UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K





(Mark
One)





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the fiscal year ended April 30, 2009





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from __________ to __________.





Commission
file number: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)
              
              (I.R.S. Employer Identification No.)462 Seventh Ave, 20th Floor, New York, NY
              
              10018(Address of principal executive offices)
              
              (Zip Code)





Registrant's telephone
number, including area code: (212) 239-2666





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





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





Common Stock, par value
    $0.001(Title
      of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    ̈ Yes   x No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.    ̈ Yes   x No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceeding12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    x Yes   o No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every interactive Data File required to be
submitted and posted pursuant to Rule 504 of Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to file such files).     o Yes   o No





Indicate
by check mark  if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.   o





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


Large accelerated filer  ̈
                    
                    Accelerated filer  ̈Non-accelerated filer  ̈ (Do not check if a smaller reporting company)
                    
                    Smaller reporting company x





Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).   o Yes   x No





The
issuer's revenues for its most recent fiscal year: $1,144,644.





The
aggregate market value of voting and non-voting common equity of the issuer held
by non-affiliates, after including 75,000 vested but unissued shares, on October
30, 2008 was $3,941,727.





As of
August 11, 2009, we had 309,733,087, shares of common stock issued and
outstanding.





DOCUMENTS INCORPORATED BY
REFERENCE:  None.





SPARTA
COMMERCIAL SERVICES, INC.





TABLE
OF CONTENTS





PagePART
      IItem
      1.
                                          
                                          Business
                                          
                                          3Item
      1A.
                                          
                                          Risk
      Factors
                                          
                                          11Item
      1B.
                                          
                                          Unresolved
      Staff Comments
                                          
                                          16Item
      2.
                                          
                                          Properties
                                          
                                          16Item
      3.
                                          
                                          Legal
      Proceedings
                                          
                                          16Item
      4.
                                          
                                          Submission
      of Matters to a Vote of Security Holders
                                          
                                          16PART
      IIItem
      5.
                                          
                                          Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                          
                                          17Item
      6.
                                          
                                          Selected
      Financial Data
                                          
                                          19Item
      7.
                                          
                                          Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                          
                                          19Item
      7A.
                                          
                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                          
                                          24Item
      8.
                                          
                                          Financial
      Statements and Supplementary Data
                                          
                                          25Item
      9.
                                          
                                          Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                          
                                          53Item
      9A.
                                          
                                          Controls
      and Procedures
                                          
                                          53Item
      9B.
                                          
                                          Other
      Information
                                          
                                          53PART
      IIIItem
      10.
                                          
                                          Directors,
      Executive Officers and Corporate Governance
                                          
                                          55Item
      11.
                                          
                                          Executive
      Compensation
                                          
                                          57Item
      12.
                                          
                                          Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                          
                                          60Item
      13.
                                          
                                          Certain
      Relationships and Related Transactions, and Director
      Independence
                                          
                                          62Item
      14.
                                          
                                          Principal
      Accountant Fees and Services
                                          
                                          63Item
      15.
                                          
                                          Exhibits,
      Financial Statement Schedules
                                          
                                          64Signatures
                                          
                                          
                                          
                                          66


2


PART
I





ITEM
      1.
            BUSINESS





General
Overview





Sparta
Commercial Services, Inc. ("Sparta" "we," "us," or the "Company") is a Nevada
corporation. We are an independent financial services provider, offering
consumer retail installment sales contracts and both consumer and commercial
lease financing to the powersports industry.





Our
principal business is to provide financing products, primarily to purchasers and
lessees of new and used motorcycles, scooters, and utility all-terrain vehicles
(ATVs) that meet our credit criteria and program parameters. Additionally, we
offer commercial fleet leasing to dealers and owners of motorcycle rental fleets
and provide, on both a direct and a pass through basis, commercial equipment
leasing to municipalities, including, but not limited to, police
motorcycles.





We have,
and continue to develop, relationships with powersports dealers and
manufacturers to provide our financing products to their customers. We also seek
to expand our "Private Label" versions of our financing products to motorcycle,
scooter, and all-terrain vehicle manufacturers and distributors to enable their
dealers to assist their customers in acquiring the powersports vehicle of their
choice.





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





Our
Business





We are a
specialized consumer finance company engaged primarily in the purchase of retail
installment sales contracts and the origination of leases to assist consumers in
acquiring new and used motorcycles (550cc and higher), scooters,
and  4-stroke ATVs.  We believe that the market for consumer
finance products for motorcycles and ATVs is largely underserved by traditional
lenders.





We have
and continue to develop additionally relationships with powersports vehicle
dealers and manufacturers to provide our financing products to their customers.
We also seek to provide powersport vehicle manufacturers and distributors a
private label version of our financing products to enable their dealers to
assist their customers in acquiring the powersports vehicle of their
choice.  Additionally, we offer an equipment leasing product to
municipalities, including, but not limited to, the leasing of police
motorcycles.





Business
Overview





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





·
            Retail
      installment sales contracts and
leases;


·
            Municipal
      leasing of equipment;


·
            Private
      label programs for manufacturers and
  distributors;


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


·
            Remarketing
      of repossessed vehicles and off-lease
vehicles.





Sparta's
management believes that by offering dealers (and their customers) the option of
either financing or leasing, Sparta will 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.


3


Retail
Installment Sales Contracts and Leases





Retail Installment Sales Contracts
(RISC) – Sparta purchases retail installment sales contracts from both
franchised and independent powersports dealers who qualify as Authorized Sparta
Dealers and/or as Authorized Private Label 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 customer 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.





To insure
that Sparta's Credit Evaluation Process and Collateral Guidelines are
consistently applied and that the credit/underwriting decisioning process
provides rapid decisions to our Authorized Sparta Dealers and the Authorized
Private Label Dealers, Sparta has developed a point of sale credit application
and contract decisioning web based platform.  This system is named
"iPLUSÒ"
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 installment sales
contracts as collateral for the loan.





All of
the retail installment sales 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 $5,000 to $40,000. Contract terms of 24 to 60 months
are offered.





Leases– Sparta purchases
qualified vehicles for lease to customers of its Authorized Sparta Dealers
and/or Authorized Private Label Dealers.  While the steps in the
leasing process are almost identical to those in the retail 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 a retail installment sales contract which finances a
customer's purchase of a vehicle owned by the customer, the lease agreement
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 similar
retail installment sales contracts because a sales contract finances only part
of the vehicle cost with the balance being financed by the
lessor.  Unlike with retail installment sales contracts, Sparta can
and does charge acquisition fees for each of its leases. These fees range from
$290 to $490 per lease depending on the amount of the lease.





In July
2006, we announced an agreement for accepting and processing motorcycle credit
applications from a Fortune 500 global diversified financial provider. Under the
agreement, the company electronically transmits to Sparta loan applications
which meet Sparta's lending/leasing criteria.  In May 2008, this
agreement was terminated as said company decided to cease doing business in the
powersports industry.





In May
2006, we entered into a limited Marketing Agreement with netLoan Funding, LLC
("netLoan"). eBay Motors is under an agreement with netLoan whereby eBay Motors
customers wishing to finance powersports vehicles are referred to the netLoan
web site. Under our agreement with netLoan, these customers are then redirected
from the netLoan web site electronically to a co-branded Sparta iPLUSÒweb
site where their credit applications are processed. In April 2008, this
agreement was amended and expanded to include referrals from eLoan's and NADA's
(National Automotive Dealers Association) powersports web pages and to include
credit applications from these three sources for all motorcycles over 550cc. We
pay netLoan a fee for each funded contract or lease processed through this
co-branded web site. This program is inactive at the present
time.


4


Municipal Leasing of Equipment,
including Police Motorcycles





In
February 2007, Sparta launched a new Municipal Leasing Product designed
expressly to meet the needs of law enforcement agencies throughout the U.S.
Sparta estimates that the annual municipal market for new law enforcement
motorcycles, alone, exceeds $300 million annually, based upon extensive
discussions that the company conducted among Harley-Davidson, Honda, and BMW
dealers, with those brands being the most prominent in the municipal
environment.  Sparta believes that most of these agencies have
historically been purchasing these vehicles with few, if any, financing
alternatives, therefore, we developed a leasing alternative for governmental
organizations to acquire the motorcycles they need, and remain within their
budgets at the same time. We have partnered with a wholly owned subsidiary of a
state chartered bank which specializes in municipal financing. Under this
relationship, the Company originates for this subsidiary and negotiates the
leases on behalf of it and the municipality. The Company receives an upfront
origination fee and a structured commission for each closed lease.





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 other financial
products and services to these dealers for their customers interested in
non-"private label" brand of 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 Sparta Dealers,
which will enable them to use us as a source for financing their non-private
label brand of vehicles.





In May
2007, Sparta announced the launch of a consumer leasing product for Moto Guzzi
and Aprilia, the two motorcycle brands distributed by Piaggio Group Americas,
Inc. This product will enable all Moto Guzzi and Aprilia dealers to offer
Sparta's Flex Lease program to their customers as alternatives to traditional
retail installment sales financing. Piaggio Group's US dealer network currently
numbers approximately 400, including retailers of Vespa and Piaggio, the two
well known brands of scooters also distributed by the Piaggio Group. Among those
dealers, more than 180 carry the Moto Guzzi and/or Aprilia brands. Piaggio Group
Americas, Inc. is a subsidiary of Piaggio & C. S.P.A., based in Pontedera,
Italy.





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:





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 or the lease of the
vehicle.





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


5


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 Authorized Sparta
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 an Authorized Sparta 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 prepares it for
resale/lease. All Authorized Sparta Dealers and all Authorized 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 Authorized Sparta
Dealer to be reconditioned (if needed) for consignment sale or re-lease in the
same manner as returned vehicles.





Second Chance Express – Sparta
allows its Authorized Sparta 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 our Authorized Sparta Dealers and our Authorized Private
Label Dealers, Sparta has worked closely with a leading provider of interactive
credit accessing and decisioning solutions, to develop ouriPLUSÒpoint
of sale credit application decisioning and contract generating web based
platform.





iPLUSÒ(internet Purchasing
Leasing Underwriting Servicing)





Sparta's
retail installment sales contract and leasing products are delivered through a
proprietary, web-based, credit application processing platform.  This
system is named iPLUSÒ
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 iPLUSÒprovides
the Authorized Sparta Dealers and Authorized Private Label Dealers with a
competitive advantage and increases Sparta's ability to obtain a larger share of
the dealer's business.


6


Major
features of iPLUSÒinclude:





·
            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


·
            Contract
      and lease calculator (assists dealer in structuring any approved
      application.)


·
            Prints
      approved customer contract and related
documents


·
            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 iPLUSÒ
decisioning 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 agreements, depending on the applicant's credit rating and
stability.  Sparta has developed its own credit criteria 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. Should the customer seek financing above this threshold, Sparta asks
for a down payment from the borrower or lessee to close the gap between selling
price and 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.





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 agreements.  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 is
permitted to repossess a vehicle if coverage


lapses.  Any
lapse in insurance coverage for any reason will lead to reinstatement of
insurance coverage or repossession of leased vehicle.


7


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 purchase retail
installment sales contracts or lease vehicles), such as minimum income, debt
ratios, payment to income ratios, minimum down payment required, acquisition
fees (paid by dealer), discounts (paid by dealer), etc.





Portfolio Performance –
Contracts and leases over 30 days delinquent were 1.88% of total portfolio
balances at April 30, 2007, 2.85% at April 30, 2008, and 3.70% at April 30,
2009. Cumulative net losses and charge-offs as a percent of cumulative portfolio
originations were 1.53% at April 30, 2007, 1.17% at April 30, 2008, and 3.27% at
April 30, 2009. Additionally, as of April 30, 2009, the Company maintained a
cash reserve with its Senior Lender equal to 9.72% of the outstanding loan
balance with that lender.





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 2008 Statistical Annual Report of the Motorcycle Industry
Council, retail sales of new motorcycles have grown steadily from 1991 through
2006. North American registrations of new 651cc and higher motorcycles were
479,939 in 2008, a 7% decline from 2007 at 516,100.  Sparta estimates
that the 2008 US retail market for new and used 600cc+ motorcycles was $8.5
billion.





U.S.
sales of new ATVs were estimated to be 432,000 units in 2008, a 29% decline from
2007 as reported in Powersports Business Magazine in the February 9, 2009 issue.
Sales of Utility ATVs in 2008 were essentially unchanged from 2007 at 130,000
units according to the same Powersports Business issue.





Estimated
U.S scooter unit sales for calendar 2008 are estimated to be 76,700 up
approximately 41.5% from calendar year 2007, according to Powersports Business
Magazine in the February 11, 2009 issue.





Sales
and Marketing





Normally,
vehicle financing products are sold primarily at the dealer level, rather than
the consumer level.  Our strategy is to, additionally, 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 powersports vehicle direct financing products continue
to gain market acceptance as evidenced by our four Private Label
Contracts.  This direct sales force will be comprised of Marketing
Group and a Dealer Services Group.





The
Marketing Group will continue to work directly with the manufacturers and
distributors to obtain additional Private Label Contracts 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.


8


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





Authorized
Sparta 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 Sparta Dealers who
sell or lease either our inventory vehicle at their dealership or one that is at
another dealership in our network.





With the
exception of the netLoan program and the program with the Fortune 500 company
both described under the "Retail Installment Sales Contracts and Leases" section
above, we do not market or sell directly to consumers, but 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
Sparta Dealers or Authorized 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 Sparta 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 provide financing for powersports
vehicles. Customers who approach these lending sources to obtain financing for
the purchase of a powersports vehicle are often encouraged to pursue a personal
unsecured loan instead.





There are
few companies that provide nationwide dealer-based leasing options in the
powersports 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
tightened their underwriting criteria. For instance, Sparta's closest
competitors, Capitol One, HSBC and GE Capital have chosen to refocus their
efforts toward enterprises that are more in line with their traditional core
business. 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.





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 to their own dealers.





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 and longer terms (up
to 108 months) Sparta believes that the combination of management's experience,
expedient service, availability of the lease option and iPLUSÒ
give Sparta an advantage over its competitors.


9


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 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 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.




·
            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 can figure out what the charges are, compare costs, and shop for
      the best credit deal.




·
            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, if requested to do
so.




·
            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.




10


·
            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
April 30, 2009, we had 14 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
      1A.
            RISK
      FACTORS





Risks
Related to Our Financial Results





We
have an operating history of losses.





Through
our fiscal year ended April 30, 2009, we have generated cumulative sales
revenues of $3,297,271, have incurred significant expenses, and have sustained
significant losses. Our net loss for the year ended April 30, 2009 was
$4,921,846 (after $1,794,610 in non-cash charges).  As of April 30,
2009, we had a deficit net worth of $6,126,410.





We
have entered into credit lines with institutional lenders, which have acquired
preferences and rights senior to those of our capital stock and placed
restrictions on the payment of dividends.





In July
2005, we entered into a secured senior credit facility with New World Lease
Funding for a revolving line of credit. New World received a security interest
in substantially all of our assets with seniority over the rights of the holders
of our preferred stock and our common stock. Until the security interests are
released, those assets will not be available to us to secure future
indebtedness. Presently, the New World line is inactive. As of April 30, 2009,
we owed an aggregate of $3,588,322 (which is secured by $4,005,220 of consumer
retail Installment Sales Contracts and Leases and $348,863 of restricted cash)
to New World. In granting the credit line, New World also required that we meet
certain financial criteria in order to pay dividends on any of our preferred
shares and common shares. We may not be able to repay our outstanding
indebtedness under the credit line.





