Year
                ended April 30
            
            Amount2007
            
            $
            358,5492008
            
            
            —2009
            
            
            18,6852010
            
            
            12,5292011
            
            
            299,585$
            689,348




Notes
      payable at April 30, 2005 consisted of the following:





April
                30, 2005Notes
                payables; 10% interest, unsecured, originally scheduled to expire
                on April
                30, 2005, the note holders are entitled to an "Equity Kicker" equal
                to
                128,206 restricted shares of common stock for each $100,000 loaned,
                in the
                event of default, as penalty, the repayment after default of promissory
                note shall be collateralized by certain security interest as per
                the terms
                of the agreement Notes were subsequently extended until August 31,
                2005
                and beyond, with interest increased to 20% in certain instances,
                and the
                Equity Kicker equal to 192,308 restricted shares of common stock
                for each
                $100,000 loaned in certain instances
            
            $
            300,000Note
                payable to officer of the Company, unsecured, non-interest bearing,
                payable on demand (Note F)
            
            
            25,000325,000Less:
                current portion
            
            
            (325,000
            )Notes
                payable - long term
            
            $
            —




During
      the year ended April 30, 2006, the Company repaid $175,000 of the loans in
      cash.
      Additionally, during August 2005, the Company issued 651,124 shares of common
      stock in payment of $150,000 of principal amount of notes payable and $12,781
      of
      related accrued interest. The shares were issued at a value below market price
      and the Company
      has recorded a financing cost of $323,672 related to this
      discount.


-37-
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            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      F - RELATED PARTY TRANSACTIONS**





The
      Company entered in to a licensing agreement relating to the use of a proprietary
      operating system, with an entity controlled by the Company's President and
      Chief
      Executive Officer. During the years ended April 30, 2006 and 2005, the Company
      charged to operations $67,000 and $150,633, respectively, in connection with
      the
      licensing agreement.





The
      Company entered into a purchase option agreement with American Motorcycle
      Leasing Corp., an entity controlled by the Company's President and a significant
      shareholder, on November 2, 2004 at a cost to Sparta Commercial Services of
      $250,000. This agreement granted Sparta Commercial Services the right, for
      a two
      year period, to purchase portions of a certain portfolio of equipment leases
      that American Motorcycle Leasing Corp. owns. The portfolio is secured by a
      first
      priority security interest in favor of Citibank, N.A. or its assigns. The cost
      of $250,000 has been charged to operations in fiscal 2005. As of April 30,
      2005,
      payments against this obligation of $81,000 were made. The balance of $169,000
      was paid during the year ended April 30, 2006.





During
      the year ended April 30, 2006, the Company purchased certain of its vehicles
      from American Motorcycle Leasing Corp. These purchases aggregated $105,748.
      At
      April 30, 2006, the Company had a payable to American Motorcycle Leasing Corp.
      in the amount of $20,224 related to such purchases.





Up
      to
      November 30, 2004, the Company leased office space from an entity controlled
      by
      the Company's President and Chief Executive Officer.





In
      January 2005, the Company received a loan of $25,000 from an officer. This
      loan
      is non-interest bearing and is payable on demand. The loan was repaid during
      the
      year ended April 30, 2006.





**NOTE
      G - EQUITY INSTRUMENTS**





The
      Company is authorized to issue 10,000,000 shares of preferred stock with $0.001
      par value per share and $100 stated value per share, of which 35,840 shares
      have
      been designated as Series A convertible preferred stock, and 340,000,000 shares
      of common stock with $0.001 par value per share. As of April 30, 2006 and 2005,
      the Company has issued and outstanding 19,795 and 18,100 shares of preferred
      stock issued and outstanding, respectively. The Company has 114,180,301 and
      86,005,415 shares of common stock issued and outstanding as of April 30, 2006
      and 2005, respectively.





On
      December 27, 2004, the Company effected a one-for-two hundred reverse stock
      split followed by a forward split of twenty five-for-one of its authorized
      and
      outstanding shares of common stock, $.001 par value. All references in the
      financial statements and notes to financial statements, numbers of shares and
      share amounts have been retroactively restated to reflect the reverse
      split.





**Common
      Stock**





During
      the year ended April 30, 2006, the Company issued 464,745 shares of common
      stock, valued at $243,270, as additional costs related to loans received by
      the
      Company. This amount has been charged to financing cost. Additionally, as
      consideration for loans received during the third quarter of fiscal 2006, the
      Company will issue 70,000 shares of common stock. The value of these shares
      has
      been recorded at $38,500 and this amount is included in accrued expenses at
      April 30, 2006 and has been charged to financing cost.





During
      August 2005, the Company issued 651,124 shares of common stock in payment of
      $150,000 of principal amount of notes payable and $12,781 of related accrued
      interest. The shares were issued at a value below market price and the Company
      has recorded a financing cost of $323,672 related to this
      discount.


-38-
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            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**





**NOTE
      G - EQUITY INSTRUMENTS (continued)**





During
      the year ended April 30, 2006, the Company issued an aggregate of 850,000 shares
      of common stock, pursuant to a consulting agreement. The shares have been valued
      at $649,000 and this amount is being amortized over the term of the agreement,
      commencing August 1, 2005. During the year ended April 30, 2006 the Company
      has
      charged $355,500 to expense.





During
      October 2005, the Company issued 113,637 shares of common stock, valued at
      $85,228, for services.





During
      October and November 2005, the Company received $330,000 pursuant to
      subscription agreements for units, at $0.60 per unit, of the Company’s
      securities, with each unit consisting of one share of common stock and one
      warrant.





The
      Company will issue 250,000 shares of common stock as payment of consulting
      fees.
      These fees have been accrued in the financial statements at a value of $85,000
      as of April 30, 2006 and the shares were issued in July 2006.





During
      December 2005, the Company entered into an agreement pursuant to which it agreed
      to issue 2,650,000 shares of common stock for consulting and advisory services
      rendered and to be rendered. The shares have been valued at $1,590,000, based
      on
      the fair value of the Company’s common stock on the date of the agreement. The
      shares were issued during the fourth quarter.





During
      the year ended April 30, 2006, the Company sold 17,555,369 shares of common
      stock through a private placement. The Company received net proceeds of
      $2,977,946 from the sale. Costs of $405,760 were deducted from the gross
      proceeds and additional costs of $39,591 were paid by the Company.





In
      connection with the private placement described above, the Company granted
      1,755,537 common stock purchase warrants to the placement agent. The warrants
      are exercisable immediately, have an exercise price of $0.215 per share and
      expire in five years. The warrants were valued at $1,033,100 using the
      Black-Sholes pricing model. The assumption ranges used in the Black-Scholes
      model are as follows:  (1) dividend yield of 0%;
      (2) expected volatility of 174% - 177%, (3) risk-free interest
      rate of 3.65% - 4.7%, and (4) expected life of 2
      years.





Since
      the
      warrants contain registration rights for the underlying shares and since the
      delivery of such registered shares was not deemed controllable by the Company,
      we recorded the net value of the warrants at the date of issuance as a warrant
      liability on the balance sheet ($1,033,100) and included the change in fair
      value from the date of issuance to April 30, 2006 in other income (expense),
      in
      accordance with EITF 00-19, “ *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* ”.
      The
      fair value of the warrants was $834,924 at April 30, 2006.





During
      December 2005, the Company granted options to purchase an aggregate of 160,000
      shares of common stock to two employees. The options have been valued at $75,795
      using the Black-Sholes option pricing model with the following assumptions:
      (1) dividend yield of 0%; (2) expected volatility of 177%,
      (3) risk-free interest rate of 4.38%, and (4) expected life
      of 3 years. The options have an exercise price of $0.59, vest over a 38
      month period and expire if unexercised in ten years.





During
      January and February 2006, the Company issued 10,291,666 shares of common stock
      upon conversion of 16,055 shares of preferred stock.





During
      February 2006, the Company issued 1,436,647 shares of common stock upon the
      cashless exercise of 1,923,079 warrants.





During
      March 2006, the Company entered into an agreement pursuant to which it agreed
      to
      issue 70,000 shares of common stock for consulting and advisory services. The
      shares have been valued at $47,600, based on the fair value of the Company’s
      common stock on the date of the agreement. The shares were issued in July 2006
      and are recorded as an accrued expense at April 30, 2006.


-39-
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            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**





**NOTE
      G - EQUITY INSTRUMENTS (continued)**





During
      April 2006, the Company entered into an agreement pursuant to which it agreed
      to
      issue a total of 3,050,000 shares of common stock for consulting and advisory
      services. Of these shares, 550,000 were due upon execution of the agreement,
      with the remainder payable over a twelve month period. The vested shares have
      been valued at $286,000, based on the fair value of the Company’s common stock
      on the date of the agreement. The shares were issued in May 2006 and are
      recorded as an accrued expense at April 30, 2006.