In
December 2008, our wholly owned subsidiary, Sparta Funding, LLC, entered into an
agreement for a secured credit facility with DZBank.  The DZBank
facility requires, among other things, that we have a minimum tangible net worth
of $2,000,000 before Sparta Funding can access credit for the purchase of
consumer retail installment sales contracts from our authorized and private
label dealers and the purchase of vehicles for lease to customers of our
authorized and private label dealers. In addition to the tangible net worth we
must obtain commitments for $3,000,000 of additional capital (in the form of
subordinated debt or other committed capital satisfactory to DZ Bank) to access
the DZBank facility.  We are engaged in discussions with potential
investors regarding such commitments, but as July 30, 2009, with the exception
of the agreement with Optimus Capital Partners, no definitive agreements have
been reached for such commitments, nor are have we reached any agreement on
potential terms of any such commitments.  Unless and until we receive
such commitments or DZBank waives such requirement, we will not be able to
access the DZBank facility.  If Sparta Funding is able to access the
DZBank facility, all of the consumer retail and installment sales contracts,
consumer leases and the underlying vehicles obtained through the use of the
DZBank facility will be pledged as security therefore.  If Sparta
Funding is unable to repay its outstanding indebtedness under the DZBank
facility, DZBank could foreclose on all of those pledged assets. If Sparta
Funding is unable to access the DZBank facility or does not have sufficient cash
flow to repay the DZBank facility, we will not be able to implement our business
plan, which would have a material adverse affect on our future
viability.


11


On July
29, 2009, we entered into a Preferred Stock Purchase Agreement with Optimus
Capital Partners, LLC, an unaffiliated investment fund.  Under the
agreement, Optimus is committed to purchase up to $5,000,000 of our Series B
Preferred Stock for a one year period.  From time to time, we may send
a notice requiring Optimus to purchase shares of our Series B Preferred Stock,
subject to satisfaction of certain closing conditions.  Optimus will
not be obligated to purchase the Series B Preferred Stock (i) in the event the
closing price of our common stock during the nine trading days following
delivery of a purchase notice falls below 75% of the closing price on the
trading day prior to the date such notice is delivered to Optimus, or (ii) to
the extent such purchase would result in Optimus and its affiliates beneficially
owning more than 9.99% of our common stock.
 
 On the
date of delivery of each purchase notice under the agreement, we will also issue
to Optimus five-year warrants to purchase our common stock at an exercise price
equal to the closing price of our common stock on the trading day prior to the
delivery date of the notice.  The number of shares issuable upon
exercise of the warrant will be equal in value to 135% of the purchase price of
the Series B Preferred Stock to be issued in respect of the related
notice.  Each warrant will be exercisable on the earlier of (i) the
date on which a registration statement registering for resale the shares of
common stock issuable upon exercise of such warrant becomes effective and (ii)
the date that is six months after the issuance date of such
warrant.
 
 The
Series B shares, with respect to dividend rights and rights upon liquidation,
winding-up or dissolution, rank senior to our common stock and any other class
or series of preferred stock, and junior to all of our existing and future
indebtedness.  The Series B shares accrue dividends at an annual rate
of 10%.  Accrued dividends are payable upon redemption of the Series B
shares.  Our common stock may not be redeemed while Series B shares
are outstanding.  The Series B certificate of designations provides
that, without the approval of a majority of the Series B shares, we cannot
authorize or create any class of stock ranking as to distribution of assets upon
a liquidation senior to or otherwise pari passu with the Series B shares,
liquidate, dissolve or wind-up our business and affairs, or effect certain
fundamental corporate transactions, or otherwise alter or change adversely the
powers, preferences or rights given to the Series B shares.  The
Series B shares have a liquidation preference per share equal to the original
price per share thereof plus all accrued dividends thereon upon liquidation,
including upon consummation of certain fundamental corporate transactions,
dissolution, or winding up of our company.  The Series B shares are
redeemable at our option on or after the fifth anniversary of the date of its
issuance.


There can
be no assurance that the funding available under this Purchase Agreement will be
sufficient to fund our working capital requirements or the requirements of DZ
Bank.





Our
business requires extensive amounts of capital and we will need to obtain
additional financing in the near future.





Subject
to meeting certain financial covenants described above, we have an extendable,
one year, $25 million secured, committed revolving credit facility with the
DZBank facility which allows us to borrow up to 80% of the value of a
powersports vehicle, in the case of leased vehicles, or 80% of the amount
financed by the ultimate purchaser in the case of vehicles which are
sold.  As a result, in order to expand our business, we need capital
to support the portion of the value which is not financed by the senior
lender.  We generally refer to this portion as the "equity
requirement" and the "sub-debt requirement".  Presently, we have very
limited operating capital to fund the equity requirements for new financing
transactions or to execute our business plan. In order to accomplish our
business objectives, we expect that we will require substantial additional
financing within a relatively short period. The lack of capital has made it
difficult to offer the full line of financing products contemplated by our
business plan. While we believe that if we obtain additional financing and we
obtain the required DZ Bank capital commitments, we will have sufficient capital
resources to access the DZBank facility and fund our working capital needs for
the next twelve months, as our business grows, we may need to seek additional
financing to fund such growth. To the extent that our revenues do not provide
sufficient cash flow to cover such equity requirements and any reserves required
under an additional credit facility, we may have to obtain additional financing
to fund such requirements as may exist at that time. There can be no assurance
that we will have sufficient capital or be able to secure additional credit
facilities when needed. The failure to obtain additional funds, when required,
on satisfactory terms and conditions, would have a material and adverse effect
on our business, operating results and financial condition, and ultimately could
result in the cessation of our business.


12


To the
extent we raise additional capital by issuing equity securities, our
stockholders may experience substantial dilution. Also, any new equity
securities may have greater rights, preferences or privileges than our existing
common stock. A material shortage of capital will require us to take drastic
steps such as reducing our level of operations, disposing of selected assets or
seeking an acquisition partner. If cash is insufficient, we will not be able to
continue operations.





Our
auditor's opinion expresses doubt about our ability to continue as a "going
concern".





The
independent auditor's report on our April 30, 2009 financial statements state
that our historical losses raise substantial doubts about our ability to
continue as a going concern. We cannot assure you that we will be able to
generate revenues or maintain any line of business that might prove to be
profitable. Our ability to continue as a going concern is subject to our ability
to generate a profit or obtain necessary funding from outside sources, including
obtaining additional funding from the sale of our securities, increasing sales
or obtaining credit lines or loans from various financial institutions where
possible. If we are unable to develop our business, we may have to discontinue
operations or cease to exist, which would be detrimental to the value of our
common stock. We can make no assurances that our business operations will
develop and provide us with significant cash to continue
operations.





Risks
Related to Our Business





A
significant number of customers may fail to perform under their loans or
leases.





As a
lender, one of the largest risks we face is the possibility that a significant
number of customers will fail to pay their payments when due. If customers'
defaults cause losses in excess of our allowance for losses, it could have an
adverse effect on our business, profitability and financial condition. If a
borrower enters into bankruptcy, we may have no means of recourse. We have
established an evaluation process designed to determine the adequacy of the
allowance for losses. While this evaluation process uses historical and other
objective information, the establishment of losses is dependent to a great
extent on management's experience and judgment. We cannot assure you that our
loss reserves will be sufficient to absorb future losses or prevent a material
adverse effect on our business, profitability or financial
condition.





A
variety of factors and economic forces may affect our operating
results.





Our
operating results may differ from current forecasts and projections
significantly in the future as a result of a variety of factors, many of which
are outside our control. These factors include, without limitation, the receipt
of revenues, which is difficult to forecast accurately, the rate of default on
our loans and leases, the amount and timing of capital expenditures and other
costs relating to the expansion of our operations, the introduction of new
products or services by us or our competitors, borrowing costs, pricing changes
in the industry, technical difficulties, general economic conditions and
economic conditions specific to the motorcycle industry. The success of an
investment in a consumer financing based venture is dependent, at least, in
part, on extrinsic economic forces, including the supply of and demand for such
services and the rate of default on the consumer retail installment contracts
and consumer leases.  No assurance can be given that we will be able
to generate sufficient revenue to cover our cost of doing business. Furthermore,
our revenues and results of operations will be subject to fluctuations based
upon general economic conditions. Economic factors like unemployment, interest
rates, the availability of credit generally, municipal government budget
constraints affecting equipment purchases and leasing, the rate of inflation,
and consumer perceptions of the economy may affect the rate of prepayment and
defaults on customer leases and loans and the ability to sell or dispose of the
related vehicles for an amount at least equal to their residual values which may
have a material adverse effect on our business.


13


A
material reduction in the interest rate spread could have a negative impact on
our business and profitability.





A
significant portion of our net income is expected to come from an interest rate
spread, which is the difference between the interest rates paid by us on
interest-bearing liabilities, and the interest rate we receive on
interest-earning assets, such as loans and leases extended to customers.
Interest rates are highly sensitive to many factors that are beyond our control,
such as inflation, recession, global economic disruptions and unemployment.
There is no assurance that our current level of interest rate spread will not
decline in the future. Any material decline would have a material adverse effect
on our business and profitability.





Failure
to perfect a security interest could harm our business.





An
ownership interest or security interest in a motor vehicle registered in most
states may be perfected against creditors and subsequent purchasers without
notice for valuable consideration only by complying with certain procedures
specific to the particular state.  While we believe we have made all
proper filings, we may not have a perfected lien or ownership interest in all of
the vehicles we have financed. We may not have a validly perfected ownership
interest and security interest, respectively, in some vehicles during the period
of the loan. As a result, our ownership or security interest in these vehicles
will not be perfected and our interest could be inferior to interests of other
creditors or purchasers who have taken the steps described above. If such
creditors or purchasers successfully did so, the affected vehicles would not be
available to generate their expected cash flow, which would have a material
adverse effect on our business.





Risks
associated with leasing.





Our
business is subject to the risks generally associated with the ownership and
leasing of vehicles. A lessee may default in performance of its consumer lease
obligations and we may be unable to enforce our remedies under a lease. As a
result, certain of these customers may pose credit risks to us. Our inability to
collect receivables due under a lease and our inability to sell or re-lease
off-lease vehicles could have a material adverse effect on our business,
financial condition or results of operations.





Adverse
changes in used vehicle prices may harm our business.





Significant
increases in the inventory of vehicles may depress the prices at which we can
sell or lease our inventory of repossessed vehicles or may delay sales or
leases. Factors that may affect the level of used vehicles inventory include
consumer preferences, leasing programs offered by our competitors and
seasonality. In addition, average used powersports vehicle prices have
fluctuated in the past, and any softening in the used powersports vehicle market
could cause our recovery rates on repossessed vehicles to decline below current
levels. Lower recovery rates increase our credit losses and reduce the amount of
cash flows we receive.





Our
business is dependent on intellectual property rights and we may not be able to
protect such rights successfully.





Our
intellectual property, including our license agreements and other agreements,
which establish our rights to proprietary intellectual property developed in
connection with out credit decisioning and underwriting software system, iPLUSâ,
is of great value to our business operations. Infringement or misappropriation
of our intellectual property could materially harm our business. We rely on a
combination of trade secret, copyright, trademark, and other proprietary rights
laws to protect our rights to this valuable intellectual property. Third parties
may try to challenge our intellectual property rights. In addition, our business
is subject to the risk of third parties infringing or circumventing our
intellectual property rights. We may need to resort to litigation in the future
to protect our intellectual property rights, which could result in substantial
costs and diversion of resources. Our failure to protect our intellectual
property rights could have a material adverse effect on our business and
competitive position.


14


We
face significant competition in the industry.





We
compete with commercial banks, savings and loans, industrial thrifts, credit
unions and consumer finance companies, including large consumer finance
companies such as General Electric. Many of these competitors have well
developed infrastructure systems in place as well as greater financial and
marketing resources than we have. Additionally, competitors may be able to
provide financing on terms significantly more favorable than we can offer.
Providers of motorcycle financing have traditionally competed on the basis of
interest rates charged, the quality of credit accepted, the flexibility of terms
offered and the quality of service provided to dealers and customers. We seek to
compete predominantly on the basis of our high level of dealer service and
strong dealer relationships, by offering flexible terms, and by offering both
lease and loan options to customers with a broad range of credit profiles. Many
of our competitors focus their efforts on different segments of the credit
quality spectrum. While a number of our competitors have reduced their presence
in the powersports financing industry because of industry specific factors and
the current situation in the global credit markets, our business may be
adversely affected if any of such competitors in any of our markets chooses to
intensify its competition in the segment of the prime or sub-prime credit
spectrum on which we focus or if dealers become unwilling to forward to us
applications of prospective customers. To the extent that we are not able to
compete effectively within our credit spectrum and to the extent that the
intensity of competition causes the interest rates we charge to be lower, our
results of operations can be adversely affected.





Our
business is subject to various government regulations.





We are
subject to numerous federal and state consumer protection laws and regulations
and licensing requirements, which, among other things, may affect: (i) the
interest rates, fees and other charges we impose; (ii) the terms and conditions
of the contracts; (iii) the disclosures we must make to obligors; and (iv) the
collection, repossession and foreclosure rights with respect to delinquent
obligors. The extent and nature of such laws and regulations vary from state to
state. Federal bankruptcy laws limit our ability to collect defaulted
receivables from obligors who seek bankruptcy protection. Prospective changes in
any such laws or the enactment of new laws may have an adverse effect on our
business or the results of operations. Compliance with existing laws and
regulations has not had a material adverse affect on our operations to date. We
will need to periodically review our office practices in an effort to ensure
such compliance, the failure of which may have a material adverse effect on our
operations and our ability to conduct business activities.





We
are controlled by current officers, directors and principal
stockholders.





Our
directors, executive officers and principal stockholders beneficially own
approximately 38.7% of our common stock as of April 30,
2009.  Accordingly, these persons and their respective affiliates have
the ability to exert substantial control over the election of our Board of
Directors and the outcome of issues submitted to our stockholders, including
approval of mergers, sales of assets or other corporate transactions. In
addition, such control could preclude any unsolicited acquisition of the Company
and could affect the price of our common stock.





We
are subject to various securities-related requirements as a reporting
company.





We may
need to improve our reporting and internal controls and
procedures.  We have in the past submitted reports with the SEC after
the original due date of such reports. If we fail to remain current on our
reporting requirements, our common stock could be removed from quotation from
the OTC Bulletin Board, which would limit the ability to sell our common
stock.





We
are dependent on our management and the loss of any officer could hinder our
implementation of our business plan.





We are
heavily dependent upon management, the loss of any one of whom could have a
material adverse affect on our ability to implement our business plan. While we
have entered into employment agreements with certain executive officers,
including our Chief Executive Officer and Chief Operating Officer, employment
agreements could be terminated for a variety of reasons.  We do not
presently carry key man insurance on the life of any employee.  If,
for some reason, the services of management, or of any member of management,
were no longer available to us, our operations and proposed businesses and
endeavors may be materially adversely affected. Any failure of management to
implement and manage our business strategy may have a material adverse affect on
us. There can be no assurance that our operating and financial control systems
will be adequate to support our future operations. Furthermore, the inability to
continue to upgrade the operating and financial control systems, the inability
to recruit and hire necessary personnel or the emergence of unexpected expansion
difficulties could have a material adverse affect on our business, financial
condition or results of operations.


15


ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS





Not
applicable.





ITEM
      2.
            PROPERTIES





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, 2012. The office space contains approximately
7,000 square feet.  The rent for the year ended April 30, 2010 is
$297,590, for the year ended April 30, 2011 is $304,985, for the year ended
April 30, 2012 is $312,565, and for the seven months ending November 30, 2012 is
$184,947.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





ITEM
      3.
            LEGAL
      PROCEEDINGS





As at
April 30, 2009, 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.