In
      January, 2005, 113,635 shares of restricted stock issued to the former Chief
      Financial Officer, Daniel Lanjewar, were vested and issued.





In
      April,
      2005, 96,155 shares were issued pursuant to an agreement with two individuals
      who provided short term note payable financing to the Company.





**Preferred
      Stock Series A**





In
      December 2004, the Company commenced a private placement to raise up to
      $3,000,000 through the sale of up to 30 units of our securities at $100,000
      per
      unit. Each unit consists of (i) 1,000 shares of series A convertible, redeemable
      preferred stock and (ii) warrants to purchase 320,513 shares of common stock,
      exercisable for three years at $0.195 per share. The preferred stock has a
      stated value of $100 per share, carries a 6% annual cumulative dividend, payable
      semi-annually in arrears, and is convertible into shares of common stock at
      the
      rate of one preferred share into 641 shares of common stock.





In
      December 2004, the Company began a private placement transaction utilizing
      a
      designated registered broker-dealer as a placement agent. During the year ended
      April 30, 2005, the Company issued 12,250 preferred shares at a stated value
      of
      $100 per share and warrants to purchase 3,926,286 shares of common stock,
      exercisable for three years at $0.195 per share, for aggregate gross proceeds
      of
      $1,225,000 received from investors. In connection with the private placement,
      during the year ended April 30, 2005, the Company issued as compensation to
      the
      placement agent warrants to 785,257 shares of common stock, exercisable for
      five
      years at $0.172 per share. The warrants, which were valued at approximately
      $383,284 using the Black-Scholes option pricing model, were recognized as a
      cost
      of issuance of the Series A Preferred shares.





During
      the year ended April 30, 2005, the Company sold rights to acquire securities
      of
      the Company to investors for aggregate gross proceeds of $585,000. Pursuant
      to
      the terms of the rights, as the Company conducted a closing to a private
      placement transaction in 2004 utilizing a designated registered broker-dealer
      as
      a placement agent, on January 1, 2005, the rights have automatically converted
      into 5,850 preferred shares at a stated value of $100 per share and warrants
      to
      purchase 1,875,001 shares of common stock, exercisable for three years at $0.195
      per share.





In
      accordance with Emerging Issues Task Force Issue 98-5, Accounting for
      Convertible Securities with a beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded
      beneficial conversion feature present in the Preferred Stock. The Company
      recognized and measured an aggregate of $1,810,000, which equals to the
      intrinsic value of the imbedded beneficial conversion feature, to additional
      paid-in capital and a return to the Preferred Stock holders. Since the preferred
      shares were convertible at the date of issuance, the return to the preferred
      shareholders attributed to the beneficial conversion feature has been recognized
      in full at the date the Preferred Stock was issued.





During
      the three months ended July 31, 2005, the Company issued 17,750 preferred shares
      at a stated value of $100 per share and warrants to purchase 5,689,108 shares
      of
      common stock, exercisable for three years at $0.195 per share, for aggregate
      gross proceeds of $1,775,000 received from investors. Costs of $182,484 were
      deducted from the proceeds. In connection with the private placement, during
      the
      three months ended July 31, 2005, the Company issued as compensation to the
      placement agent warrants to purchase 1,137,822 shares of common stock,
      exercisable for five years at $0.172 per share. The warrants, which were valued
      at $406,665 using the Black-Scholes option pricing model, were recognized as
      an
      expense during the quarter.  The
      assumptions used in the Black Scholes model are as follows: (1) dividend yield
      of 0%; (2) expected volatility of 188%, (3) weighted average risk-free interest
      rate of
      3.65%,
      and (4) expected life of 2 years.


-40-
 **Back
            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      G - EQUITY INSTRUMENTS (continued)**





In
      accordance with EITF 00-27, a portion of the proceeds were allocated to the
      class ‘C’ warrants based on their relative fair value, which totaled $931,800
      using the Black Scholes option pricing model. Further, the Company attributed
      a
      beneficial conversion feature of $843,200 to the series ‘A’ preferred shares
      based upon the difference between the conversion price of those shares and
      the
      closing price of the Company’s common shares on the date of issuance. The
      assumptions used in the Black Scholes model are as follows: (1) dividend yield
      of 0%; (2) expected volatility of 188%, (3) weighted average risk-free interest
      rate of 3.65%, and (4) expected life of 2 years as the conversion feature and
      warrants are immediately exercisable. Both the fair value of the class ‘C’
warrants and the beneficial conversion feature were recorded as a dividend
      and
      are included in the accompanying financial statements.





In
      the
      event that a registration statement covering all of the securities issued
      pursuant to the private placement of preferred shares is not declared effective
      by the Securities and Exchange Commission by July 31, 2005, the number of shares
      issuable upon conversion of the preferred stock and the exercise of the warrants
      will be increased by 0.75% for each 30 day period during a six month term
      following July 31, 2005 that a registration statement has not been declared
      effective. Following this initial six month term, the number of shares issuable
      upon conversion of the preferred stock and the exercise of the warrants will
      be
      increased by 1.50% for each 30 day period during a six month term following
      January 31, 2006 that a registration statement has not been declared effective.
      There was not an effective registration statement as of July 31, 2005, nor
      is
      there one as of April 30, 2006. Additionally, if a registration statement has
      not been filed as of October 27, 2005, the number of shares issuable upon
      conversion of the preferred stock and the exercise of the warrants will be
      increased by 1% for each 30 day period until a registration statement is filed.
      A Registration statement was not filed as of October 27, 2005, and was filed
      on
      April 28, 2006. On May 31, 2006 the Securities and Exchange Commission declared
      the Registration Statement effective. The Company has obtained waivers covering
      a substantial amount of the potential penalty shares and warrants. The Company
      has accrued an expense of $47,468 during the year ended April 30, 2006 relative
      to the penalty provisions for which it did not obtain waivers. This amount
      will
      be settled through the issuance of equity securities. As of April 30, 2006,
      an
      aggregate of 60,086 penalty shares and 30,048 penalty warrants has been accrued.





During
      January and February 2006, the Company issued 10,291,666 shares of common stock
      upon conversion of 16,055 shares of preferred stock.  -41-
 **Back
            to Table of
            Contents**


**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      H - INCOME TAXES**





Financial
      Accounting Standard No. 109 requires the recognition of deferred tax liabilities
      and assets for the expected future tax consequences of events that have been
      included in the financial statement or tax returns. Under this method, deferred
      tax liabilities and assets are determined based on the difference between
      financial statements and tax bases of assets and liabilities using enacted
      tax
      rates in effect for the year in which the differences are expected to reverse.
      Temporary differences between taxable income reported for financial reporting
      purposes and income tax purposes are insignificant.





At
      April
      30, 2006, the Company has available for federal income tax purposes a net
      operating loss carry forward of approximately $9,650,000, expiring in the year
      2026, that may be used to offset future taxable income. The Company has provided
      a valuation reserve against the full amount of the net operating loss benefit,
      since in the opinion of management based upon the earnings history of the
      Company; it is more likely than not that the benefits will not be realized.
      Also, due to change in the control after reverse acquisition of Sparta
      Commercial Services, Inc., the Company's past accumulated losses to be carried
      forward may be limited.


Components
      of deferred tax assets as of April 30, 2006 are as follows:





Non
                current:Net
                operating loss carry forward
            
            $
            3,281,000Valuation
                allowance
            
            
            (3,281,000
            )Net
                deferred tax asset
            
            $
            —





The
      valuation allowance increased by $1,751,000 during the year ended April 30,
      2006.





**NOTE
      I - LOSSES PER COMMON SHARE**





The
      following table presents the computation of basic and diluted loss per
      share:





2006
            
            2005Net
                loss available for common shareholders
            
            $
            (7,872,772
            )
            $
            (4,418,727
            )Basic
                and diluted loss per share
            
            $
            (0.08
            )
            $
            (0.05
            )Weighted
                average common shares outstanding-basicDiluted
            
            
            95,479,102
            
            
            85,812,006





-42-
 **Back
            to Table of
            Contents**




**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      J - STOCK OPTIONS AND WARRANTS**





On
      April
      29, 2005, the Company issued to the Chief Operating Officer non qualified stock
      options to purchase 875,000 shares of the company's common stock at an exercise
      price of $0.605 per share. The options have a five year life.





During
      December 2005, the Company granted options to purchase an aggregate of 160,000
      shares of common stock to two employees. The options have been valued at $75,795
      using the Black-Sholes option pricing model with the following assumptions:
      (1) dividend yield of 0%; (2) expected volatility of 177%,
      (3) risk-free interest rate of 4.38%, and (4) expected life
      of 3 years. The options have an exercise price of $0.59, vest over a 38
      month period and expire if unexercised in ten years.





a)
            The
                following table summarizes the stock options issued to officers and
                employees outstanding and the related price.





Stock
                Options Outstanding
            
            
            
            Stock
                Options ExercisableWeighted
                AverageRemaining
            
            Weighted
                Average
            
            
            
            Weighted
                AverageNumber
            
            Contractual
                Life
            
            Exercise
            
            Number
            
            ExerciseOutstanding
            
            (Years)
            
            Price
            
            Exercisable
            
            Price1,035,000
            
            
            4.9
            
            $
            0.60
            
            
            350,000
            
            $
            0.60





Transactions
      involving stock options issued to employees are summarized as
      follows:





Weighted
                AverageNumber
                of Shares
            
            Price
                Per ShareOutstanding
                at April 30, 2004
            
            
            —
            
            $
            —Granted
            
            
            875,000
            
            
            0.61Exercised
            
            
            —
            
            
            —Outstanding
                at April 30, 2005
            
            
            875,000
            
            $
            0.61Granted
            
            
            160,000
            
            $
            0.59Exercised
            
            
            —
            
            
            —Canceled
                or expired
            
            
            —
            
            
            —Outstanding
                at April 30, 2006
            
            
            1,035,000
            
            $
            0.60




The
      weighted-average fair value of stock options granted during the years ended
      April 30, 2006 and 2005 was $0.47 and $0.28, respectively, and the
      weighted-average significant assumptions used to determine those fair values,
      using a Black-Scholes option pricing model are as follows:




Significant
                Assumptions (weighted average):
            
            2006
            
            2005Risk
                free interest rate at grant date:
            
            
            4.3
            %
            
            3
            %Expected
                stock price volatility
            
            
            177
            %
            
            60
            %Expected
                dividend payout
            
            
            0
            
            
            0Expected
                option life in years
            
            
            3
            
            
            5





There
      was
      no intrinsic value for the options granted during the year ended April 30,
      2006.
      The options granted during the year ended April 30, 2005 had an intrinsic value
      of $82,500.





There
      was
      no intrinsic value to vested or nonvested options at April 30,
      2006.





At
      April
      30, 2006, total compensation expense related to nonvested awards not yet
      recognized was $214,960. This amount will be recognized over a weighted-average
      period of 3 years. Compensation for fixed award with graded vesting is
      recognized on a straight line basis.  -43-
 **Back
            to Table of
            Contents**


**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      J - STOCK OPTIONS AND WARRANTS (continued)**





b)
            The
                following table summarizes the changes in warrants outstanding and
                the
                related prices for the shares of the Company's common stock issued
                to
                non-employees of the Company.





Warrants
                Outstanding
            
            
            
            Warrants
                ExercisableWeighted
                AverageRemaining
            
            Weighted
                Average
            
            
            
            Weighted
                AverageExercise
            
            Number
            
            Contractual
                Life
            
            Exercise
            
            Number
            
            ExercisePrices
            
            Outstanding
            
            (Years)
            
            Price
            
            Exercisable
            
            Price$0.195
            
            
            11,590,395
            
            
            2.00
            
            $
            0.195
            
            
            11,590,395
            
            $
            0.195$0.215
            
            
            1,755,537
            
            
            4.75
            
            $
            0.215
            
            
            1,755,537
            
            $
            0.215$0.195
            
            
            13,345,932
            
            
            2.35
            
            $
            0.198
            
            
            13,345,932
            
            $
            0.198





Transactions
      involving stock warrants issued to non-employees are summarized as
      follows:





WeightedAveragePriceNumber
            
            Perof
                Shares
            
            ShareOutstanding
                at April 30, 2004
            
            
            —
            
            $
            —Granted
            
            
            6,786,544
            
            $
            0.194Exercised
            
            
            —
            
            
            —Outstanding
                at April 30, 2005
            
            
            6,786,544
            
            $
            0.194Granted
            
            
            8,582,467
            
            $
            0.196Exercised
            
            
            (1,923,079
            )
            $
            0.172Canceled
                or expired
            
            
            (100,000
            )
            $
            0.195Outstanding
                at April 30, 2006
            
            
            13,345,932
            
            $
            0.198




The
      weighted-average fair value of stock warrants granted to non-employees during
      the years ended April 30, 2006 and 2005 was $0.50 and $0.49, respectively,
      and
      the weighted-average significant assumptions used to determine those fair
      values, using a Black-Scholes option pricing model are as follows:





2006
            
            2005Significant
                assumptions (weighted-average):Risk-free
                interest rate at grant date
            
            
            3.9
            %
            
            3
            %Expected
                stock price volatility
            
            
            181
            %
            
            60
            %Expected
                dividend payout
            
            
            —
            
            
            —Expected
                option life-years
            
            
            2
                yrs
            
            
            3.11
                yrs




The
      amount of the expense charged to operations for compensatory warrants granted
      in
      exchange for services was $406,665 and $473,264 for the years ended April 30,
      2006 and 2005, respectively.  -44-
 **Back
            to Table of
            Contents**


**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      K - COMMITMENTS AND CONTINGENCIES**





**Operating
      Lease Commitments**





In
      October 2004, the Company entered into a lease agreement with an unrelated
      party
      for office space in New York City from December 1, 2004 through November 30,
      2007. Total lease rental expense for the years ended April 30, 2006 and 2005,
      was $142,584 and $125,214, respectively.





Commitments
      for minimum rentals under non-cancelable leases at April 30, 2006 are as
      follows:





Year
                ended April 30,
            
            Amount2007
            
            $
            177,0612008
            
            
            104,973$
            282,034





**Employment
      and Consulting Agreements**





The
      Company does not have employment agreements with any of its non-executive
      employees.





The
      Company has consulting agreements with outside contractors to provide marketing
      and financial advisory services. The Agreements are generally for a term of
      12
      months from inception and renewable automatically from year to year unless
      either the Company or Consultant terminates such engagement by written
      notice.





We
      entered into an employment agreement, dated as of July 12, 2004, with Anthony
      L.
      Havens, our Chief Executive Officer. The employment is for a term of five years.
      The employment term is to be automatically extended for one five-year period,
      and additional one-year periods, unless written notice is given three months
      prior to the expiration of any such term that the term will not be extended.
      He
      is entitled to six weeks of paid vacation per year, and health insurance, short
      term and long term disability insurance, retirement benefits, fringe benefits,
      and other employee benefits on the same basis as is generally made available
      to
      other senior executives. He did not receive any equity compensation as part
      of
      this agreement.





On
      November 1, 2004, the Company entered into an employment agreement with Richard
      P. Trotter, pursuant to which the Company agreed to issue 125,000 shares of
      common stock during the course of the agreement. The grant of shares is subject
      to vesting and subject to continued employment. On November 1, 2004, 25,000
      shares vested and are yet to be issued, and the remainder of the shares are
      to
      vest, subject to proportionate adjustment in the event of employment termination
      for any incomplete vesting period, as follows: 25,000 shares on November 1,
      2005; 25,000 shares on November 1, 2006; 25,000 shares on November 1, 2007;
      12,500 shares on November 1, 2008; and 12,500 on November 1, 2009. During the
      years ended April 30, 2006 and 2005, the Company has recorded $20,000 as expense
      for each year as per this employment agreement.





**Litigation**





The
      Company is subject to legal proceedings and claims which arise in the ordinary
      course of its business. Although occasional adverse decisions or settlements
      may
      occur, the Company believes that the final disposition of such matters should
      not have a material adverse effect on its financial position, results of
      operations or liquidity.  -45-
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            to Table of
            Contents**


**SPARTA
      COMMERCIAL SERVICES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2006 and 2005**








**NOTE
      L - NON-CASH FINANCIAL INFORMATION**





During
      the year ended April 30, 2006 the Company:





·
            Recorded
                a dividend on preferred stock of $1,775,000 related to the fair value
                of
                the class 'C' warrants issued with preferred stock and the related
                beneficial conversion feature.


·
            Incurred
                costs of $182,483 related to the sale of preferred stock. These costs
                were
                deducted from the proceeds.


·
            Issued
                464,745 shares of common stock, valued at $243,270, as additional
                costs
                related to loans received by the
                Company.