16


PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





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 closing prices of our common stock, as
reported by the OTCBB. The quotations represent inter-dealer prices without
retail mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions.





High
                
                
                LowFiscal
      Year 2009First
      quarter (May 1, 2008 – July 31, 2008)
                
                $
                0.14
                
                
                $
                0.07Second
      quarter (August 1, 2008 – October 31, 2008)
                
                $
                0.10
                
                
                $
                0.03Third
      quarter (November 1, 2008 – January 31, 2009)
                
                $
                0.09
                
                
                $
                0.02Fourth
      quarter (February 1, 2009 – April 30, 2009)
                
                $
                0.09
                
                
                $
                0.02Fiscal
      Year 2008First
      quarter (May 1, 2007 - July 31, 2007)
                
                $
                0.10
                
                
                $
                0.04Second
      quarter (August 1, 2007 - October 31, 2007)
                
                $
                0.10
                
                
                $
                0.04Third
      quarter (November 1, 2007 - January 31, 2008)
                
                $
                0.065
                
                
                $
                0.03Fourth
      quarter (February 1, 2008 - April 30, 2008)
                
                $
                0.16
                
                
                $
                0.04





Holders





The
approximate number of holders of record of our common stock as of April 30, 2009
was 3,015 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, including any
restrictions pursuant to the terms of senior securities outstanding, and other
factors that the Board of Directors may consider important. The Board of
Directors does not intend to declare or pay cash dividends in the foreseeable
future. It is the current policy to retain all earnings, if any, to support
future growth and expansion.





As of
April 30, 2009, we had outstanding 125 shares of Series A Convertible Preferred
Stock, $.001 par value. The Series A shares pay a 6% annual dividend which may
be paid in cash or shares of common stock at our option.  We have not,
as of April 30, 2009, distributed any dividends, in cash or in shares of common
stock. Upon conversion of the Series A shares, all accrued and unpaid dividends
shall be "extinguished".





On July
24, 2009, we designated 1,000 shares as Series B Preferred Stock.  As
of July 31, 2009, no Series B shares were outstanding.  The Series B
shares accrue dividends at an annual rate of 10%.  Accrued dividends
are payable upon redemption of the Series B shares.





Recent
Sales of Unregistered Securities





Each of
the issuance and sale of securities described below was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. No
advertising or general solicitation was employed in offering the securities.
Each purchaser is a sophisticated investor (as described in Rule 506(b)(2)(ii)
of Regulation D) or an accredited investor (as defined in Rule 501 of Regulation
D), and each received adequate information about the Company or had access to
such information, through employment or other relationships, to such
information.


17


During
the quarter ended April 30, 2009, the Company sold to eight accredited investors
four month unsecured notes in the aggregate amount of $237,000. The notes bore
8% simple interest, payable in cash or shares, at the Company's option, with
principal and accrued interest payable at maturity. At the Company's option, the
notes were convertible into shares of common stock ranging from $0.02 to $0.048
per share.  One note in the amount of $25,000 included three year
warrants to purchase 694,444 shares of the Company's common stock at $0.15 per
share. The notes with maturity dates were to mature in four months on various
dates through August 16, 2009.  These notes plus accrued interest
thereon were converted into shares of common stock in July 2009.





During
the quarter ended April 30, 2009, the Company sold to one accredited investor
unsecured demand notes in the aggregate amount of $158,000. The notes bore 8%
simple interest, payable in cash or shares, at the Company's option, with
principal and accrued interest payable at maturity. At the Company's option, the
notes are convertible into shares of common stock ranging from $0.02 to $0.038
per share.





During
the quarter ended April 30, 2009, the Company issued to five individuals
1,874,997 shares of its common stock upon conversion of 292,500 shares of series
A convertible preferred stock, of which 222,500 had been converted in the prior
fiscal year, but the shares had not been issued.





During
the three months ended April 30, 2009, we issued to a member of our Advisory
Council, in recognition of services, 500,000 shares of our common stock valued
at $35,000.





During
the three months ended July 31, 2009, the Company sold to five accredited
investors four month unsecured notes and warrants in the aggregate amount of
$165,000.  The warrants are for a term of three years and entitle the
holder to purchase a total of 4,853,153 shares of our common stock at $0.15 per
share. The notes bore 8% simple interest, payable in cash or shares, at the
Company's option, with principal and accrued interest payable at maturity. At
the Company's option, the notes were convertible into shares of common stock
ranging from $0.02 to $0.048 per share.  The notes were to mature on
various dates through November 8, 2009.  Four of these notes
aggregating $65,000 plus accrued interest thereon were converted into
2,186,887shares of common stock in July 2009.





During
the three months ended July 31, 2009, the Company sold to one accredited
investor a four month unsecured 10% note due November 8, 2009 in the amount of
$20,000. As an inducement for the loan, the note holder was given 80,000 shares
of the Company's common stock.





During
the three months ended July 31, 2009, the Company sold to one accredited
investor unsecured 8% demand notes in the aggregate amount of $149,000. At the
Company's option, the notes are convertible into shares of common stock ranging
from $0.02 to $0.048 per share.





During
the three months ended July 31, 2009, the Company sold to one accredited
investor an unsecured 10% note in the amount of $20,000. At the note holder's
option, the notes are convertible into shares of common stock at $0.02 per
share.





During
the three months ended July 31, 2009, pursuant to the terms of a March 2009
consulting agreement, the Company issued 2,500,000 shares of its common stock
valued at $75,000. The agreement requires the Company to issue an additional
3,500,000 shares, payable 500,000 per month in arrears.





During
the three months ended July 31, 2009, pursuant to the terms of his note, the
Company issued 200,000 shares of its common stock to one note holder in payment
of $6,600.99 in accrued interest and $3,399.01 for principal reduction of the
note.





On July
29, 2009, we entered into a Preferred Stock Purchase Agreement with Optimus
Capital Partners, LLC.  Upon the terms and subject to the conditions
of the agreement, Optimus is committed to purchase up to $5,000,000 of our
Series B Preferred Stock for a one year period.  From time to time, we
may require Optimus to purchase shares of our Series B Preferred Stock, subject
to satisfaction of certain closing conditions.  In connection with
each draw down, we will also issue Optimus a five-year common stock purchase
warrant.  The warrant will have an exercise price equal to the closing
price of our common stock on the preceding trading day, and be exercisable into
such number of common shares equal in value to 135% of the purchase price of the
Series B Preferred Stock issued.  The warrant may be exercised by cash
payment, by delivery of a recourse promissory note, or by cashless
exercise.  We agreed, to file after each drawn down, and to seek and
maintain effectiveness of, a registration statement covering the shares
underlying the issued warrants. On the earlier of the first draw down or 6
months from the date of the agreement, we are to pay a non-refundable commitment
fee of $250,000 to Optimus.  Pursuant to a concurrent transaction
between Optimus and several of our non-affiliated stockholders, Optimus can
borrow up to 33,990,000 shares of our common stock from them.


18


ITEM
      6.
            SELECTED
      FINANCIAL DATA





Not
applicable.





ITEM
      7.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





"FORWARD-LOOKING"
INFORMATION





This
report on Form 10-K 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  financial statements
for the years ended April 30, 2009 and April 30, 2008 and footnotes found in the
Company's Annual Report on Form 10-K.





RESULTS
OF OPERATIONS





For the
year ended April 30, 2009, we have generated marginally increased revenues, have
incurred significant expenses, and have sustained significant
losses.  We believe we will continue generate increasing revenues from
operations in fiscal 2010.





Revenues





Revenues
totaled $1,144,644 in fiscal 2009 compared to revenues of $1,129,691 in fiscal
2008. Fiscal 2009 revenues were primarily comprised of $759,801 in interest
income from Retail Installment Sales Contracts, $298,476 in income from
Operating and Finance Leases, $14,492 in Commissions on municipal lease
transactions, $28,737 from gain on disposition of vehicles, and $43,139 in other
fee income.





Costs and
Expenses





We
incurred employee compensation and benefit costs of $1,461,957 for the year
ended April 30, 2009 compared with $1,720,945 in fiscal 2008. The decrease is
related to the reduced costs we recognized in decreasing our employee base
during the year from 18 employees at fiscal year-end 2008 to 14 employees at
fiscal year-end 2009. In order for us to expand our business in the future and
to attract and retain quality personnel, management anticipates that we will
continue to offer competitive compensation, including awards of common stock or
stock options, to consultants and employees.





We paid
$290,639 and $322,020 to its Chief Executive Officer, in fiscal 2009 and 2008,
respectively. These payments were charged to operations, and are included in the
compensation costs described above.





In
connection with placement transactions, we expensed non-cash costs in the form
of shares of common stock or warrants of $605,389 and $449,926 for the years
ended April 30, 2009 and 2008, respectively. In connection with consulting
services, we expensed non-cash costs in the form of shares of common stock or
warrants of $633,629 and $206,850 for the years ended April 30, 2009 and 2008,
respectively.  These amounts were charged to financing costs.
Additionally, during the fiscal year ended April 30, 3009, we expensed $222,409
as the value of employee stock and option based compensation as compared to
$261,850 in the prior fiscal year. At April 30, 2009 and 2008, accrued preferred
dividends of $758 and $28,422, respectively, which were charged to retained
earnings.





19




We
incurred consulting costs of $166,800 for the year ended April 30, 2009, as
compared to $215,399 for the year ended April 30, 2008. This decrease was the
result of reduced reliance on outside consultants. We incurred legal and
accounting fees of $187,891 for the year ended April 30, 2009, as compared to
$226,933 for the year ended April 30, 2008.


We
incurred other operating expenses of $1,089,029 for the year ended April 30,
2009.  Notable expenses in this category are: general office expenses
of $78,067; rent of $310,419; loss reserve expense of $445,288; travel and
entertainment of $52,423; utilities of $66,857; web development of $30,226;
credit bureaus of $39,714; lease booking fees of $13,250; marketing of $18,319;
maintenance contracts of $17,665; and taxes of $16,799. We incurred other
operating expenses of $1,043,238 for the year ended April 30,
2008.  Notable expenses in this category are: general office expenses
of $290,621; rent of $225,953; loss reserve expense of $125,252; travel and
entertainment of $92,411; utilities of $82,719; web development of $89,387;
credit bureaus of $43,728; marketing of $40,902; maintenance contracts of
$18,039; and taxes of $23,208.





Interest
costs for the fiscal year ended April 30, 2009 were $963,890 as compared to
$702,233 for the fiscal year ended April 30, 2008. Depreciation and amortization
for the fiscal year ended April 30, 2009 was $310,601 as compared to $274,773
for the fiscal year ended April 30, 2008.





Net Loss





Our net
loss attributable to common stockholders for the year ended April 30, 2009
increased $901,828 (22.4%) to $4,922,605 from a loss of $4,020,776 for the year
ended April 30, 2008. The increase in net loss attributable to common
stockholders was primarily due to:  a $200,841 (5.1%) increase in
total operating expenses from $3,969,988 to $4,170,829; a $14,953 (1.3%)
increase in revenues from $1,129,691 to $1,144,644; and a $743,604 (64.5%)
increase in interest expense and financing costs from $1,152,259 to
$1,895,661.





Our net
loss per common share (basic and diluted) attributable to common stockholders
was $0.03 for the year ended April 30, 2009 and $0.03 for the year ended April
30, 2008.





LIQUIDITY
AND CAPITAL RESOURCES





As of
April 30, 2009, we had a deficit net worth of $6,126,410. We generated a deficit
in cash flow from operations of $2,303,295 for the year ended April 30, 2009.
This deficit is primarily attributable to net loss from operations of
$4,922,605, adjusted for equity based compensation of $915,652, stock based
financing costs of $539,240 allowance for loss reserve of $156,432, beneficial
conversion discount of convertible securities of $325,000, issuance of shares
for debt and accrued interest of $226,941, and extinguishment of preferred
dividends payable of $117,437, and to changes in the balances of current assets,
consisting primarily of an increase in pre-paid expenses of $532,849 and a
decrease in other receivables of $9,223, and current liabilities, consisting
primarily of an increase in accounts payable of $562,407 and a decrease in
restricted cash of $96,039. Cash flows provided by investing activities for the
year ended April 30, 2009 were $1,239,431, comprising of $449,002 for the
retirement of leased vehicles, liquidation of Retail Installment Sales Contracts
in the amount of $863,065, and the purchase of a portfolio of loans on leases of
$72,635. We met our cash requirements during the period through net proceeds
from the issuances of notes of $2,382,415, and we repaid senior loans of
$1,441,542 during the period.





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.





In
December 2008 we, along with our wholly-owned affiliate, Sparta Funding LLC, a
Delaware limited liability company, entered into a $25,000,000 committed,
extendable, secured credit facility with DZBank AG Deutsche
Zentral–Genossenschaftsbank, Frankfurt am Main, New York Branch pursuant to a
Revolving Credit Agreement which allows Sparta Funding to borrow 80% of the
value of a powersports vehicle in the case of leased vehicles or 80% of the
amount financed by the ultimate purchaser in the case of vehicles, which are
sold at a floating interest rate equal to 30 day commercial paper rate plus 275
basis points.  We will serve as originator and servicer of the leases
and purchases financed by Sparta Funding through the DZBank credit
facility.  We are required to satisfy certain tangible net worth and
committed capital thresholds as a condition of accessing funds under the DZBank
credit facility.


20


On July
29, 2009, we entered into a Preferred Stock Purchase Agreement with Optimus
Capital Partners, LLC, pursuant to which Optimus, upon the terms and subject to
the conditions of the agreement, is committed to purchase up to $5,000,000 of
our Series B Preferred Stock. From time to time until July 28, 2010, we may
require Optimus to purchase shares of our Series B Preferred Stock, subject to
satisfaction of certain closing conditions.





We
believe that the proceeds from the sale of preferred stock to Optimus, as
described above, when combined with the conversion of $3,475,958 in convertible
notes outstanding at April 30, 2009, which are convertible at the Company's
option, and $1,626,500 in other notes outstanding at April 30, 2009, for which
the Company has received verbal commitments for the future conversion of all but
$250,000 in such notes (however, there can be no assurance that the note holders
will in fact convert), will satisfy the minimum thresholds to utilize the DZBank
credit facility.





We
continue seeking additional financing, which may be in the form of subordinated
debt, in order to provide support for the DZBank credit facility. Other than
described above, we currently have no commitments for financing. There is no
guarantee that we will be successful in raising the funds required.





We
estimate that we will need approximately $2,000,000 in addition to our normal
operating cash flow to conduct operations during the next twelve
months.  Based on the above, 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 us. Any additional equity financing may be dilutive to stockholders
and such additional equity securities may have rights, preferences or privileges
that are senior to those of our existing common or preferred stock. Furthermore,
debt financing, if available, will require payment of interest and may involve
restrictive covenants that could impose limitations on our operating
flexibility. However, if we are not successful in generating sufficient
liquidity from operations or in raising sufficient capital resources, on terms
acceptable to us, this could have a material adverse effect on our business,
results of operations, liquidity and financial condition, and we will have to
adjust our planned operations and development on a more limited
scale.





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





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





The
independent auditors report on our April 30, 2009 and 2008 financial statements
included in this Annual Report states that our historical losses and the lack of
revenues raise substantial doubts about our ability to continue as a going
concern, due to the losses incurred and lack of significant operations. If we
are unable to develop our business, we may have to discontinue operations or
cease to exist, which would be detrimental to the value of 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 our liquidity, our management is actively pursuing additional equity
financing through discussions with investment bankers and private
investors.  There can be no assurance that we will be successful in
our efforts to secure additional equity financing.


21


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.





Acquisition
or Disposition of Plant and Equipment





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





Number
of Employees





From our
inception through the period ended April 30, 2009, we have relied on the
services of outside consultants for services and currently have fourteen
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 our costs and the ability to pass on cost increases to
our customers over time is dependent upon market conditions. We are not aware of
any inflationary pressures that have had any significant impact on our
operations over the past year, and we do not anticipate that inflationary
factors will have a significant impact on future operations.





CRITICAL
ACCOUNTING POLICIES





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


22


Revenue
Recognition





We
purchase Retail Installment Sales Contracts ("RISC") from motorcycle dealers and
we originate leases on new and used motorcycles and other powersports vehicles
from motorcycle dealers throughout the United States.





The RISCs
are secured by liens on the titles to the vehicles. The RISCs are accounted for
as loans.  Upon purchase, the RISCs appear on our balance sheet as
RISC loans receivable current and long term. When the RISC is entered into our
accounting system, based on the customer's APR (interest rate), an amortization
schedule for the loan on a simple interest basis is created. Interest is
computed by taking the principal balance times the APR rate then divided by 365
days to get your daily interest amount. The daily interest amount is multiplied
by the number of days from the last payment to get the interest income portion
of the payment being applied. The balance of the payment goes to reducing the
loan principal balance.





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.





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, we receive 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





The
Company adopted SFAS No. 123(R) during third quarter of Fiscal year 2006, which
no longer permits the use of the intrinsic value method under APB No. 25. The
Company is recording the compensation expense on a straight-line basis,
generally over the explicit service period of three to five years.





SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company’s Consolidated
Statement of Operations. The Company is using the Black-Scholes option-pricing
model as its method of valuation for share-based awards. The Company’s
determination of fair value of share-based payment awards on the date of grant
using an option-pricing model is affected by the Company’s stock price as well
as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to the Company’s expected stock
price volatility over the term of the awards, and certain other market variables
such as the risk free interest rate.


23


Allowance for
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 periodically reviews its Lease and RISC receivables in
determining its allowance for doubtful accounts.





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.





RECENT
ACCOUNTING PRONOUNCEMENTS





For
information regarding recent accounting pronouncements and their effect on the
Company, see “Recent Accounting Pronouncements” in Note A of the Notes to
Consolidated Financial Statements contained herein.





Off-Balance
Sheet Arrangements





We do not
maintain off-balance sheet arrangements nor do we participate in non-exchange
traded contracts requiring fair value accounting treatment.





ITEM
7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK





Not
applicable.


24


ITEM
8.        FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA





PageReport
      of Independent Registered Public Accounting Firm
                26Balance
      Sheets as of April 30, 2009 and 2008
                27Statements
      of Losses for the years ended April 30, 2009 and 2008
                28Statement
      of Deficiency in Stockholders’ Equity for the years ended April 30, 2009
      and 2008
                29Statements
      of Cash Flows for the years ended April 30, 2009 and 2008
                30Notes
      to Financial Statements
                31
      – 52


25


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors


Sparta
Commercial Services, Inc.


New York,
New York





We have
audited the accompanying consolidated balance sheets of Sparta Commercial
Services, Inc., as of April 30, 2009 and 2008, 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, 2009. 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
conducted our audits in accordance with 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 misstatements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. 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 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, 2009 and 2008, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
April 30, 2009, 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 P 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 P. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


New
      York, New York
              
              /s/
      R B S M LLPAugust
      13, 2009











26


SPARTA
COMMERCIAL SERVICES, INC.


CONSOLIDATED
BALANCE SHEETS





April
      30, 2009
                  
                  
                  April
      30, 2008ASSETSCash
      and cash equivalents
                  
                  $
                  2,790
                  
                  
                  $
                  68,642RISC
      loan receivables, net of reserve of $235,249 and $86,312, respectively
      (NOTE D)
                  
                  
                  3,248,001
                  
                  
                  
                  4,260,002Motorcycles
      and other vehicles under operating leases net of accumulated depreciation
      of $256,485 and $336,100, respectively, and loss reserve of $32,726 and
      $25,231, respectively (NOTE B)
                  
                  
                  621,797
                  
                  
                  
                  1,251,631Interest
      receivable
                  
                  
                  49,160
                  
                  
                  
                  58,382Purchased
      portfolio (NOTE F)
                  
                  
                  72,635
                  
                  
                  
                  -Accounts
      receivable
                  
                  
                  17,899
                  
                  
                  
                  37,024Inventory
      (NOTE C)
                  
                  
                  12,514
                  
                  
                  
                  79,069Property
      and equipment, net of accumulated depreciation and amortization of
      $147,905 and $129,986, respectively (NOTE E)
                  
                  
                  43,342
                  
                  
                  
                  61,261Prepaid
      expenses
                  
                  
                  593,529
                  
                  
                  
                  -Restricted
      cash
                  
                  
                  348,863
                  
                  
                  
                  444,902Deposits
                  
                  
                  48,967
                  
                  
                  
                  48,967Total
      assets
                  
                  $
                  5,059,497
                  
                  
                  $
                  6,309,879LIABILITIES
      AND DEFICIENCY IN STOCKHOLDERS' EQUITYLiabilities:Bank
      overdraft
                  
                  $
                  57,140
                  
                  
                  $
                  -Accounts
      payable and accrued expenses
                  
                  
                  1,851,876
                  
                  
                  
                  1,461,955Accrued
      equity based penalties
                  
                  
                  -
                  
                  
                  
                  2,178Senior
      secured notes payable (NOTE F)
                  
                  
                  3,694,838
                  
                  
                  
                  5,029,864Note
      payable (NOTE G)
                  
                  
                  5,102,458
                  
                  
                  
                  3,812,859Loans
      payable-related parties (NOTE H)
                  
                  
                  378,260
                  
                  
                  
                  244,760Other
      liabilities
                  
                  
                  88,285
                  
                  
                  
                  6,741Deferred
      revenue
                  
                  
                  13,050
                  
                  
                  
                  22,617Total
      liabilities
                  
                  
                  11,185,907
                  
                  
                  
                  10,580,974Deficiency
      in Stockholders' Equity:Preferred
      stock, $.001 par value; 10,000,000 shares authorized of which 35,850
      shares have been designated as Series A convertible preferred stock, with
      a stated value of $100 per share, 125 and 825 shares issued and
      outstanding, respectively
                  
                  
                  12,500
                  
                  
                  
                  82,500Common
      stock, $.001 par value; 340,000,000 shares authorized, 170,730,064 and
      130,798,657 shares issued and outstanding, respectively
                  
                  
                  170,730
                  
                  
                  
                  130,799Common
      stock to be issued, 16,735,453 and 12,160,210 respectively
                  
                  
                  16,735
                  
                  
                  
                  12,160Additional
      paid-in-capital
                  
                  
                  20,820,672
                  
                  
                  
                  17,727,889Accumulated
      deficit
                  
                  
                  (27,147,047
                  )
                  
                  
                  (22,224,442
                  )Total
      deficiency in stockholders' equity
                  
                  
                  (6,126,410
                  )
                  
                  
                  (4,271,095
                  )Total
      Liabilities and deficiency in stockholders’ equity
                  
                  $
                  5,059,497
                  
                  
                  $
                  6,309,879





See
accompanying notes to consolidated financial statements.


27


SPARTA
COMMERCIAL SERVICES, INC.


CONSOLIDATED
STATEMENT OF LOSSES





Year
      EndedApril
      30,2009
                    
                    
                    2008RevenueRental
      income, Leases
                    
                    $
                    298,476
                    
                    
                    $
                    391,029Interest
      income, Loans
                    
                    
                    759,801
                    
                    
                    
                    615,531Other
                    
                    
                    86,367
                    
                    
                    
                    123,131Total
      revenue
                    
                    
                    1,144,644
                    
                    
                    
                    1,129,691Operating
      expenses:General
      and administrative
                    
                    
                    3,860,228
                    
                    
                    
                    3,695,215Depreciation
      and amortization
                    
                    
                    310,601
                    
                    
                    
                    274,773Total
      operating expenses
                    
                    
                    4,170,829
                    
                    
                    
                    3,969,988Loss
      from operations
                    
                    
                    (3,026,186
                    )
                    
                    
                    (2,840,297
                    )Other
      expense (income):Interest
      expense and financing cost, net
                    
                    
                    1,895,661
                    
                    
                    
                    1,152,259Change
      in value of warrant liabilities
                    
                    
                    -
                    
                    
                    
                    (202
                    )1,895,661
                    
                    
                    
                    1,152,057Net
      loss
                    
                    
                    (4,921,846
                    )
                    
                    
                    (3,992,354
                    )Preferred
      dividend
                    
                    
                    758
                    
                    
                    
                    28,422Net
      loss attributed to common stockholders
                    
                    $
                    (4,922,605
                    )
                    
                    $
                    (4,020,776
                    )Basic
      and diluted loss per share
                    
                    $
                    (0.03
                    )
                    
                    $
                    (0.03
                    )Basic
      and diluted loss per share attributed to common
    stockholders
                    
                    $
                    (0.03
                    )
                    
                    $
                    (0.03
                    )Weighted
      average shares outstanding
                    
                    
                    159,112,249
                    
                    
                    
                    127,304,396





See
accompanying notes to consolidated financial statements.


28


SPARTA
COMMERCIAL SERVICES, INC.


CONSOLIDATED
STATEMENT OF (DEFECIENCY IN) STOCKHOLDERS’ EQUITY


FOR
THE TWO YEARS ENDED APRIL 30, 2009





Common
      Stock
                                    
                                    
                                    AdditionalPreferred
      Stock
                                    
                                    Common
      Stock
                                    
                                    to
      be issued
                                    
                                    
                                    Paid
      in
                                    
                                    
                                    Deferred
                                    
                                    
                                    AccumulatedShares
                                    
                                    Amount
                                    
                                    Shares
                                    
                                    Amount
                                    
                                    Shares
                                    
                                    Amount
                                    
                                    
                                    Capital
                                    
                                    
                                    Compensation
                                    
                                    
                                    Deficit
                                    
                                    
                                    TotalBalance,
      April 30, 2007
                                    
                                    
                                    19,795
                                    
                                    $
                                    1,979,500
                                    
                                    
                                    123,216,157
                                    
                                    $
                                    123,215
                                    
                                    
                                    -
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    14,595,827
                                    
                                    
                                    $
                                    (24,000
                                    )
                                    
                                    $
                                    (18,203,666
                                    )
                                    
                                    $
                                    (1,529,123
                                    )-
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Shares
      issued upon conversion of preferred
                                    
                                    
                                    (18,970
                                    )
                                    
                                    (1,897,000
                                    )
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    12,160,210
                                    
                                    
                                    12,160
                                    
                                    
                                    
                                    1,884,840
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Shares
      issued for financing cost
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    4,982,500
                                    
                                    
                                    4,983
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    403,818
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    408,801Deferred
      compensation recorded
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    24,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    24,000Stock
      compensation recorded
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    2,600,000
                                    
                                    
                                    2,600
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    174,400
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    177,000Employee
      stock compensation recorded
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    20,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    20,000Employee
      options expense
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    261,850
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    261,850Warrant
      compensation
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    189,503
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    189,503Accrued
      preferred dividend
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (28,422
                                    )
                                    
                                    
                                    (28,422
                                    )Forgiveness
      of preferred dividend payable
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    215,649
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    215,649Adjusting
      prior years accrued preferred dividend
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (17,997
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (17,997
                                    )Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (3,992,354
                                    )
                                    
                                    
                                    (3,992,354
                                    )Balance,
      April 30, 2008
                                    
                                    
                                    825
                                    
                                    $
                                    82,500
                                    
                                    
                                    130,798,657
                                    
                                    $
                                    130,798
                                    
                                    
                                    12,160,210
                                    
                                    $
                                    12,160
                                    
                                    
                                    $
                                    17,727,890
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (22,224,442
                                    )
                                    
                                    $
                                    (4,271,094
                                    )Shares
      issued upon conversion of preferred
                                    
                                    
                                    (700
                                    )
                                    
                                    (70,000
                                    )
                                    
                                    1,875,000
                                    
                                    
                                    1,875
                                    
                                    
                                    (1,426,280
                                    )
                                    
                                    (1,426
                                    )
                                    
                                    
                                    69,551
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Beneficial
      conversion discount
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    100,000
                                    
                                    
                                    100
                                    
                                    
                                    
                                    324,900
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    325,000Accrued
      preferred dividend
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    117,438
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (758
                                    )
                                    
                                    
                                    116,680Shares
      issued for financing cost
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    7,272,000
                                    
                                    
                                    7,272
                                    
                                    
                                    586,000
                                    
                                    
                                    586
                                    
                                    
                                    
                                    531,382
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    539,240Shares
      issued for accrued interest
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    2,585,420
                                    
                                    
                                    2,585
                                    
                                    
                                    482,190
                                    
                                    
                                    482
                                    
                                    
                                    
                                    114,815
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    117,883Shares
      issued for conversion of notes
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    20,714,217
                                    
                                    
                                    20,714
                                    
                                    
                                    3,333,333
                                    
                                    
                                    3,333
                                    
                                    
                                    
                                    1,003,753
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,027,800Stock
      compensation recorded
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    7,484,769
                                    
                                    
                                    7,485
                                    
                                    
                                    1,500,000
                                    
                                    
                                    1,500
                                    
                                    
                                    
                                    624,644
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    633,629Shares
      issued upon debt conversion
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Employee
      stock compensation recorded
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    15,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    15,000Employee
      options expense
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    222,409
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    222,409Warrant
      Expense
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    46,791
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    46,791Others
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6,881
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6,881Warrant
      liability
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    15,217
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    15,217Net
      Loss
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,921,846
                                    )
                                    
                                    
                                    (4,921,846
                                    )Balance,
      April 30, 2009
                                    
                                    
                                    125
                                    
                                    $
                                    12,500
                                    
                                    
                                    170,730,064
                                    
                                    $
                                    170,730
                                    
                                    
                                    16,735,453
                                    
                                    $
                                    16,735
                                    
                                    
                                    $
                                    20,820,672
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (27,147,047
                                    )
                                    
                                    $
                                    (6,126,410
                                    )





See
accompanying notes to consolidated financial statements.


29


SPARTA
COMMERCIAL SERVICES, INC.