·
            Issued
                651,124 shares of common stock in payment of $150,000 of principal
                amount
                of notes payable and $12,781 of related accrued interest. The shares
                were
                issued at a value below market price and the Company has recorded
                a
                financing cost of $323,672 related to this
                discount.


·
            Issued
                an aggregate of 850,000 shares of common stock, pursuant to a consulting
                agreement. The shares have been valued at $649,000 and this amount
                is
                being amortized over the term of the agreement, commencing August
                1,
                2005.


·
            Issued
                113,637 shares of common stock, valued at $85,228, for
                services.


·
            Issued
                10,291,666 shares of common stock upon conversion of 16,055 shares
                of
                preferred stock.


·
            Incurred
                costs of $405,761 related to the sale of common stock. These costs
                were
                deducted from the proceeds.


·
            Granted
                an aggregate of 160,000 stock options to employees.





During
      the year ended April 30, 2005 the Company:





·
            Recorded
                a dividend on preferred stock of $1,810,000 related to the fair value
                of
                the class 'C' warrants issued with preferred stock and the related
                beneficial conversion feature.





**NOTE
      M - GOING CONCERN MATTERS**





The
      accompanying 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 financial
      statements during the period October 1, 2001 (date of inception) through April
      30, 2006, the Company incurred loss of $14,150,429. These factors among others
      may indicate that the Company will be unable to continue as a going concern
      for
      a reasonable period of time.





The
      Company's existence is dependent upon management's ability to develop profitable
      operations. Management is devoting substantially all of its efforts to
      developing its business and raising capital and there can be no assurance that
      the Company's efforts will be successful. However, the planned principal
      operations have not commenced and no assurance can be given that management's
      actions will result in profitable operations or the resolution of its liquidity
      problems. The accompanying 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 pursing
      additional equity financing through discussions with investment bankers and
      private investors. There can be no assurance the Company will be successful
      in
      its effort to secure additional equity financing.  -46-
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            to Table of
            Contents**


**ITEM
      8.****CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING****AND
      FINANCIAL DISCLOSURE**





**None.**  -47-
 **Back
            to Table of
            Contents**


**ITEM
      8A. CONTROLS AND PROCEDURES**





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by us in the reports that we file under the Exchange
      Act is accumulated and communicated to our management, including our principal
      executive and financial officers, as appropriate to allow timely decisions
      regarding required disclosure.





**Evaluation
      of Disclosure Controls and Procedures**





Our
      management, with the participation of our Chief Executive Officer, who is also
      presently serving as our Principal Financial Officer, evaluated the
      effectiveness of our disclosure controls and procedures (as defined in Rule
      13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period
      covered by this report. Based
      upon that evaluation, the Chief Executive Officer and Principal Financial
      Officer concluded that the Company's disclosure controls and procedures were
      effective, as of the date of their evaluation, for the purposes of recording,
      processing, summarizing and timely reporting
      material information required to be disclosed in reports filed by the Company
      under the Securities Exchange Act of 1934.





**Changes
      in Internal Control over Financial Reporting**





As
      required by Rule 13a-15(d), the Company’s Chairman, Chief
      Executive Officer and
      Principal Financial Officer, also conducted an evaluation of the Company’s
      internal controls over financial reporting to determine whether any changes
      occurred during the fourth fiscal quarter that have materially affected, or
      are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting. During the preparation of the Company’s financial
      statements as of and for the year ended April 30, 2005, the Company has
      concluded that the current system of disclosure controls and procedures was
      not
      effective because of the internal control weaknesses identified below. As a
      result of this conclusion, the Company has initiated the changes in internal
      control, to the extent possible given limitations in financial and manpower
      resources, also described below. It should be noted that any system of controls,
      however well designed and operated, can provide only reasonable, and not
      absolute, assurance that the objectives of the system will be met. In addition,
      the design of any control system is based in part upon certain assumptions
      about
      the likelihood of future events.





**Lack
      of Adequate Accounting Staff**





Because
      of the small size of our staff, the Chief Executive Officer and Principal
      Financial Officer processed virtually all of our financial activity. As such,
      there is an inherent lack of segregation of duties. The Company is developing
      procedures to address this situation which will improve the quality of future
      period financial reporting. With the exception of this weakness, our Chief
      Executive Officer and Principal Financial Officer concluded that our disclosure
      controls and procedures as of the end of the period covered by this report
      were
      effective.





**ITEM
      8B.****OTHER
      INFORMATION**





Not
      applicable.  -48-
 **Back
            to Table of
            Contents**


**PART
      III**





**ITEM
      9.****DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;****COMPLIANCE
      WITH SECTION 16(a) OF THE EXCHANGE ACT**





**Our
      Management**





Our
      executive officers and directors and their respective ages and positions as
      of
      May 12, 2006 are as follows:





Name
            
            Age
            
            PositionAnthony
                L. Havens
            
            52
            
            Chief
                Executive Officer, President, Principal Financial Officerand
                ChairmanKristian
                Srb
            
            51
            
            DirectorJeffrey
                Bean
            
            52
            
            DirectorRichard
                P. Trotter
            
            63
            
            Chief
                Operating OfficerSandra
                L. Ahman
            
            43
            
            Vice
                President, Secretary and Director





**Management
      Profile**





**Anthony
      L. Havens, Chief Executive Officer, President and Chairman.**


On
      February 27, 2004, Mr. Havens became our Chief Executive Officer, President
      and
      Chairman of the Board, and our Principal Financial Officer since July 2005.
      Mr.
      Havens has been the Managing Member and Chief Executive Officer of Sparta
      Commercial Services, LLC since its inception in 2001. He is involved in all
      aspects of Sparta's operations, including providing strategic direction, and
      developing sales and marketing strategies. From 1994 to 2004, Mr. Havens has
      been Chief Executive Officer and a director of American Motorcycle Leasing
      Corp.
      He co-founded American Motorcycle Leasing Corp. in 1994, and developed its
      operating platform and leasing program to include a portfolio which includes
      both prime and sub-prime customers. Mr. Havens has over 20 years of experience
      in finance and investment banking.





**Kristian
      Srb, Director.** Mr. Srb
      joined our Board of Directors in December 2004. Mr. Srb has been a director
      of
      American Motorcycle Leasing Corp. from 1994 to the present. Mr. Srb was
      President of American Motorcycle Leasing Corp. from 1994 to 1999. Since 1999,
      Mr. Srb has engaged in private investment activities. He has over 16 years
      experience in international brand development and management, including for
      13
      years with Escada A.G.





**Jeffrey
      Bean, Director.** Mr.
      Bean
      joined our Board of Directors in December 2004. Mr. Bean is the founding partner
      of GoMotorcycle.com.  Formed in January 1999, GoMotorcycle.com is currently
      engaged in the sale of motorcycle parts and accessories over the Internet. 
Prior to founding GoMotorcycle.com, Mr. Bean was an institutional broker and
      trader at Refco, Inc. from 1985 to 1997.  From 1977 to 1985, Mr. Bean was
      President of Thomaston Press, Ltd., a sales printing concern. He received a
      B.A.
      degree from the University of Virginia.





**Richard
      P. Trotter, Chief Operating Officer.** Mr.
      Trotter has been our Chief Operating Officer since November 2004. From 2001
      to
      2004, Mr. Trotter was President, Chief Credit Officer, of American Finance
      Company, Inc., purchasing retail automobile installment contracts from
      independent automobile dealers nationwide. From 1996 to 2001, he was Senior
      Vice
      President of Originations for Consumer Portfolio Services, Inc., one of the
      nation's leading purchasers of non-prime retail automobile installment
      contracts. From 1994 to 1996, he was Senior Vice President of Marketing for
      Consumer Portfolio Services, Inc. His experience also includes positions as
      Chief Operating Officer, Executive Director and President, and Chief Credit
      Officer for banks and financial institutions in California. Mr. Trotter has
      over
      30 years experience in financial institutions and over 20 years experience
      specializing in the automobile lending, servicing, and collecting
      industry.  -49-
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            to Table of
            Contents**


**Sandra
      L. Ahman, Vice President, Secretary and Director.** On March
      1, 2004, Sandra Ahman became Vice President of Operations and Secretary of
      Sparta, and a Director on June 1, 2004. She has been a Vice President of Sparta
      Commercial Services, LLC since formation. From 1994 to 2004, she was Vice
      President of Operations of American Motorcycle Leasing Corp. Prior to joining
      American Motorcycle Leasing Corp., Ms. Ahman was with Chatham Capital Partners,
      Ltd. Before joining Chatham in 1993, she was Manager, Human Resources for Comart
      and Aniforms, a sales promotion and marketing agency in New York, where she
      worked from 1986 to 1993. For the past 12 years, Ms. Ahman has been an active
      volunteer with The Children's Aid Society in New York City. She is a member
      of
      the Advisory Council to the agency's Board of Trustees.