CONSOLIDATED
 STATEMENT OF CASH FLOWS





Year
      end
                              
                              
                              Year
      endApril
      30, 2009
                              
                              
                              April
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
                              
                              $
                              (4,921,846
                              )
                              
                              $
                              (3,992,354
                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                              
                              
                              191,256
                              
                              
                              
                              274,773Allowance
      for loss reserves
                              
                              
                              156,432
                              
                              
                              
                              26,147Amortization
      of deferred revenue
                              
                              
                              (9,567
                              )
                              
                              
                              (24,148
                              )Amortization
      of deferred compensation
                              
                              
                              -
                              
                              
                              
                              24,000Amortization
      of beneficial conversion feature
                              
                              
                              325,000
                              
                              
                              
                              -Shares
      issued for financing costs
                              
                              
                              226,941
                              
                              
                              
                              -Equity
      based compensation
                              
                              
                              915,652
                              
                              
                              
                              488,700Stock
      based finance cost
                              
                              
                              539,240
                              
                              
                              
                              449,926Extinguishment
      of dividend payable
                              
                              
                              117,437
                              
                              
                              
                              215,253Change
      in fair value of warrant liability
                              
                              
                              15,217
                              
                              
                              
                              -Changes
      in operating assets and liabilities:
                              
                              
                              -
                              
                              
                              
                              -(Increase)
      decrease in:Other
      Receivables
                              
                              
                              9,223
                              
                              
                              
                              (32,550
                              )Prepaid
      expenses and other assets
                              
                              
                              (532,849
                              )
                              
                              
                              (9,887
                              )Restricted
      cash
                              
                              
                              96,039
                              
                              
                              
                              (159,959
                              )Deposits
      and other
                              
                              
                              6,881
                              
                              
                              
                              1,725Increase
      (decrease) in:Accounts
      payable and accrued expenses
                              
                              
                              561,649
                              
                              
                              
                              281,621Net
      cash used in operating activities
                              
                              
                              (2,303,295
                              )
                              
                              
                              (2,456,753
                              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net  proceeds
      from (payments for) motorcycles and other vehicles
                              
                              
                              449,002
                              
                              
                              
                              (403,951
                              )Net  proceeds
      from (payment for) RISC contracts
                              
                              
                              863,065
                              
                              
                              
                              (1,852,442
                              )Purchase
      of portfolio
                              
                              
                              (72,635
                              )
                              
                              
                              -Net
      cash provided by (used in) investing activities
                              
                              
                              1,239,431
                              
                              
                              
                              (2,256,393
                              )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      Proceeds from notes from senior lender
                              
                              
                              (1,441,542
                              )
                              
                              
                              2,044,657Net
      proceeds from notes
                              
                              
                              2,248,915
                              
                              
                              
                              2,672,600Net
      Loan proceeds from other related parties
                              
                              
                              133,500
                              
                              
                              
                              42,500Net
      cash provided by financing activities
                              
                              
                              940,873
                              
                              
                              
                              4,759,757Net
      Increase (decrease) in cash
                              
                              $
                              (122,992
                              )
                              
                              $
                              46,611Unrestricted
      cash and cash equivalents, beginning of period
                              
                              $
                              68,642
                              
                              
                              
                              22,032Unrestricted
      cash and cash equivalents , end of period
                              
                              $
                              (54,350
                              )
                              
                              $
                              68,643Cash
      paid for:Interest
                              
                              $
                              570,618
                              
                              
                              $
                              400,868Income
      taxes
                              
                              $
                              2,366
                              
                              
                              $
                              23,208





Non-Cash
Investing and Financing Activities (Note N)





See
accompanying notes to consolidated financial statements.


30


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





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





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).





On
December 10, 2008, we formed Sparta Funding, LLC (“Sparta Funding”), a Delaware
limited liability company, for which we are the sole member. Sparta Funding was
formed as a special purpose company to borrow funds from DZ Bank (see Note M).





Estimates





The
preparation of the consolidated 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.





The
Company purchases Retail Installment Sales Contracts (“RISC”) from motorcycle
dealers. The RISCs are secured by liens on the titles to the vehicles. The RISCs
are accounted for as loans.  Upon purchase, the RISCs appear on the
Company’s balance sheet as RISC loan receivable current and long term. Interest
income on these loans is recognized when it is earned.





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.





31


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





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.





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, 2009 and 2008, the Company had recorded deferred
revenue related to these contracts of $13,050 and $22,617,
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.





Inventories





Inventories
are valued at the lower of cost or market, with cost determined using the
first-in, first-out method and with market defined as the lower of replacement
cost or realizable value.





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.


32


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





In June
2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement
No. 109  ("FIN 48"). FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, treatment of
interest and penalties, and disclosure of such positions. As a result of
implementing FIN 48, there has been no adjustment to the Company’s financial
statements and the adoption of FIN 48 did not have a material effect on the
Company’s consolidated financial statements for the year ending April 30,
2009.





Fair
Value Measurements




Effective
May 1, 2009, the Company adopted SFAS No. 157,Fair Value Measurements
(SFAS 157). SFAS 157 establishes a three-level fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value
of certain assets and liabilities. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets the lowest priority to unobservable
inputs to fair value measurements. The three levels of the fair value hierarchy
under SFAS 157 are described below:





•
            Level 1 —
      Quoted prices for identical instruments in active markets. Level 1
      assets and liabilities include debt and equity securities and derivative
      contracts that are traded in an active exchange market, as well as certain
      securities that are highly liquid and are actively traded in
      over-the-counter markets.





•
            Level 2 —
      Quoted prices for similar instruments in active markets; quoted prices for
      identical or similar instruments in markets that are not active; and model
      derived valuations in which all significant inputs and significant value
      drivers are observable in active
markets.





•
            Level 3 —
      Unobservable inputs that are supported by little or no market activity and
      that are significant to the fair value measurements. Level 3 assets
      and liabilities include financial instruments whose value is determined
      using pricing models, discounted cash flow methodologies, or similar
      techniques based on significant unobservable inputs, as well as management
      judgments or estimates that are significant to
  valuation.




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





Impairment of Long-Lived
Assets





In
accordance with SFAS 144, long-lived assets, such as property, equipment,
motorcycles and other vehicles and purchased intangible assets subject to
amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is measured by
comparing the carrying amount of an asset to estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows or quoted market prices in active
markets if available, an impairment charge is recognized by the amount by which
the carrying amount of the asset exceeds the fair value of the
asset.




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, 2009 and 2008, the Company has no items of
other comprehensive income.


33


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





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





The
Company adopted SFAS No. 123(R) during third quarter of Fiscal year 2006, which
no longer permits the use of the intrinsic value method under APB No. 25. The
Company is recording the compensation expense on a straight-line basis,
generally over the explicit service period of three to five years.





SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company’s Consolidated
Statement of Operations. The Company is using the Black-Scholes option-pricing
model as its method of valuation for share-based awards. The Company’s
determination of fair value of share-based payment awards on the date of grant
using an option-pricing model is affected by the Company’s stock price as well
as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to the Company’s expected stock
price volatility over the term of the awards, and certain other market variables
such as the risk free interest rate.





Concentrations of Credit
Risk





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





Allowance for
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 periodically reviews its Lease and RISC receivables in
determining its allowance for doubtful accounts.


34


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





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.





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, 2009 and 2008, the Company incurred
advertising costs of $8,116 and $24,274, respectively.





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. 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 $0.03 and $0.03 for the years ended April 30, 2009 and 2008,
respectively. At April 30, 2009 and 2008, 37,948,231 and 87,421,173 potential
shares, respectively, were excluded from the shares used to calculate diluted
earnings per share as their inclusion would reduce net loss per
share.





Liquidity





As shown
in the accompanying consolidated financial statements, the Company has incurred
a net loss of $4,921,846 and $3,992,354 during the years ended April 30, 2009
and 2008, respectively. The Company’s liabilities exceed its assets by
$6,126,410 as of April 30, 2009.





Reclassifications





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


35


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





New Accounting
Pronouncements





In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. The Company does
not expect the adoption of SFAS No. 141(R) will have significant effect on
its results of operations and financial condition.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest
in  Financial Statements, an amendment of ARB No. 51”
(“SFAS No. 160”), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the  balance sheets.
SFAS No. 160 is effective as of the beginning of the first fiscal year beginning
on or after December 15, 2008. The Company does not expect the adoption of
SFAS No. 160 will have significant effect on its results of operations and
financial condition.





In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment to FASB Statement No. 133” (“SFAS No.
161”).   SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position, financial performance, and cash flows.  Entities are
required to provide enhanced disclosures about: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations; and (c)
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged.  The Company does not expect the
adoption of SFAS No. 161 will have significant effect on its results of
operations and financial condition..





In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162").  SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy).  SFAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles."  The Company does not
expect the adoption of SFAS No. 162 will have a material effect on
its  financial position, results of operations or cash
flows.





In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) " ("FSP APB 14-1").  FSP
APB 14-1 requires the issuer of certain convertible debt instruments that
may be settled in cash (or other assets) on conversion to separately account for
the liability (debt) and equity (conversion option) components of the instrument
in a manner that reflects the issuer's non-convertible debt borrowing
rate.  FSP APB 14-1 is effective for fiscal years beginning after
December 15, 2008 on a retroactive basis.  The Company is
currently evaluating the potential impact, if any, of the adoption of FSP
APB 14-1 on its financial position, results of operations or cash
flows.


36


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





In June
2008, the FASB issued Emerging Issues Task Force No. 07-5 (EITF 07-5),Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own
Stock.  EITF 07-5 requires entities to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock by assessing the instrument’s contingent exercise provisions and
settlement provisions. Instruments not indexed to their own stockfail to meet
the scope exception of Statement of Financial Accounting Standards
No. 133,Accounting for
Derivative Instruments and Hedging Activities , paragraph 11(a), and
should be classified as a liability and marked-to-market. The statement is
effective for fiscal years beginning after December 15, 2008 and is to be
applied to outstanding instruments upon adoption with the cumulative effect of
the change in accounting principle recognized as an adjustment to the opening
balance of retained earnings. The Company is currently evaluating the provisions
of EITF 07-5.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or
future  financial statements.





NOTE
B - MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING LEASES





Motorcycles
and other vehicles under operating leases at April 30, 2009 and 2008 consist of
the following:





2009
                  
                  
                  2008Motorcycles
      and other vehicles
                  
                  $
                  911,008
                  
                  
                  $
                  1,612,962Less:
      accumulated depreciation
                  
                  
                  (256,485
                  )
                  
                  
                  (336,100
                  )Motorcycles
      and other vehicles, net of accumulated depreciation
                  
                  
                  654,523
                  
                  
                  
                  1,276,862Less:
      estimated reserve for residual values
                  
                  
                  (32,726
                  )
                  
                  
                  (25,231
                  )Motorcycles
      and other vehicles under operating leases, net
                  
                  $
                  621,797
                  
                  
                  $
                  1,251,630





At April
30, 2009, motorcycles and other vehicles are being depreciated to their
estimated residual values over the lives of their lease contracts. Depreciation
expense for vehicles for the years ended April 30, 2009 and 2008 was $173,337
and $241,834, respectively. All of the assets are pledged as collateral for the
note described in Note F.





The
following is a schedule by years of minimum future rentals on non-cancelable
operating leases as of April 30, 2009:





Year
      ending April 30,2010
                      
                      $
                      80,3132011
                      
                      
                      55,8572012
                      
                      
                      29,1272013
                      
                      
                      12,9962014
                      
                      
                      118Total
                      
                      $
                      178,411





NOTE
C - INVENTORY





Inventory
is comprised of repossessed vehicles and vehicles which have been returned at
the end of their lease. Inventory is carried at the lower of depreciated cost or
market, applied on a specific identification basis. At April 30, 2009, the
Company had repossessed vehicles of value $12,514 which will be
resold.




NOTE
D – RETAIL (RISC) LOAN RECEIVABLES
 
 RISC loan
receivables, which are carried net of reserves, were $3,248,001 and $4,260,002
at April 30, 2009 and 2008, respectively.   As of April 30, 2009
and 2008, the Company had deficiency receivables of $122,554 and $30,697,
respectively. At April 30, 2009 and 2008, the reserve for doubtful RISC loan
receivables was $235,249 and $86,312, respectively.


37


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008




NOTE
D – RETAIL (RISC) LOAN RECEIVABLES (continued)





The
following is a schedule by years of future payments related to these
receivables. Certain of the assets are pledged as collateral for the note
described in Note F.





Year
      ending April 30,2010
                  
                  $
                  1,001,6632011
                  
                  
                  1,020,3472012
                  
                  
                  929,3582013
                  
                  
                  498,4602014
                  
                  
                  33,422Total
      Due
                  
                  $
                  3,483,250





NOTE
E - PROPERTY AND EQUIPMENT





Major
classes of property and equipment at April 30, 2009 and 2008 consist of the
followings:





2009
                  
                  
                  2008Computer
      equipment, software and furniture
                  
                  $
                  191,247
                  
                  
                  $
                  191,247Less:
      accumulated depreciation and amortization
                  
                  
                  (147,905
                  )
                  
                  
                  (129,986
                  )Net
      property and equipment
                  
                  $
                  43,342
                  
                  
                  $
                  61,261





Depreciation
and amortization expense related to property and equipment was $17,919 and
$27,286 for the years ended April 30, 2009 and 2008, respectively.





NOTE
F - SENIOR SECURED NOTES PAYABLE





(a)
            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 weighted average interest rate at
      April 30, 2009 is 10.33%.





(b)
            On
      October 31, 2008, the Company purchased certain loans secured by a
      portfolio of secured motorcycle leases (“Purchased Portfolio”) for a total
      purchase price of $100,000.  The Company paid $80,000 at closing
      and agreed to pay the remaining $20,000 upon receipt of additional
      Purchase Portfolio documentation.  Proceeds from the Purchased
      Portfolio start accruing to the Company beginning November 1,
      2008.





To
finance the purchase, the Company issued a $150,000 Senior Secured Note dated
October 31, 2008 (“Senior Secured Note”) in exchange for $100,000 from the
Senior Secured Note holder.  Terms of the Senior Secured Note require
the Company to make semi-monthly payments in amounts equal to all net proceeds
from Purchased Portfolio lease payments and motorcycle asset sales received
until the Company has paid $150,000 to the Senior Secured Note
holder.  The Company is obligated to pay any remainder of the Senior
Secured Note by November 1, 2009 and has granted the Senior Secured Note holder
a security interest in the Purchased Portfolio.







38


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
F - SENIOR SECURED NOTES PAYABLE (continued)





As of
April 30, 2009, the Company carries the Purchased Portfolio at $72,635
representing its $100,000 cost, which is less than its estimated market value,
less collections through the period. The Company carries the liability for
the Senior Secured Note at $106,516, which is net of note reductions and is net
of $25,000 in deferred financing costs that will be amortized over the estimated
term of the Senior Secured Note.





At April
30, 2009, the notes payable mature as follows:





Year
      ended April 30,
                  
                  Amount2010
                  
                  $
                  1,051,1972011
                  
                  
                  1,103,3732012
                  
                  
                  990,7812013
                  
                  
                  525,8312014
                  
                  
                  23,656Total
      Due
                  
                  $
                  3,694,838





NOTE
G – NOTES PAYABLE





Notes Payable
                  
                  April 30,
                    2009
                  
                  
                  April 30,
                    2008Convertible
      notes (a)
                  
                  $
                  4,055,560
                  
                  
                  $
                  2,665,359Notes
      payable (b)
                  
                  
                  547,500
                  
                  
                  
                  490,000Bridge
      loans (c)
                  
                  
                  176,000
                  
                  
                  
                  275,000Collateralized
      note (d)
                  
                  
                  220,000
                  
                  
                  
                  -Convertible
      note (e)
                  
                  
                  103,399
                  
                  
                  
                  150,000Total
                  
                  $
                  5,102,458
                  
                  
                  $
                  3,812,859





(a)
            As
      of April 30, 2009, the Company had outstanding convertible unsecured and
      convertible demand  notes with an original aggregate principal
      amount of $4,292,359, which accrues interest ranging from 6% to 10% per
      annum.   The majority of the notes are convertible into
      shares of common stock, at the Company’s option, ranging from $0.013 to
      $0.08 per share.  The Company had outstanding notes that are
      convertible, at the Holder’s option, of $403,399 with a conversion price
      of $0.06 per share.





As of
April 30, 2009, the aggregate outstanding balance due on the convertible notes
was $4,055,559. The majority of the notes  were past due with the
remaining notes maturing by September 2009.





On July
28 and July 29, 2009, $3,727,559 of the outstanding convertible notes plus all
the accrued interest were converted into 120,842,934 shares of the Company’s
common stock.  Holders of an additional $228,000 notes plus accrued
interest will be converted into approximately 8,000,000 shares of common stock.
These are demand notes.