**Board
      of Directors, Committees and Meetings**





Our
      directors are elected annually to serve for one year and hold office until
      the
      next annual meeting of the shareholders and until their successors are elected
      and qualified. Our Board of Directors may increase the size of the Board of
      Directors. Any director who fills a position created by the Board of Directors
      serves until the next annual meeting of the shareholders. Our officers are
      elected by the Board of Directors at the first meeting after each annual meeting
      of our shareholders, and hold office until their death, resignation or removal
      from office.





There
      are
      no family relationships among our executive officers or directors. None
      of
      our directors or officers are directors of another reporting company. None
      of
      the directors and officers during the past five years have been: involved in
      a
      bankruptcy petition or a pending criminal proceeding; convicted in a criminal
      proceeding (excluding traffic and minor offenses); subject to any order,
      judgment, or decree, permanently or temporarily enjoining, barring, suspending
      or otherwise limiting his involvement in any type of business, securities or
      banking activities; or found by a court, the SEC or the CFTC to have violated
      a
      federal or state securities or commodities law.





During
      the fiscal year that ended on April 30, 2006, the Board of Directors did not
      hold any formal meetings. Other matters were undertaken by written consent
      by
      the Board of Directors.





Our
      Board
      does not maintain a separate audit, nominating or compensation committee.
      Functions customarily performed by such committees are performed by our Board
      as
      a whole. We are not required to maintain such committees under the applicable
      rules of the Over-the-Counter Bulletin Board. None of our independent directors
      qualify as an "audit committee financial expert."





The
      Board
      of Directors has not adopted a specific process with respect to security holder
      communications, but security holders wishing to communicate with the Board
      of
      Directors may do so by mailing such communications to the Board of Directors
      at
      our offices.





**Code
      of Ethics**





We
      have
      not yet adopted a "code of ethics", as defined by the SEC, which applies to
      our
      Chief Executive Officer, Chief Financial Officer, principal accounting officer
      or controller and persons performing similar functions. We are in the process
      of
      drafting and adopting a Code of Ethics.


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**Conflicts
      of Interest**





Certain
      management employees of our company have worked for American Motorcycle Leasing
      Corp. and will continue to do so on a limited basis for the near future as
      we
      transition from a development stage company and commence active operations.
      While our business plans differ from those of American Motorcycle Leasing Corp.,
      we operate in the same industry as American Motorcycle Leasing Corp. Mr. Havens
      was an officer, director and significant equity owner of American Motorcycle
      Leasing Corporation through 2004. Pursuant to a license agreement between Sparta
      Commercial Services and American Motorcycle Leasing Corp., Sparta Commercial
      Services issued 330,433 membership interests to American Motorcycle Leasing
      Corp., which were exchanged for 34,256,941 shares of our common stock. Officers
      and directors of Sparta who are also shareholders of American Motorcycle Leasing
      Corp. disclaimed ownership of, and entitled to, any of those shares. Issues
      could arise with respect to the taking of corporate opportunities of each other.
      Any competition with American Motorcycle Leasing Corp. could adversely affect
      our business, operating results and financial condition. Accordingly, we may
      be
      subject to legal proceedings and claims, including claims of alleged
      infringement of the intellectual property, competition, conflict of interest,
      and other business governance related claims. Such claims, even if not
      meritorious, could result in the expenditure of significant financial and
      managerial resources.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires Sparta’s
      executive officers, directors, and persons who beneficially own more than ten
      percent of Sparta's common stock to file with the Securities and Exchange
      Commission initial reports of beneficial ownership and reports of changes in
      beneficial ownership of Sparta’s common stock. Such persons are also required by
      Securities and Exchange Commission regulations to furnish Sparta with copies
      of
      all such Section 16(a) forms filed by such person. Based solely on a review
      of
      the copies of such reports furnished to Sparta, Sparta is not aware of any
      material delinquencies in the filing of such reports, except as follows: on
      June
      1, 2005, Michael J. Mele filed a Form 3 reporting his status as an officer
      as of
      April 29, 2005; Mr. Mele did not file a report reporting the discontinuation
      of
      his employment with Sparta effective as of July 31, 2005; and on March 22,
      2006,
      Anthony Havens filed a Form 4/A amending a Form
      4
      originally filed on June 14, 2005, as amended by Form 4/As filed on June 14,
      2005 and June 29, 2005, regarding a gift of shares. The Form 4/A dated July
      29,
      2005 inadvertently reported that the gift was not completed, as the gift
      transaction authorized on June 13, 2005 remained pending at the time and was
      completed on July 18, 2005 .


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**ITEM
      10.****EXECUTIVE
      COMPENSATION**





**Summary
      Compensation Table**





The
      table
      below sets forth information concerning the annual and long-term compensation
      during our last three fiscal years of our Chief Executive Officer and all of
      our
      other officers (“Named Executive Officers”).





Prior
      to
      February 27, 2004, management spent less than five hours per month on company
      matters. Accordingly, no officer or director received any compensation other
      than reimbursement for out-of-pocket expenses incurred on behalf of the Company,
      and no cash compensation, deferred compensation, employee stock options, or
      long-term incentive plan awards were issued or granted to our management through
      February 27, 2004.




Long
                Term
              CompensationAnnual
              Compensation
            
            AwardsName
              andPrincipalPosition
            
            Year
            
            Salary
            
            Bonus
            
            Other
              Annual
              Compensation
            
            Restricted
              Stock
              Awards
            
            Securities
              Underlying
              Options/SARS
            
            All
                Other
              CompensationAnthony
                L. Havens (1)
              Chief
                Executive Officer,
              President,
                and Director
            
            
            2006
              2005
              2004
            
            $
              $
              $
            280,000
              233,333
              46,667
            
            $
              $
              $
            57,221
              0
              0
            
            $
              $
              $
            0
              0
              0
            
            
            0
              0
              0
            
            
            0
              0
              0
            
            $
              $
              $
            0
              0
              0Richard
                P. Trotter (2)
              Chief
                Operating Officer
            
            
            2006
              2005
            
            $
              $
            200,000
              80,000
            
            $
            0
            
            $
            0
            
            
            0
              125,000
                (3
            )
            
            0
              875,000
                (4
            )
            $
              $
            0
              0Sandra
              L. Ahman (5)
            
            
            2006
            
            $
            87,948
            
            $
            20,143
            
            $
            0
            
            
            0
            
            
            0
            
            $
            0Vice
                President and
            
            
            2005
            
            $
            75,000
            
            $
            0
            
            $
            0
            
            
            0
            
            
            0
            
            $
            0Secretary
            
            
            2004
            
            $
            12,500
            
            $
            0
            
            $
            0
            
            
            0
            
            
            0
            
            $
            0





(1)
            Became
                an officer on February 27, 2004. His reported fiscal year 2004
                compensation covers the period February 27, 2004 through April 30,
                2004.


(2)
            Became
                an officer on November 1, 2004. His reported fiscal year 2005 compensation
                covers the period November 1, 2004 through April 30,
                2005.


(3)
                Refers
                    to restricted stock, subject to vesting, granted on November
                    1, 2004.
                    Pursuant to an employment agreement, Mr. Trotter is entitled
                    to up to
                    125,000 shares of common stock. The grant of shares is subject
                    to vesting
                    and subject to continued employment. On November 1, 2004, 25,000
                    shares
                    vested. On November 1, 2005, an additional 25,000 shares vested.
                    An
                    additional 75,000 shares are subject to vesting at a future date,
                    subject
                    to proportionate adjustment in the event of employment termination
                    for any
                    incomplete vesting period, as follows: 25,000 shares on November
                    1, 2006;
                    25,000 shares on November 1, 2007; 12,500 shares on November
                    1, 2008; and
                    12,500 on November 1, 2009.
 (4)
                Refers
                    to stock options, subject to vesting, granted on April 29, 2005.
                    Pursuant
                    to an option agreement, Mr. Trotter is entitled to up to 875,000
                    stock
                    options, subject to vesting. The stock options are exercisable
                    for five
                    years from the vesting date at $0.605 per share. Options to purchase
                    175,000 shares vested on April 29, 2005, additional options to
                    purchase
                    175,000 shares vested on April 29, 2006, and the remaining options
                    are to
                    vest in equal installments over the next three anniversary date
                    of the
                    agreement.