39


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008




NOTE
G – NOTES PAYABLE (continued)





(b)
            As
      of April 30, 2009, the Company had outstanding unsecured notes with an
      original principal amount of $547,500, which accrues interest ranging from
      6% to 12% per annum of which the majority were past due with the remaining
      notes maturing by September 2009. On July 28 and July 29, 2009, $27,500 of
      these outstanding notes and the accrued interest thereon was converted
      into 949,666 shares of the Company’s common stock. The holder of an
      additional $30,000 in notes has agreed to convert  their notes
      and the accrued interest thereon into approximately1,000,000 shares of the
      Company’s common stock .Subsequent to April 30, 2009, note holders with
      outstanding balances totaling  $336,000, which are
      current,   have agreed to contingently convert their notes
      plus accrued interest into approximately 12,000,000 shares of the
      Company’s common stock upon theCompany’s
      ability to meet all conditions precedent to begin drawing down on the DZ
      Bank’s credit facility.





(c)
            During
      the year ended April 30, 2007, the Company sold to five accredited
      investors bridge notes in the aggregate amount of $275,000. The bridge
      notes were originally scheduled to expire on various dates through
      November 30, 2006, together with simple interest at the rate of 10%. The
      notes provided that 100,000 shares of the Company's unregistered common
      stock are to be issued as “Equity Kicker” for each $100,000 of notes
      purchased, or any prorated portion thereof. The Company had the right to
      extend the maturity date of notes for 30 to 45 days, in which event the
      lenders were entitled for “additional equity” equal to 60% of the “Equity
      Kicker” shares. In the event of default on repayment by the Company, the
      notes provided for a 50% increase in the “Equity Kicker” and the
      “Additional Equity” for each month, as penalty, that such default has not
      been cured, and for a 20% interest rate during the default
      period.  The repayments, in the event of default, of the notes
      are to be collateralized by certain security interest.  The
      maturity dates of the notes were subsequently extended to various dates
      between December 5, 2006 to December 30, 2006, with simple interest rate
      of 10%, and Additional Equity in the aggregate amount of 165,000
      unregistered shares of common stock to be issued. Thereafter, the Company
      was in default on repayment of these notes.  During the year
      ended April 30, 2009, $99,000 of these loans was repaid. The holder of one
      remaining note for $100,000 plus the accrued interest thereon has agreed
      to convert  into approximately 3,500,000s hares of the Company’s
      common stock.   (See Subsequent Events).  The
      holders of the remaining $76,000 notes have agreed to contingently convert
      those notes plus accrued interest into approximately 3,800,000 shares of
      the Company’s common stock upon theCompany’s
      ability to meet all conditions precedent to begin drawing down on the
      DZBank credit facility.





(d).
            During
      the year ended April 30, 2009, the Company sold a secured note in the
      amount of $220,000. The notes bore 12.46% simple interest. The note
      matured on October 29, 2010 and was secured by a second lien on a pool of
      motorcycles.  In July 2009, the note holder agreed to convert
      the note and all accrued interest thereon into 12,000,000shares of the
      Company’s common stock.





(e)
            On
      September 19, 2007, the Company sold to one accredited investor for the
      purchase price of $150,000 securities consisting of a $150,000 convertible
      debenture due December 19, 2007, 100,000 shares of unregistered common
      stock, and 400,000 common stock purchase warrants. The debentures bear
      interest at the rate of 12% per year compounded monthly and are
      convertible into shares of the Company's common stock at $0.0504 per
      share. The warrants may be exercised on a cashless basis and are
      exercisable until September 19, 2007 at $0.05 per share. In the event the
      debentures are not timely repaid, the Company is to issue 100,000 shares
      of unregistered common stock for each thirty day period the debentures
      remain outstanding. The Company has accrued interest and penalties as per
      the terms of the note agreement.  In May, 2008, the Company
      repaid $1,474 of principal and $3,526 in accrued interest. Additionally,
      from April 26, 2008 through April 30, 2009, a third party to the note
      paid, on behalf of the Company, $41,728 of principal and $15,272 in
      accrued interest on the note, and the note holder converted $3,399 of
      principal and $6,601 in accrued interest into 200,000 shares of our common
      stock.  As of April 30, 2009, the balance outstanding was in
      default.


40


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
H- LOANS PAYABLE TO RELATED PARTIES





During
the year ended April 30, 2009, the Company borrowed $136,000 from a Director of
the company on a demand basis without interest and repaid $2,500 to the one of
the officers.





During
the year ended April 30, 2008, the Company borrowed $249,760 from a Director and
three officers of the company on a demand basis without interest and repaid
$5,000 to the Director.





At April
30, 2008 and 2009, included in accounts receivable, are $169 and $2,354,
respectively, due from American Motorcycle Leasing Corp., a company controlled
by a director and formerly controlled by the Company's Chief Executive Officer,
for the purchase of motorcycles.





NOTE I
- FAIR VALUE MEASUREMENTS





The
following table sets forth certain and liabilities as of April 30,
2009 which are measured at fair value on a recurring basis by level within
the fair value hierarchy. As required by SFAS No. 157, these are
classified based on the lowest level of input that is significant to the fair
value measurement, (in thousands):




(in thousands)
                                      
                                      Level 1
                                      
                                      
                                      Level 2
                                      
                                      
                                      Level 3Cash
      and cash equivalents
                                      
                                      $
                                      (54,350
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -RISC
      Loan receivables
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,248,00
                                      
                                      
                                      
                                      -Senior
      secured notes payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,694,838Notes
      payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      5,102,458Loan payable
      - related party
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      378,260





41


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
J - 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 35,850 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, 2009 and 2008,
the Company has issued and outstanding 125 and 825 shares of preferred stock
issued and outstanding, respectively. The Company has 170,730,064 and
130,798,657 shares of common stock issued and outstanding as of April 30, 2009
and 2008, respectively.





Common
Stock





In July
2007, the Company entered into a three month consulting agreement with a
consulting firm pursuant to which the Company issued five year warrants to
purchase 1,000,000 shares of unregistered common stock at $0.05 per share. The
agreement had called for the issuance of additional warrants on a performance
basis; however the agreement was cancelled with no further issuance of warrants
required. The unvested warrants have been valued at $48,122 using the
Black-Sholes option pricing model with the following assumptions: (1) dividend
yield of 0%; (2) expected volatility of 181%; (3) risk-free interest rate of
4.94%. The warrants are fully vested and expire if unexercised in five
years.





In August
2007, the Company amended an April, 2007 agreement with a consultant and entered
into a new three month consulting agreement with the consultant which agreement
calls for cash payments by the Company of $3,000, which has been paid, and
1,100,000 shares of unregistered common stock valued at $77,000 (which were
issued in May 2007 in conjunction with the April 2007 agreement) based upon the
consultants performance under the agreement.





In
September 2007, the Company, pursuant to a consulting agreement, issued to the
consultant 100,000 shares of its unregistered common stock valued at $7,000.00.
The Company, also, issued five year warrants to purchase 400,000 shares of
unregistered common stock at $0.05 per share.  The warrants which are
fully vested have been valued at $27,107 using the Black-Scholes option pricing
model with the following assumptions: (1) dividend yield of 0%; (2) expected
volatility of 181%; (3) risk-free interest rate of 4.52%, and expire if
unexercised in five years.





In
October 2007, the Company entered into a consulting agreement for financial
advisory services with an individual pursuant to which the Company issued five
year warrants to purchase 375,000 shares of unregistered common stock at $0.05
per share.  The warrants which are fully vested have been valued at
$18,038 using the Black-Scholes option pricing model with the following
assumptions: (1) dividend yield of 0%; (2) expected volatility of 181%; (3)
risk-free interest rate of 4.53%, and expire if unexercised in five
years.





In
October 2007, pursuant to the terms and provisions of their loans, the company
issued to four individuals 2,690,000 shares of its unregistered common stock
valued at $209,350.





In
November 2007, the Company issued to an individual 10,000 shares of its
unregistered common stock valued at $600.00 as an inducement for a
loan.





In
January 2008, pursuant to the terms and provisions of their loans, the company
issued to four individuals 440,000 shares of its unregistered common stock
valued at $33,800.





In
January 2008, the Company, pursuant to a consulting agreement, issued to the
consultant 500,000 shares of its unregistered common stock valued at
$20,000.


42


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
J - EQUITY INSTRUMENTS (continued)





On
January 31, 2008, the Company issued five year warrants to purchase 1,632,833
shares of its unregistered common stock at a price of $0.0438 per share to a
corporation pursuant to a placement agency agreement. The warrants which are
fully vested have been valued at $93,420 using the Black-Scholes option pricing
model with the following  assumptions: (1) dividend yield of 0%; (2)
expected volatility of 178%; (3) risk-free interest rate of 2.8%, and expire if
unexercised in five years.





On
February 14, 2008, the Company, pursuant to a consulting agreement, issued to
the consultant 1,000,000 shares of unregistered common stock valued at $80,000.
The consulting agreement, unless cancelled, required the Company to issue up to
4,000,000 additional shares of unregistered common stock to the consultant, in
tranches of 1,000,000 shares each, on the three, six, nine and twelve month
anniversary dates of the agreement. The agreement was cancelled as of March 31,
2008 with no further issuance of shares required.





In
February 2008, pursuant to the terms and provisions of their loans, the Company
issued to five individuals 540,000 shares of its unregistered common stock
valued at $46,800.





In
February 2008, the Company issued to four individuals 262,500 shares of its
unregistered common stock valued at $13,250.00 as an inducement for
loans.





In March
2008, pursuant to the terms and provisions of their loans, the Company issued to
six individuals 520,000 shares of its unregistered common stock valued at
$59,600.





In April
2008, pursuant to the terms and provisions of their loans, the Company issued to
six individuals 420,000 shares of its unregistered common stock valued at
$38,400.





During
the fiscal year ended April 30, 2009, the Company issued an aggregate of
2,000,000 shares of unregistered common stock valued at $125,000 to the four
members of its Advisory Council.





During
the fiscal year ended April 30, 2009, the Company issued an aggregate of
5,882,000 shares of unregistered common stock valued at $407,520 to thirteen
note holders pursuant to the terms and provisions of their loans.





During
the fiscal year ended April 30, 2009, the Company issued an aggregate of
1,390,000 shares of unregistered common stock valued at $91,500 to ten
individuals as an inducement for loans.





During
the fiscal year ended April 30, 2009, pursuant to two consulting agreements, the
Company issued a net of 5,484,769 shares of unregistered common stock valued at
$463,629 to two consulting firms. One agreement was subsequently cancelled and
the consultant returned 1,015,231 shares of the 6,000,000 issued valued at
$91,371.  The second agreement dated January 1, 2009 called for the
payment of $15,000 per month, the issuance of 500,000 shares of common stock and
the issuance of 1,500,000 five year common stock purchase warrants, issued at
the rate of 250,000 per month commencing January 2009 at various escalating
exercise prices. This agreement was suspended in February 2009 and remains
suspended as of August 1, 2009. As a result of this suspension, only 500,000
shares and 250,000 warrants, exercisable at $0.05, have been issued and one
monthly payment was made.





During
the fiscal year ended April 30, 2009, the Company issued an aggregate of
1,875,000 shares of common stock to five individuals who converted 292,500
shares of Series A Convertible Preferred Stock of which 222,500 were converted
in prior years.





During
the fiscal year ended April 30, 2009, the Company issued an aggregate of
23,299,637 shares of unregistered common stock to eighteen convertible note
holders who converted $827,800 principal amount of notes and $99,942 in accrued
interest thereon.





During
the years ended April 30, 2009 and 2008, the Company expensed $871,038 and
$488,700 respectively, in non-cash charges related to stock and option
compensation expense.


43


SPARTA COMMERCIAL SERVICES,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


APRIL
30, 2009 AND 2008





NOTE
J - EQUITY INSTRUMENTS (continued)





Preferred Stock Series
A





On July
20, 2007, one shareholder holding 16,745 shares of preferred stock converted
those shares into 10,733,974 shares of common stock and forgave $215,253 in
accumulated but unpaid dividends on the preferred shares. On January 31, 2008,
three shareholders holding 2,225 shares of preferred stock converted those
shares into 1,426,230 shares of common stock.  In February, 2009, one
shareholder converted 20,000 shares of preferred stock into 128,210 shares of
common stock. In April 2009, one shareholder converted 50,000 shares of
preferred stock into 320,510 shares of common stock.  Of the shares of
common stock issuable upon conversion of the preferred shares 10,733,980 had not
been physically issued as of April 30, 2009. These unissued shares are not
included in the outstanding shares. The forgiven dividends were recognized as
additional paid-in capital.. Pursuant to the Certificate of Designation of the
Series A Preferred Stock, all accumulated but un-paid dividends thereon shall be
extinguished.  Therefore, $117,437 of previously accrued dividends
were recognized as additional paid-in-capital.





NOTE
K - INCOME TAXES


At April
30, 2009 and 2008, the Company has available for federal income tax purposes a
net operating loss carry forward of approximately $24,500,000
and  $19,846,000, respectively, 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, 2009 and 2008 are as
follows:





April
      30,2009
                  
                  
                  2008Noncurrent:Net
      operating loss carry forward
                  
                  $
                  6,860,000
                  
                  
                  $
                  5,739,200Valuation
      allowance
                  
                  
                  (6,860,000
                  )
                  
                  
                  (5,739,200
                  )Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -





The
valuation allowance and increased by $1,120,800 and $1,224,000 during the years
ended April 30, 2009 and 2008, respectively.





NOTE
L - 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.





During
the year ended April 30, 2007, the Company granted options to purchase an
aggregate of 4,500,000 shares of common stock to one employee and one Director.
At grant date, 1,000,000 options vested immediately. The vested and unvested
options have been valued at $636,433 using the Black-Scholes option pricing
model with the following assumptions: (1) dividend yield of 0%; (2) expected
volatility of 131%; (3) risk-free interest rate of 5.04% and 5.24%, vest over a
36 month period and expire if unexercised in five years.


44


SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
L - STOCK OPTIONS AND WARRANTS (continued)
 
 During
the year ended April 30, 2008, the Company granted options to purchase an
aggregate of 1,170,000 shares of common stock to thirteen employees. However,
four employees left during the three months ended July 31, 2007 and two
employees left during the three months ended January 31, 2008. As a result of
these resignations, 530,000 unexercised options were cancelled. During the year
ended April 30, 2009, two employe8es left as a result, 150,000 unexercised
options were cancelled. The remaining vested and unvested options have been
valued at $40,285 using the Black-Scholes option pricing model with the
following assumptions: (1) dividend yield of 0%; (2) expected volatility of
143%; (3) risk-free interest rate of 4.76%, vest over a 48 month period and
expire if unexercised in ten years.
 
 During
the year ended April 30, 2009, the Company issued warrants to purchase an
aggregate of 250,000 shares of common stock to a consultant. The warrants have
been valued at $17,423 using the Black-Sholes option pricing model with the
following assumptions: (1) dividend yield of 0%; (2) expected
volatility of 248%, (3) risk-free interest rate of 1.72%, and
(4) expected life of 5 years. The warrants have an exercise price of
$0.05 and are fully vested.
 
 During
the year ended April 30, 2009, the Company issued warrants to purchase an
aggregate of 694,444 shares of common stock to one accredited investor in
connection with the sale of a convertible note. The warrants have been valued at
$40,811 using the Black-Sholes option pricing model with the following
assumptions: (1) dividend yield of 0%; (2) expected volatility
of 285%, (3) risk-free interest rate of 1.27%, and
(4) expected life of 3 years. The warrants have an exercise price of
$0.15 and are fully vested.
 
 During
the year ended April 30, 2009, the Company issued warrants to purchase an
aggregate of 200,000 shares of common stock to two individuals in connection
with their services to the Company. The warrants have been valued
 
 at $5,979
using the Black-Sholes option pricing model with the following assumptions:
(1) dividend yield of 0%; (2) expected volatility of 268%,
(3) risk-free interest rate of 1.41%, and (4) expected life
of 5 years. The warrants have an exercise price of $0.15 and are fully
vested.
 
 The
Company adopted SFAS No. 123(R) during third quarter of Fiscal year 2006, which
no longer permits the use of the intrinsic value method under APB No. 25. The
Company uses the modified prospective method to adopt SFAS No. 123(R), which
requires compensation expense to be recorded for all stock-based compensation
granted on or after January 1, 2006, as well the unvested portion of previously
granted options. The Company is recording the compensation expense on a
straight-line basis, generally over the explicit service period of three years.
The Company made no stock-based compensation grants prior to the adoption of
Statement 123(R) and therefore has no unrecognized stock compensation related
liabilities or expense unvested or vested prior to 2006.
 
 The
following table summarizes common stock options issued to officers, directors
and employees outstanding and the related exercise price.
 
 Options
      Outstanding
                        
                        
                        
                        Options
      ExercisableNumber
                          Outstanding
                        
                        Weighted
                          Average
                          Remaining
                          Contractual
                          Life
      (Years)
                        
                        Weighted
                          Average
                          Exercise
                          Price
                        
                        Number
                          Exercisable
                        
                        Weighted
                          Average
                          Exercise
                          Price6,025,000
                        
                        5.05
                        
                        $0.25
                        
                        4,515,000
                        
                        $0.27
  45
  SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
L - STOCK OPTIONS AND WARRANTS (continued)
 
 Transactions
involving stock options issued to employees are summarized as
follows:
 
 Number
                      of Shares
                    
                    
                    Weighted
                      Average
                      Price
                      Per ShareOutstanding
      at April 30, 2007
                    
                    
                    5,535,000
                    
                    
                    $
                    0.26Granted
                    
                    
                    1,170,000
                    
                    
                    
                    0.10Exercised
                    
                    
                    -
                    
                    
                    
                    -Canceled
      or expired
                    
                    
                    (530,000
                    )
                    
                    
                    0.10Outstanding
      at April 30, 2008
                    
                    
                    6,175,000
                    
                    
                    $
                    0.24Granted
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Canceled
      or expired
                    
                    
                    (150,000
                    )
                    
                    
                    0.10Outstanding
      at April 30, 2009
                    
                    
                    6,025,000
                    
                    
                    $
                    0.24
 
 The
weighted-average fair value of stock options granted during the years ended
April 30, 2009 and 2008 was $0.00 and $0.09, 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):
                    
                    2009
                    
                    
                    2008Risk
      free interest rate at grant date:
                    
                    
                    -
                    
                    
                    
                    2.49
                    %Expected
      stock price volatility
                    
                    
                    -
                    
                    
                    
                    164
                    %Expected
      dividend payout
                    
                    
                    -
                    
                    
                    
                    0Expected
      options life in years(a)
                    
                    
                    -
                    
                    
                    
                    3
 
 (a)
              The
      expected option/warrant life is based on vested
  dates.
 
 There
were no options granted during the year ended April 30,
2009.   The options granted in the year ended April 30, 2008 had
an intrinsic value of $21,346.
 
 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 ExercisableExercise
                                  Prices
                                
                                
                                Number
                                  Outstanding
                                
                                
                                Weighted
                                  Average
                                  Remaining
                                  Contractual Life
                                  (Years)
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Number
                                  Exercisable
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price$
                                0.215
                                
                                
                                
                                1,755,537
                                
                                
                                
                                1.78
                                
                                
                                $
                                0.215
                                
                                
                                
                                1,755,537
                                
                                
                                $
                                0.215$
                                0.15
                                
                                
                                
                                694,444
                                
                                
                                
                                2.96
                                
                                
                                $
                                0.15
                                
                                
                                
                                694,444
                                
                                
                                $
                                0.15$
                                0.05
                                
                                
                                
                                2,225,000
                                
                                
                                
                                3.24
                                
                                
                                $
                                0.05
                                
                                
                                
                                2,225,000
                                
                                
                                $
                                0.05$
                                0.0438
                                
                                
                                
                                1,632,833
                                
                                
                                
                                3.29
                                
                                
                                $
                                0.0438
                                
                                
                                
                                1,632,833
                                
                                
                                $
                                0.0438$
                                0.088
                                
                                
                                
                                100,000
                                
                                
                                
                                .63
                                
                                
                                $
                                0.088
                                
                                
                                
                                100,000
                                
                                
                                $
                                0.0886,407,814
                                
                                
                                
                                2.78
                                
                                
                                $
                                0.10
                                
                                
                                
                                6,407,814
                                
                                
                                $
                                0.10
  46
  SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
L - STOCK OPTIONS AND WARRANTS (continued)
 
 Transactions
involving stock warrants issued to non-employees are summarized as
follows:
 
 Number
                        of
                        Shares
                      
                      
                      Weighted
                        Average
                        Price Per
                        ShareOutstanding
      at April 30, 2007
                      
                      
                      12,804,454
                      
                      
                      $
                      0.197Granted
                      
                      
                      3,407,833
                      
                      
                      $
                      0.050Exercised
                      
                      
                      -
                      
                      
                      $
                      -Canceled
      or expired
                      
                      
                      (6,261,414
                      )
                      
                      $
                      0.195Outstanding
      at April 30, 2008
                      
                      
                      9,950,873
                      
                      
                      $
                      0.147Granted
                      
                      
                      1,144,444
                      
                      
                      $
                      0.111Exercised
                      
                      
                      -
                      
                      
                      $
                      -Canceled
      or expired
                      
                      
                      (4,687,503
                      )
                      
                      $
                      0.195Outstanding
      at April 30, 2009
                      
                      
                      6,407,814
                      
                      
                      $
                      0.108
 
 The
weighted-average fair value of stock warrants granted to non-employees during
the years ended April 30, 2009 and 2008 was $0.05 and $0.05 respectively, and
the weighted-average significant assumptions used to determine those fair
values, using a Black-Scholes option pricing model are as follows:
 
 2009
                    
                    
                    2008Significant
      assumptions (weighted-average):Risk-free
      interest rate at grant date
                    
                    
                    1.39
                    %
                    
                    
                    2.82
                    %Expected
      stock price volatility
                    
                    
                    277
                    %
                    
                    
                    178
                    %Expected
      dividend payout
                    
                    
                    -
                    
                    
                    
                    -Expected
      option life-years
                    
                    yrs
                    
                    
                    4
      yrs
 
 The
amount of the expense charged to operations for compensatory warrants granted in
exchange for services was $59,831 and $247,160 and for the years ended April 30,
2009 and 2008, respectively.
 
 NOTE
M - 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. This lease was renewed on October 24, 2007 or an additional 5 years. Total
lease rental expense for the years ended April 30, 2009 and 2008, was $310,419
and $225,953, respectively.
 
 Commitment
for minimum rentals under non-cancelable leases Including Contractual charge for
water and sprinkler are:
 
 April
      30, 2010
                        
                        $
                        297,590April
      30, 2011
                        
                        $
                        304,985April
      30, 2012
                        
                        $
                        312,565November
      30, 2012
                        
                        $
                        184,947
  47
  SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
M - COMMITMENTS AND CONTINGENCIES (continued)
 
 Secured Senior Credit
Facility
 
 In
December 2008 the Company, along with our wholly-owned subsidiary, Sparta
Funding LLC, a Delaware limited liability company, entered into a $25,000,000
committed, extendable, secured credit facility with DZBank AG Deutsche
Zentral–Genossenschaftsbank, Frankfurt am Main, New York Branch pursuant to a
Revolving Credit Agreement which allows Sparta Funding to borrow 80% of the
value of a powersports vehicle in the case of leased vehicles or 80% of the
amount financed by the ultimate purchaser in the case of vehicles, which are
sold at a floating interest rate equal to 30 day commercial paper rate plus 275
basis points.  The Company will serve as originator and servicer of
the leases and purchases financed by Sparta Funding through the DZBank credit
facility.  The Company is required to satisfy certain tangible net
worth and committed capital thresholds as a condition of accessing funds under
the DZBank credit facility.  As of April 30, 2009, the Company has not
met the net worth or committed capital in order to utilize the credit
facility.
 
  48
 SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
M - COMMITMENTS AND CONTINGENCIES (continued)
  Employment and Consulting
Agreements
 
 The
Company does not have employment agreements with any of its non-executive
employees.
 
 The
Company has consulting agreements with outside contractors to provide marketing
and financial advisory services. The agreements are generally for a term of 12
months from inception and renewable automatically from year to year unless
either the Company or Consultant terminates such engagement by written
notice.
 
 The
Company entered into 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.  The term of employment is one year, and 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.  Under the
agreement, 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. At April 30, 2007, 75,000 shares vested, of which
50,000 shares are yet to be issued.  On November 1, 2008 and 2007,
12,500 shares and 25,000 shares, respectively, vested and are yet to be
issued.  The remainder of the shares are subject to vesting on
November 1, 2009. During the years ended April 30, 2009 and 2008, the Company
has recorded $10,000 and $20,000, respectively, as expense as per this
employment agreement.
 
 The
Company entered into an employment agreement, effective September 22, 2006, with
Anthony W. Adler, to serve as our Executive Vice President and interim Chief
Financial Officer. The term of employment is three years. The employment term
may be extended for one year upon written agreement by the Company and Mr.
Adler.  He was granted options for 4,000,000 shares of our common
stock. The grant of options is subject to vesting and subject to continued
employment. On September 22, 2006, 2007, and 2008, options for 800,000 shares,
800,000 shares, and 1,200,000 shares, respectively, vested, and the remaining
options to purchase 1,200,000 shares are to vest on September 22, 2009. He is
entitled to four weeks of paid vacation during the first year of employment, and
five weeks per year thereafter. He is entitled to health insurance 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.
 
 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.
  49
 
 SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
N - NON-CASH FINANCIAL INFORMATION
 
 During
the year ended April 30, 2009, the Company:
 
 ·
              Issued
      2,000,000 shares of unregistered common stock, valued at $125,000, to four
      individuals for their services as members of our Advisory
      Council.
 ·
              Issued
      5,882,000 shares of unregistered common stock, valued at $407,520, to
      thirteen individuals pursuant to the terms and provisions of their
      loans.
 ·
              Issued
      1,390,000 shares of unregistered common stock valued at $91,500 to ten
      individuals as an inducement for
loans.
 ·
              Issued  a
      net of 5,484,769 shares of unregistered common stock valued at $463,629 to
      two consulting firms.
 
 During
the year ended April 30, 2008, the Company:
 
 ·
              Issued
      2,700,000 shares of unregistered common stock, valued at $184,000, to two
      individuals and two corporations for consulting
  services.
 ·
              Issued
      272,500 shares of unregistered common stock, valued at $13,850, to five
      individuals as inducements to make loans to the
  Company.
 ·
              Issued
      4,610,000 shares of unregistered common stock, valued at $378,350, to six
      individuals as penalty shares pursuant to note
  agreements.
 
 NOTE
O – SUBSEQUENT EVENTS
 
 During
the three months ended July 31, 2009, the Company sold to five accredited
investors four month unsecured notes and warrants in the aggregate amount of
$165,000.  The warrants are for a term of three years and entitle the
holder to purchase a total of 4,853,153 shares of our common stock at $0.15 per
share  The notes bore 8% simple interest, payable in cash or shares,
at the Company’s option, with principal and accrued interest payable at
maturity. At the Company’s option, the notes were convertible into shares of
common stock ranging from $0.02 to $0.048 per share.  The notes were
to mature on various dates through November 8, 2009.  These notes plus
accrued interest thereon were converted into shares of common stock in July
2009.
 
 During
the three months ended July 31, 2009, the Company sold to one accredited
investor a four month unsecured 10% note due November 8, 2009 in the amount of
$20,000. As an inducement for the loan the
Company issued to the investor40,000 shares of the Company’s
unregistered common stock.
 
 During
the three months ended July 31, 2009, the Company sold to one accredited
investor unsecured 8% demand notes in the aggregate amount of $149,000. At the
Company’s option, the notes are convertible into shares of common stock ranging
from $0.02 to $0.048 per share.
 
 During
the three months ended July 31, 2009, the Company sold to one accredited
investor unsecured 10% note in the amount of $20,000. At the investor’s option,
the notes are convertible into shares of common stock at $0.02 per
share.
 
 During
the three months ended July 31, 2009, pursuant to the terms of a March, 2009
consulting agreement, the Company issued 2,500,000 shares of its unregistered
common stock valued at $75,000. The agreement requires the Company to issue an
additional 3,500,000 shares, payable 500,000 per month in arrears.
 
 During
the three months ended July 31, 2009, the Company issued 388,086 shares of its
common stock to two individuals, Pursuant to its 2009 Consultant Stock
Plan, in payment of $15,747 for services.
  50
  SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
O – SUBSEQUENT EVENTS (continued)
 
 During
the three months ended July 31, 2009, pursuant to the terms of his note, the
Company issued 200,000 shares of its unregistered common stock to one note
holder in payment of $6,600.99 in accrued interest and $3,399.01 for principal
reduction of the note.
 
 In July
2009, pursuant to the terms of their note agreements, note holders converted
$3,727,755 amount of notes and accrued interest thereon into 118,632,122,shares
of the Company’s common stock.
 
 Note
holders of an additional $938,000 notes have agreed to convert the note plus
accrued interest thereon into shares of the Company’s common stock upon theagreement of
the Company’s Senior Secured Lender that the Company has met all conditions
precedent to begin drawing down on the Company’s credit facility with
them.
  On May 1,
2009, the Company adopted its 2009 Consultant Stock Plan.  The plan
provides for the issuance of up to 10,000,000 shares of the Company’s common
stock, pursuant to stock awards, to eligible consultants.  The plan is
effective for ten years.
  Preferred Stock Purchase
Agreement
 
 On July
24, 2009, we designated 1,000 shares as Series B Preferred Stock.  The
Series B share, with respect to dividend rights and rights upon liquidation,
winding-up or dissolution, rank senior to our common stock and any other class
or series of preferred stock, and junior to all of our existing and future
indebtedness.  The Series B shares accrue dividends at an annual rate
of 10%.  Accrued dividends are payable upon redemption of the Series B
shares.  Our common stock may not be redeemed while Series B shares
are outstanding.  The Series B certificate of designations provides
that, without the approval of a majority of the Series B shares, we cannot
authorize or create any class of stock ranking as to distribution of assets upon
a liquidation senior to or otherwise pari passu with the Series B shares,
liquidate, dissolve or wind-up our business and affairs, or effect certain
fundamental corporate transactions, or otherwise alter or change adversely the
powers, preferences or rights given to the Series B shares.  The
Series B shares have a liquidation preference per share equal to the original
price per share thereof plus all accrued dividends thereon upon liquidation,
including upon consummation of certain fundamental corporate transactions,
dissolution, or winding up of our company.  The Series B shares are
redeemable at our option on or after the fifth anniversary of the date of its
issuance.
  On July
29, 2009, we entered into a Preferred Stock Purchase Agreement with Optimus
Capital Partners, LLC ("Optimus"), an unaffiliated investment
fund.  Under the agreement, Optimus is committed to purchase up to
$5,000,000 of our Series B Preferred Stock for a one year
period.  From time to time, we may send a notice requiring Optimus to
purchase shares of our Series B Preferred Stock, subject to satisfaction of
certain closing conditions.  Optimus will not be obligated to purchase
the Series B Preferred Stock (i) in the event the closing price of our common
stock during the nine trading days following delivery of a purchase notice falls
below 75% of the closing price on the trading day prior to the date such notice
is delivered to Optimus, or (ii) to the extent such purchase would result in
Optimus and its affiliates beneficially owning more than 9.99% of our common
stock.
  We
agreed, to file after each drawn down, and to seek and maintain effectiveness
of, a registration statement covering the shares underlying the issued warrants.
On the earlier of the first draw down or 6 months from the date of the
agreement, we are to pay a non-refundable commitment fee of $250,000.00 to
Optimus. Pursuant to a concurrent transaction between Optimus may borrow up to
33,990,000 shares of our common stock from several of our non-affiliated
stockholders.  On July 31, 2009, pursuant to the agreement, we
requested Optimus to purchase 90 shares of our Series B Preferred Stock valued
at $900,000 and issued 13,500,000 five year warrants to purchase 13,500,000
shares of common stock at $0.09 per share.
  On the
date of delivery of each purchase notice under the agreement, we will also issue
to Optimus five-year warrants to purchase our common stock at an exercise price
equal to the closing price of our common stock on the trading day prior to the
delivery date of the notice.  The number of shares issuable upon
exercise of the warrant will be equal in value to 135% of the purchase price of
the Series B Preferred Stock to be issued in respect of the related
notice.  Each warrant will be exercisable on the earlier of (i) the
date on which a registration statement registering for resale the shares of
common stock issuable upon exercise of such warrant becomes effective and (ii)
the date that is six months after the issuance date of such
warrant.
  51
  SPARTA COMMERCIAL SERVICES,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 APRIL
30, 2009 AND 2008
 
 NOTE
P - 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
consolidated financial statements during the period October 1, 2001 (date of
inception) through April 30, 2009, the Company incurred loss of $27,147,047.
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. While, the planned principal
operations have commenced, 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
pursuing 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.
 