(5)
            Became
                an officer on March 1, 2004. Her reported fiscal year 2004 compensation
                covers the period March 1, 2004 through April 30, 2004.





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**Option/SAR
      Grants in Last Fiscal Year**


**Individual
      Grants**





We
      did
      not grant any stock options to a Named Executive Officer during our fiscal
      year
      ended April 30, 2006.





**Aggregated
      Option/SAR Exercises in Last Fiscal Year**


**and
      FY-End Option/SAR Values**




Number
                  of securities
                underlying
                  unexercised
                Options/SARs
                at
                  FY-end (#)
              
              Value
                  of unexercised
                in-the-money
                  options/SARs
                at
                  FY-end ($)(a)Name
              
              Shares
                  Acquired
                on
                  Exercise(#)
              
              Value
                Realized($)
              
              Exercisable
              
              Unexercisable
              
              Exercisable
              
              UnexercisableRichard
                  P. Trotter
              
              
              —
              
              
              —
              
              
              350,000
              
              
              525,000
              
              $
              0
              
              $
              0





(a)
            The
                dollar values were calculated by determining the difference between
                the
                fair market value at fiscal year-end of the common stock underlying
                the
                options and the exercise price of the options. The last sale price
                of a
                share of Sparta’s common stock on April 28, 2006 as reported by the OTC
                Bulletin Board was $0.55.





**Director
      Compensation**





Directors
      are reimbursed for reasonable out-of-pocket expenses incurred in connection
      with
      attendance at Board meetings.





**Management
      Employment Agreements**





Employment
      Agreement with CEO





We
      entered into an employment agreement, dated as of July 12, 2004, **** with
      Anthony L. Havens who serves as our Chief Executive Officer. The employment
      is
      for a term of five years. The employment term is to be automatically extended
      for one five-year period, and additional one-year periods, unless written notice
      is given three months prior to the expiration of any such term that the term
      will not be extended. His base salary is at an annual rate of $280,000. He
      is
      entitled to defer a portion of his base salary each year. He is entitled to
      annual increases in his base salary and other compensation as may be determined
      by the Board of Directors. He is entitled to a $1,000,000 term insurance policy.
      He is entitled to six weeks of paid vacation per year, and health insurance,
      short term and long term disability insurance, retirement benefits, fringe
      benefits, and other employee benefits on the same basis as is generally made
      available to other senior executives. He is entitled to reimbursement of
      reasonable business expenses incurred by him in accordance with company
      policies. If terminated, he is entitled to three months of severance for up
      to
      six months of service for each year of employment, plus full participation
      in
      all standard employee benefits during the period of severance payments. The
      employment agreement provides for termination for cause. If he resigns for
      good
      reason or is terminated without cause within twelve months after a change in
      control, he is entitled to receive an additional lump sum payment equal to
      the
      greater of the severance payment or the balance of his base salary for the
      remaining employment term, continued coverage under any welfare benefits plans
      for two years, and full vesting of any account balance under a 401(k)
      plan. **** For
      purposes of the employment agreement, a change in control refers
      to:





·
            a
                change in voting power, due to a person becoming the beneficial owner
                of
                50% or more of the voting power of our securities and our largest
                shareholder;


·
            during
                any period of two consecutive years, individuals who at the beginning
                of
                such period constitute the Board of Directors, including later approved
                directors, ceasing to consisted a majority of the Board of
                Directors;


·
            a
                merger or consolidation of our company with a third party, after
                which our
                shareholders do not own more than 50% of the voting power;
                or


·
            a
                sale of all or substantially all of our assets to a third
                party.





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If
      we
      elect not to renew the employment agreement, he shall be entitled to receive
      severance equal to thirty months of his base salary plus standard employment
      benefits. If we fail to fully perform all or any portion of our post-termination
      obligations, we are be obligated to pay to him an amount equal to five times
      the
      value of the unperformed obligation.





Employment
      Agreement with COO





We
      entered into an employment agreement, effective November 1, 2004, with Richard
      P. Trotter, to serve as our Chief Operating Officer. The term of employment
      is
      one year. The employment term is to be automatically extended for one two-year
      period, and an additional two-year period, unless written notice is given three
      months prior to the expiration of any such term that the term will not be
      extended. His initial base salary was at an annual rate of $160,000. On May
      1,
      2005, his base salary increased to $200,000. He is entitled to annual increases
      in his base salary and other compensation as may be determined by the Board
      of
      Directors. He is entitled to a grant of 125,000 shares of our common stock.
      The
      grant of shares is subject to vesting and subject to continued employment.
      On
      November 1, 2004, 25,000 shares vested and on November 1, 2005, and an
      additional 25,000 shares vested on November 1, 2005. An additional 75,000 shares
      are subject to vesting at a future date, subject to proportionate adjustment
      in
      the event of employment termination for any incomplete vesting period, as
      follows: 25,000 shares on November 1, 2006; 25,000 shares on November 1, 2007;
      12,500 shares on November 1, 2008; and 12,500 on November 1, 2009. He is
      entitled to three weeks of paid vacation during the first year of employment,
      and four weeks per year thereafter. He is entitled to health insurance, short
      term and long term disability insurance, retirement benefits, fringe benefits,
      and other employee benefits on the same basis as is made generally available
      to
      other employees. He is entitled to reimbursement of reasonable business expenses
      incurred by him in accordance with company policies. The employment agreement
      provides for termination for cause. If terminated without cause, he is entitled
      to severance. As severance, he shall be entitled to one week's base salary
      as of
      the date of termination for the first full year of service, and thereafter,
      two
      weeks' base salary for each succeeding year of service, up to an aggregate
      of
      four months of such base salary.  -54-
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**ITEM
      11.****SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





**Securities
      Authorized for Issuance under Equity Compensation Plans**





The
      following table summarizes our equity compensation plan information as of April
      30, 2006.





Plan
                category
            
            Number
                of securities to be issued upon exercise of outstanding options,
              warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options,
              warrants
                and rights
            
            Number
                of securities remaining available for
              future
                issuance under
              equity
                compensation planEquity
                compensation plans approved by securities holders
            
            
            160,000
            
            $
            0.59
            
            
            8,340,000Equity
                compensation plans not approved by security holders
            
            
            1,075,000
            
            $
            0.529
            
            
            N/ATotal
            
            
            1,235,000
            
            $
            0.537
            
            
            8,340,000


In
      July
      2004, we adopted a **** stock
      incentive compensation plan. The plan authorized our Board of Directors to
      grant
      securities, including stock options, to employees, directors and others, in
      the
      aggregate amount of 8,500,000 shares of common stock. Securities issued under
      the plan may be stock awards, non-qualified options, incentive stock options,
      or
      any combination of the foregoing. **** In
      general, stock options granted under the plan have a maximum duration of ten
      years from the date of the grant and are not transferable. The per share
      exercise price of any incentive stock option granted under the plan may not
      be
      less than the fair market value of the common stock on the date of grant.
      Incentive stock options granted to persons who have voting control over ten
      percent or more of our capital stock are granted at 110% of fair market value
      of
      the underlying common stock on the date of grant and expire five years after
      the
      date of grant. No options may be granted after July 1, 2014. During the year
      ended April 30, 2006, stock options to acquire 160,000 shares of common stock
      were granted under this plan.





On
      April
      29, 2005, pursuant to an option agreement with Richard Trotter, our Chief
      Operating Officer, we issued stock options to purchase up to 875,000 shares
      of
      our common stock. Subject to vesting, the stock options are exercisable for
      five
      years from the vesting date at $0.605 per share. Options to purchase 175,000
      shares vested on April 29, 2005, additional options to purchase 175,000 shares
      vested on April 29, 2006, and the remaining options are to vest in equal
      installments over the next three anniversary date of the agreement.





In
      April
      2005, we issued warrants to purchase 200,000 shares of our common stock to
      Jaffoni & Collins Incorporated pursuant to a consulting agreement for public
      relations services. The warrants are exercisable for three years at $0.195
      per
      share. In April 2006, 100,000 of these options were cancelled.





**Common
      Stock Ownership**





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of May 12, 2006 by:





·
            each
                person known by us to be the beneficial owner of more than 5% of
                our
                common stock;


·
            each
                of our directors;


·
            each
                of our executive officers; and


·
            our
                executive officers and directors as a
                group.





Beneficial
      ownership is determined in accordance with the rules of the SEC and includes
      voting and investment power. Under SEC rules, a person is deemed to be the
      beneficial owner of securities which may be acquired by such person upon the
      exercise of options and warrants or the conversion of convertible securities
      within 60 days from the date on which beneficial ownership is to be determined.
      Each beneficial owner's percentage ownership is determined by dividing the
      number of shares beneficially owned by that person by the base number of
      outstanding shares, increased to reflect the beneficially-owned shares
      underlying options, warrants or other convertible securities included in that
      person's holdings, but not those underlying shares held by any other person.


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Unless
      indicated otherwise, the address for each person named is c/o Sparta Commercial
      Services, Inc., 462 Seventh Ave, 20th Floor, New York, NY 10018.





Name
            
            Amount
                and Nature
              Of
                Beneficial
              Ownership
            
            Percent
                of
              ClassAnthony
                L. Havens (1)
            
            
            32,833,250
            
            
            27.2
            %Kristian
                Srb (2)
            
            
            33,066,550
            
            
            27.4
            %Jeffrey
                Bean
            
            
            0
            
            
            *Richard
                P. Trotter (3)
            
            
            400,000
            
            
            *Sandra
                L. Ahman
            
            
            580,865
            
            
            *Glenn
                A. Little (4)
              211
                West Wall
              Midland,
                TX 79701
            
            
            6,792,758
            
            
            5.6
            %All
                Directors and Executive Officers (5 persons)
            
            
            66,880,665
            
            
            55.3
            %





*
            Represents
                less than 1%.


(1)
            Excludes
                150,000 shares of common stock held by Mr. Haven's minor son in a
                trust
                account. Mr. Havens is not the trustee for his son's trust account,
                and
                does not have direct voting control of such shares. Mr. Havens does
                not
                have the sole or shared power to vote or direct the vote of such
                shares,
                and, as a result, Mr. Havens disclaims beneficial ownership of such
                shares
                held in his son's trust account.


(2)
            Includes
                62,500 shares of common stock held by Mr. Srb's minor
                daughter.


(3)
            Includes
                50,000 vested shares. Pursuant to an employment agreement, Mr. Trotter
                is
                entitled to up to 125,000 shares of common stock. The grant of shares
                is
                subject to vesting and subject to continued employment. On November
                1,
                2004, 25,000 shares vested. An additional 25,000 shares vested on
                November
                1, 2005. An additional 75,000 shares are subject to vesting at a
                future
                date, subject to proportionate adjustment in the event of employment
                termination for any incomplete vesting period, as follows: 25,000
                shares
                on November 1, 2006; 25,000 shares on November 1, 2007; 12,500 shares
                on
                November 1, 2008; and 12,500 on November 1, 2009. Also includes 350,000
                vested stock options. Pursuant to option agreement, Mr. Trotter is
                entitled to up to 875,000 stock options to purchase shares of our
                common
                stock, subject to vesting. The stock options are exercisable for
                five
                years from the vesting date at $0.605 per share. Options to purchase
                175,000 shares vested on April 29, 2005, additional options to purchase
                175,000 shares vested on April 29, 2006, and the remaining options
                are to
                vest in equal installments over the next three anniversary date of
                the
                agreement.


(4)
            Includes
                (i) 641,026 shares issuable upon conversion of the Series A Convertible
                Preferred Stock, and (ii) 368,590 shares issuable upon exercise of
                warrants.




**Changes
      in Control**





We
      do not
      have any arrangements that may result in a change in control.


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**ITEM
      12.****CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**





On
      February 27, 2004, pursuant to an Agreement and Plan of Reorganization with
      Sparta Commercial Services, LLC and its members, we acquired all of the
      membership interests of Sparta in exchange for the agreement for the issuance
      of
      such number of shares of our common stock as would represent approximately
      91.75% of our outstanding shares. At February 26, 2004, we had an authorized
      capital of 200,000,000 shares and 56,637,228 shares issued and outstanding,
      and
      we issued the remaining balance of authorized capital of 143,362,772 shares
      (pre-split) to Sparta members. The remaining unissued balance of 486,511,854
      shares (pre-split) due to the Sparta members were subsequently issued upon
      completion of an increase in our authorized capital. Pursuant to the
      acquisition, all of our former directors and officers resigned, and nominated
      Anthony Havens, the designee of Sparta, as the officer and director. Present
      officers of the company, Anthony Havens and Sandra Ahman, acquired their
      respective ownership interest in our common stock pursuant to their exchange
      of
      membership interests of Sparta. Glenn A. Little, the former principal
      stockholder of the company, prior to the completion of acquisition owned
      40,000,000 shares, or 71%, of our then issued and outstanding shares of common
      stock. Sparta also entered into a consulting agreement for business and
      financial services with Glenn A. Little. The agreement is for a term of one
      year. Mr. Little received a fee of $100,000 pursuant to the consulting
      agreement.





We
      entered into a license agreement, dated as of June 1, 2002, and as amended
      on
      December 3, 2003, with American Motorcycle Leasing Corp., an entity controlled
      by a director of the Company and formerly controlled our President and Chief
      Executive Officer. Under the agreement, we have a non-exclusive, perpetual
      right
      to use American Motorcycle Leasing Corp.’s proprietary operating systems related
      to consumer credit underwriting procedures, vehicle and vehicle lease value
      evaluation methods, rental stream collection and insurance tracking policies
      and
      procedures. The license fee consisted of $300,000 and 330,433 membership
      interests of Sparta Commercial Services, LLC, which will be exchanged for
      34,256,941 shares of Tomahawk upon an increase in our authorized capital.





We
      entered into a services agreement, dated as of March 1, 2004, with American
      Motorcycle Leasing Corp., an entity controlled by a director of the Company
      and
      formerly controlled our President and Chief Executive Officer. **** For a
      period of three years, American Motorcycle Leasing Corp. is to provide
      personnel, computer equipment and software, and facilities, in connection with
      our credit and underwriting activities and our use of the operating systems
      that
      we had licensed from American Motorcycle Leasing Corp. In return for such
      services, we agreed to pay $100,000 by March 1, 2005 **,** and for
      the time of the personnel utilized at their salary rate at American Motorcycle
      Leasing Corp.





On
      August
      2, 2004, pursuant to an employment agreement with Daniel J. Lanjewar, our former
      Chief Financial Officer, we agreed to issue 568,175 shares of our common stock
      in a transaction deemed exempt from registration pursuant to Section 4(2) of
      the
      Securities Act. The grant of shares was subject to vesting and subject to
      continued employment. On January 1, 2005, 113,635 shares vested, and the
      reminder of the shares were to vest in equal portions on July 1, 2005, July
      1,
      2006, July 1, 2007, and July 1, 2008, subject to proportionate adjustment in
      the
      event of employment termination for any incomplete vesting period. In April
      2005, Mr. Lanjewar resigned as our Chief Financial Officer, and was vested
      with
      an additional 113,637 shares of common stock.





We
      entered into a purchase option agreement with American Motorcycle Leasing Corp.
      an entity controlled by a director of the Company and formerly controlled our
      President and Chief Executive Officer, on November 2, 2004 at a cost to Sparta
      Commercial Services of $250,000. This agreement granted Sparta Commercial
      Services the right, for a two year period, to purchase portions of a certain
      portfolio of equipment leases that American Motorcycle Leasing Corp. owns.
      The
      portfolio is secured by a first priority security interest in favor of Citibank,
      N.A. or its assigns. The cost of $250,000 has been charged to operations in
      fiscal 2005. As of April 30, 2005, payments against this obligation of $81,000
      were made. In June, 2005, an additional $20,000 was paid.





In
      January 2005, we received a loan of $25,000 from Kristian Srb, one of our
      directors. This loan was non-interest bearing and was payable on demand and
      has
      subsequently been repaid.  -57-
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On
      April
      29, 2005, pursuant to an option agreement with Richard Trotter, our Chief
      Operating Officer, we agreed to issue options to purchase up to 875,000 shares
      of our common stock. Subject to vesting, the stock options are exercisable
      for
      five years from the vesting date at $0.605 per share. Options to purchase
      175,000 shares vested on April 29, 2005, additional options to purchase 175,000
      shares vested on April 29, 2006, and the remaining options are to vest in equal
      installments over the next three anniversary date of the agreement.





We
      believe that the terms of all of the above transactions are commercially
      reasonable and no less favorable to us than we could have obtained from an
      unaffiliated third party on an arm's length basis. Our policy requires that
      all
      related parties recuse themselves from negotiating and voting on behalf of
      our
      company in connection with related party transactions.


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**ITEM
      13. EXHIBITS**





The
      following exhibits are filed with this report:




Exhibit
                Number
            
            Description
                of ExhibitExhibit
                2.1
            
            Agreement
                and Plan of Reorganization, dated as of February 27, 2004 (Incorporated
                by
                reference to Exhibit 2 of Form 10-KSB filed on August 13,
                2004)Exhibit
                3(i) (1)
            
            Articles
                of Incorporation of Tomahawk Oil and Minerals, Inc. (Incorporated
                by
                reference to Exhibit 3(i) (1) of Form 10-KSB filed on August 13,
                2004)Exhibit
                3(i) (2)
            
            Certificate
                of Amendment of Articles of Incorporation, November 1983 (Incorporated
                by
                reference to Exhibit 3(i) (2) of Form 10-KSB filed on August 13,
                2004)Exhibit
                3(i) (3)
            
            Certificate
                of Amendment of Articles of Incorporation for name change, August
                2004
                (Incorporated by reference to Exhibit 3(i) of Form 8-K filed on August
                27,
                2004)Exhibit
                3(i) (4)
            
            Certificate
                of Amendment of Articles of Incorporation for increase in authorized
                capital, September 2004 (Incorporated by reference to Exhibit 3(i)
                of Form
                8-K filed on September 17, 2004)Exhibit
                3(i) (5)
            
            Certificate
                of Amendment of Articles of Incorporation for decrease in authorized
                capital, December 2004 (Incorporated by reference to Exhibit 3(i)
                of Form
                8-K filed on December 23, 2004)Exhibit
                3(i) (6)
            
            Certificate
                of Designation for Series A Redeemable Preferred Stock, December
                2004
                (Incorporated by reference to Exhibit 3(i) of Form 8-K filed on January
                4,
                2005)Exhibit
                3(ii) (1)
            
            By-laws
                (Incorporated by reference to Exhibit 3(ii) (1) of Form 10-KSB filed
                on
                August 13, 2004)Exhibit
                3(ii) (2)
            
            By-laws
                Resolution (Incorporated by reference to Exhibit 3(ii) (2) of Form
                10-KSB
                filed on August 13, 2004)Exhibit
                3(ii) (3)
            
            Board
                of Directors Resolutions amending By-laws (Incorporated by reference
                to
                Exhibit 3(ii) of Form 10-QSB filed on December 15,
                2004)Exhibit
                4.1
            
            2005
                Stock Incentive Compensation Plan (Incorporated by reference to Exhibit
                4
                of Form 10-KSB filed on August 13, 2004)Exhibit
                10.1
            
            Service
                Agreement with American Motorcycle Leasing Corp. (Incorporated by
                reference to Exhibit 10.1 of Form 10KSB filed on August 13,
                2004)Exhibit
                10.2
            
            License
                Agreement with American Motorcycle Leasing Corp. (Incorporated by
                reference to Exhibit 10.1 of Form 10KSB filed on August 13,
                2004)Exhibit
                10.3
            
            Amended
                License Agreement with American Motorcycle Leasing Corp. (Incorporated
                by
                reference to Exhibit 10.1 of Form 10KSB filed on August 13,
                2004)Exhibit
                10.4
            
            Form
                of Employment Agreement with Anthony Havens (Incorporated by reference
                to
                Exhibit 10.4 of Form 10-KSB filed on August 13, 2004)Exhibit
                10.5
            
            Consulting
                Agreement with Glenn Little (Incorporated by reference to Exhibit
                10.6 of
                Form 10-KSB filed on August 13, 2004)Exhibit
                10.6
            
            Employment
                Agreement with Richard Trotter (Incorporated by reference to Exhibit
                10 of
                Form 8-K filed on October 29, 2004)Exhibit
                10.7
            
            Purchase
                Option Agreement with American Motorcycle Leasing Corp., dated November
                2,
                2004 (Incorporated by reference to Exhibit 10.8 of Form 10-KSB filed
                on
                July 25, 2005)Exhibit
                10.8
            
            Lease
                for office facilities (Incorporated by reference to Exhibit 10 of
                Form
                10-QSB filed on December 15, 2004)Exhibit
                10.9
            
            Option
                Agreement with Richard Trotter (Incorporated by reference to Exhibit
                10.1
                of Form 8-K filed on May 5, 2005)Exhibit
                10.10
            
            Master
                Loan and Security Agreement - Motor Vehicles (Incorporated by reference
                to
                Exhibit 10.1 of Form 8-K filed on July 28, 2005)Exhibit
                10.11
            
            Master
                Loan and Security Agreement (Installment Sale Contract) (Incorporated
                by
                reference to Exhibit 10.2 of Form 8-K filed on July 28,
                2005)Exhibit
                10.12
            
            Form
                of Warrant included in Units (Incorporated by reference to Exhibit
                10.1 of
                Form 10-QSB filed on March 22, 2006)Exhibit
                10.13
            
            Form
                of Loan Agreement, December 2005 (Incorporated by reference to Exhibit
                10.1 of Form 10-QSB filed on March 22, 2006)Exhibit
                10.14
            
            Form
                of Subscription Agreement (Incorporated by reference to Exhibit 10.1
                of
                Form 8-K filed on January 4,
                2006)


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Exhibit
                10.15*
            
            Consulting
                Agreement with Christopher KennanExhibit
                10.16*
            
            Consulting
                Agreement with American Capital Ventures, Inc.Exhibit
                11
            
            Statement
                re: computation of per share earnings is hereby incorporated by reference
                to “Financial Statements” of Part I - Financial Information, Item 1 -
                Financial Statements, contained in this Form 10-QSB.Exhibit
                31.1*
            
            Certification
                of Chief Executive Officer and Principal Financial Officer Pursuant
                to
                Securities Exchange Act Rule 13a-14(a)/15d-14(a)Exhibit
                32.1*
            
            Certification
                of Chief Executive Officer and Principal Financial Officer Pursuant
                to
                Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
                1350





*
            Filed
                herewith.





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**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**





**Audit
      Fees**





Fees
      for
      audit services provided by our principal accountant during the years ended
      April
      30, 2006 and 2005 were $44,200 and $39,746, respectively. Audit services
      consisted primarily of the annual audits, review of our financial statements,
      and services that are normally provided by our accountants in connection with
      statutory and regulatory filings or engagements for those fiscal
      years. ****





**Audit-Related
      Fees**





There
      were no fees billed for services reasonably related to the performance of the
      audit or review of our financial statements outside of those fees disclosed
      above under the caption Audit Fees for fiscal years ended April 30, 2006 and
      2005.





**Tax
      Fees**





Fees
      for
      tax services provided by our principal accountant during the years ended April
      30, 2006 and 2005 were $0.00 and $1,500, respectively. Tax services related
      primarily to the preparation of company tax filings with regulatory agencies.





**All
      Other Fees**





There
      were no other fees billed for services.





**Audit
      Committee Procedure**





The
      Board
      of Directors is responsible for matters typically performed by an audit
      committee. We do not presently have a separate audit committee of the Board
      of
      Directors. The Board of Directors considered whether, and determined that,
      the
      auditor's provision of non-audit services was compatible with maintaining the
      auditor's independence. All of the services described above for fiscal years
      ended April 30, 2006 and 2005 were approved by the Board of Directors. We intend
      to continue using our principal registered public accounting firm, solely for
      audit and audit- related services, tax consultation and tax compliance services,
      and, as needed, for due diligence in acquisitions and similar
      transactions.





**Pre-Approval
      Policies and Procedures**





The
      Board
      of Directors approved all of the services described above, and all fees paid.
      The Board of Directors did not have pre-approval policies and procedures in
      place during our fiscal years ended April 30, 2006 and 2005. In fiscal year
      2007, we intend to implement a policy whereby, we will, prior to engaging our
      accountants to perform a particular service, obtain an estimate for the service
      to be performed and begin pre-approving all services.


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**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





SPARTA
                COMMERCIAL SERVICES, INC.
              
              By: 
                /s/
                Anthony L. Havens
              
              Anthony
                L. Havens
              Chief
                Executive Officer
              and
                Principal Financial Officer
              
              Date:
                August 22, 2006


In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities indicated
      and on the dates indicated:








Date:
                August 22, 2006
              
              
              
              
              
              Date:
                August 22, 2006
              
              
              
              Date:
                August 22, 2006
              
              
              
              Date:
                August 22, 2006
            By:/s/
                Anthony L. Havens
              
              Anthony
                L. Havens
              Chief
                Executive Officer,Principal
                Financial Officer,
              andChairman
                of the Board
              
              By:/s/
                Sandra L. Ahman
              
              Sandra
                L. Ahman
              Vice
                President and Director
              
              By:/s/
                Kristian Srb
              
              Kristian
                Srb
              Director
              
              By:/s/
                Jeffrey Bean
              
              Jeffrey
                Bean
              Director




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