 The
Company believes that the agreement with Optimus will allow us to negate the
going concern issue.
  52
  ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
 
 None.
 
 ITEM
      9A.
              CONTROLS
      AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 Our
management, with the participation of our Chief Executive Officer and Principal
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period ended April 30, 2009. Based upon
such evaluation, our Chief Executive Officer and Principal Financial Officer
have concluded that, as of such date, our disclosure controls and procedures are
effective in providing reasonable assurance that the information required to be
disclosed in this report has been recorded, processed, summarized and reported,
on a timely basis, as of the end of the period covered by this report, and that
our disclosure controls and procedures are also effective to ensure that
information required to be disclosed in the reports we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, to allow timely decisions
regarding required disclosure.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rule 13a-15(f) of the Exchange
Act.  Our management has conducted an evaluation of the effectiveness
of our internal control over financial reporting based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on this evaluation,
management has concluded that our internal control over financial reporting was
effective as of April 30, 2009.  This annual report does not include
an attestation report of our independent registered public accounting firm
regarding internal control over financial reporting. We were not required to
have, nor have we engaged our independent registered public accounting firm to
perform, an audit on our internal control over financial reporting pursuant to
the rules of the Securities and Exchange Commission that permit us to provide
only management’s report in this annual report.
 
 Changes
in Internal Control Over Financial Reporting
 
 There
were no changes in our internal control over financial reporting during the year
ended April 30, 2009 to which this report relates that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
 
 Limitations
on Controls
 
 Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all error and fraud. Any
control system, no matter how well designed and operated, is based upon certain
assumptions and can provide only reasonable, not absolute, assurance that its
objectives will be met. Further, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company have been
detected.
 
 ITEM
      9B.
              OTHER
      INFORMATION
 
 On  May
1, 2009, the Company adopted its 2009 Consultant Stock Plan.  The plan
provides for the issuance of up to 10,000,000 shares of the Company’s common
stock, pursuant to stock awards, to eligible consultants.  The plan is
effective for ten years.
  53
 
 On July
24, 2009, we designated 1,000 shares as Series B Preferred Stock.  The
Series B share, with respect to dividend rights and rights upon liquidation,
winding-up or dissolution, rank senior to our common stock and any other class
or series of preferred stock, and junior to all of our existing and future
indebtedness.  The Series B shares accrue dividends at an annual rate
of 10%.  Accrued dividends are payable upon redemption of the Series B
shares.  Our common stock may not be redeemed while Series B shares
are outstanding.  The Series B certificate of designations provides
that, without the approval of a majority of the Series B shares, we cannot
authorize or create any class of stock ranking as to distribution of assets upon
a liquidation senior to or otherwise pari passu with the Series B shares,
liquidate, dissolve or wind-up our business and affairs, or effect certain
fundamental corporate transactions, or otherwise alter or change adversely the
powers, preferences or rights given to the Series B shares.  The
Series B shares have a liquidation preference per share equal to the original
price per share thereof plus all accrued dividends thereon upon liquidation,
including upon consummation of certain fundamental corporate transactions,
dissolution, or winding up of our company.  The Series B shares are
redeemable at our option on or after the fifth anniversary of the date of its
issuance.
  54
  PART
III
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATION
GOVERNANCE
 
 Our
Management
 
 The
following table sets forth our executive officers and directors and their
respective ages and positions as of August 1, 2009.
 
 Name
                
                Age
                
                PositionAnthony
      L. Havens
                
                55
                
                Chief
      Executive Officer, President, and ChairmanKristian
      Srb
                
                54
                
                DirectorJeffrey
      Bean
                
                56
                
                DirectorAnthony
      W. Adler
                
                69
                
                Executive
      Vice President and Principal Financial OfficerRichard
      P. Trotter
                
                66
                
                Chief
      Operating OfficerSandra
      L. Ahman
                
                46
                
                Vice
      President, Secretary and
Director
 
 Management
Profiles
 
 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. Mr. Havens
served as acting Chief Financial Officer from July 2005 to September 2006. Mr.
Havens served as the Managing Member and Chief Executive Officer of our
predecessor entity, Sparta Commercial Services, LLC, since its inception in 2001
until its dissolution in February 2006. 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 founder and
President of Bean Foods, LLC. Formed in July 2006 the company develops, owns and
operates quick serve restaurants in Georgia. Prior to founding Bean Foods, Mr.
Bean was the founding partner for GoMotorcycle.com, a business that engaged in
the sale of motorcycle parts and accessories over the Internet.  Mr.
Bean was an institutional broker and trader at a major commodities trading firm
from 1985 to 1997. From 1977 to 1985, Mr. Bean was President of Thomaston Press,
Ltd., a printing concern. He received a B.A. degree from the University of
Virginia.
 
 Anthony W. Adler, Executive Vice
President and Principal Financial Officer. From March 2004 to August
2006, Mr. Adler was a full time consultant to the Company, and in September
2006, joined Sparta as Executive Vice President and also as principal financial
officer. From 1995 to March 2004, he was Chief Financial Officer of American
Motorcycle Leasing Corp.  From 1993 to 1994 Mr. Adler was Chief
Executive Officer of Innotek, Inc., a public company engaged in the development
and distribution of skin-care products. Prior to 1993, Mr. Adler served in
numerous executive capacities including Director of Research and Vice President,
Corporate Finance for two New York Stock Exchange Member Firms. Mr. Adler holds
an MBA from New York University and a BA from Columbia College.
 
 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.
  55
  Sandra L. Ahman, Vice President,
Secretary and Director. On March 1, 2004, Sandra Ahman became Vice
President of Operations and Secretary of Sparta, and a Director on June 1, 2004.
She served as a Vice President of our predecessor entity, Sparta Commercial
Services, LLC since its inception in 2001 until its dissolution in February
2006. From 1994 to 2004, she was Vice President of Operations of American
Motorcycle Leasing Corp. Prior to joining American Motorcycle Leasing Corp., Ms.
Ahman was with Chatham Capital Partners, Ltd. Before joining Chatham in 1993,
she was Manager, Human Resources for Comart and Aniforms, a sales promotion and
marketing agency in New York, where she worked from 1986 to 1993. For the past
15 years, Ms. Ahman has been a volunteer with The Children's Aid Society in New
York City, a membership of 500 committed volunteers, serving from 2000 to 2002
as President of its Associates Council, from 2002 to 2005 as Chairman of the
Associates Council, and since 2002 as a member of the Advisory Council of their
Board of Trustees.
 
 Board
of Directors Information and Corporate Governance
 
 There are
no family relationships among our executive officers or directors. None of our
directors or officers are directors of another reporting
company.  Based solely in reliance on representations made by our
officers and directors, during the past five years, none of the following
occurred with respect to such persons:  no petition under the Federal
bankruptcy laws or any state insolvency law was filed by or against, or a
receiver, fiscal agent or similar officer was appointed by a court for the
business or property of such persons, or any partnership in which he or she was
a general partner or any corporation or business association of which he or she
was an executive officer at or within two years before the time of such filing;
no such persons were convicted in a criminal proceeding or are a named subject
of a pending criminal proceeding (excluding traffic violations and other minor
offenses); no such persons were the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of any competent
jurisdiction, permanently or temporarily enjoining, or of any federal or state
authority barring, suspending or otherwise limiting, their involvement in any
type of business practice, or in securities or banking or other financial
institution activities; and no such persons were found by a court of competent
jurisdiction in a civil action or by the SEC or by the Commodity Futures Trading
Commission to have violated any federal or state securities or commodities law,
and the judgment has not been reversed, suspended or vacated.
 
 Our
directors are elected annually to serve for one year and hold office until the
next annual meeting of the stockholders 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 stockholders. Our officers are
elected by the Board of Directors at the first meeting after each annual meeting
of our stockholders, and hold office until their death, resignation or removal
from office.  In seeking candidates for directors, our Board may use
their business, professional and personal contacts, accept the recommendations
from other Board members, stockholders or management. Candidates recommended by
security holders are considered. Current members of the Board are considered for
re-election.  The process for evaluating candidates and the manner of
evaluation is the same regardless of the category of person recommending the
proposed candidate.  The Board considers business experience, mix of
skills and other criteria and qualities appropriate for Board membership,
including: intelligence, high personal and professional ethics, values,
integrity and sound judgment; education; business and professional skills and
experience; familiarity with our business and the industry in general;
independence from management; ability to devote sufficient time to Board
business; commitment to regularly attend and participate in meetings of our
Board and its committees; and concern for the long-term interests of the
stockholders. While such factors important in evaluating candidates, we do not
impose any specific, minimum qualifications for director nominees.
 
 Our Board
of Directors does not currently maintain a separately-designated standing audit,
nominating, or compensation committee, or other similar committee, of the Board
of Directors, and we do not have audit, nominating, or compensation committee,
or other similar charter.  Functions customarily performed by such
committees are performed by our Board as a whole as our operations have been
limited and we have had a small number of officers and a small number of
directors since inception. We are not required to maintain such committees under
the applicable rules of the OTC Bulletin Board. None of our directors qualify as
an "audit committee financial expert." As all of our Board members are officers
or nominees of a substantial stockholder who may not be deemed independent, we
have not established separate Board committees.
  56
  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 have not previously
adopted a code of ethics as our operations have been limited and we have had a
small number of employees since inception.  We expect to adopt a code
of ethics during our present fiscal year.
 
 Section
16(a) Beneficial Ownership Reporting Compliance
 
 Section
16(a) of the Securities Exchange Act of 1934, as amended, requires Sparta's
executive officers, directors, and persons who beneficially own more than ten
percent of Sparta's common stock to file with the Securities and Exchange
Commission initial reports of beneficial ownership and reports of changes in
beneficial ownership of Sparta's common stock.  Such persons are also
required by Securities and Exchange Commission regulations to furnish Sparta
with copies of all such Section 16(a) forms filed by such
person.  Based solely on a review of the copies of such reports
furnished to Sparta in connection with the fiscal year ended April 30, 2009,
Sparta is not aware of any material delinquencies in the filing of such
reports.
 
 ITEM
11.       EXECUTIVE COMPENSATION
 
 Summary
Compensation Table
 
 The table
below sets forth information concerning the compensation we paid to our Chief
Executive Officer and our next two most highly compensated executive officers
who served during our fiscal years ended April 30, 2009 ("Named Executive
Officers").
 
 Name
      and Principal Position
                                  
                                  Year
                                  
                                  Salary
                                    ($)
                                  
                                  
                                  Bonus
                                    ($)
                                  
                                  
                                  Stock
                                    Awards
                                    ($)(a)(b)
                                  
                                  
                                  Option
                                    Awards
                                    ($)(a)(c)
                                  
                                  
                                  All
      Other
                                    Compensation
                                    ($)(d)
                                  
                                  
                                  Total
                                    ($)Anthony
      L. Havens
                                  
                                  2009
                                  
                                  
                                  280,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  10,639
                                  
                                  
                                  
                                  290,639Chief
      Executive Officer
                                  
                                  2008
                                  
                                  
                                  310,440
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  11,580
                                  
                                  
                                  
                                  322,020Anthony
      W. Adler
                                  
                                  2009
                                  
                                  
                                  185,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  156,978
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  341,978Executive
      Vice  President and
                                    Principal
      Financial Officer
                                  
                                  2008
                                  
                                  
                                  185,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  156,928
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  341,928Richard
      P. Trotter
                                  
                                  2009
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  10,000
                                  
                                  
                                  
                                  37,065
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  247,065Chief
      Operating Officer
                                  
                                  2008
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  20,000
                                  
                                  
                                  
                                  49,420
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  269,420
 
 (a)
              See
      note N to financial statements for assumptions made in the
      valuation.
 (b)
              For
      Mr. Trotter, refers to the values of 12,500 and 25,000 shares of common
      stock that vested in fiscal years 2009 and 2008,
      respectively.  Pursuant to an employment agreement dated
      November 1, 2004, Mr. Trotter is entitled to up to 125,000 shares of
      common stock, of which an aggregate of 112,500 shares have vested (of
      which 87,500 remains to be issued), and 12,500 shares remains subject to
      future vesting on November 1, 2009.
 (c)
              For
      Mr. Adler, refers to the values of 1,200,000 and 800,000 stock options
      that vested in each of fiscal years 2009 and 2008,
      respectively.  Pursuant to an option agreement dated September
      22, 2006, Mr. Adler is entitled to up to 4,000,000 options subject to
      vesting. The options are exercisable for a period of five years from the
      vesting date at $0.1914 per share. On each of September 22, 2006, 2007,
      and 2008, stock options to purchase 800,000, 800,000 and 1,200,000 shares
      vested, respectively, and the remaining 1,200,000 options are to vest on
      September 22, 2009.
  57
  For Mr.
Trotter, refers to the values of 175,000 stock options that vested in each of
fiscal years 2009 and 2008.  Pursuant to an option agreement dated
April 29, 2005, Mr. Trotter received 875,000 stock options, exercisable for five
years from the vesting date at $0.605 per share.  Options to purchase
175,000 shares vested on April 29, 2005, and additional options to purchase
175,000 shares vested on each of April 29, 2006, 2007, 2008, and
2009.
 (d)
              This
      column reports the total amount of perquisites and other benefits
      provided, if such total amount exceed $10,000. In fiscal 2009, for Mr.
      Havens, this includes $10,639 for garage rental. In fiscal 2008, for Mr.
      Havens, this includes expenses of $11,580 for garage
    rental..
 
 In
general, compensation payable to a Named Executive Officer consists of a base
salary, and in cases of persons other than our CEO, a stock or stock option
award.  During our 2009 fiscal year, we had in effect written
employment agreements with the Named Executive Officers.  Our
compensation system has generally not been tied to performance based conditions
other than the passage of time.
 
 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
      stockholder;
 ·
              during
      any period of two consecutive years, individuals who at the beginning of
      such period constitute the Board of Directors, including later approved
      directors, ceasing to constitute a majority of the
  board;
 ·
              a
      merger or consolidation of our company with a third party, after which our
      stockholders do not own more than 50% of the voting power;
    or
 ·
              a
      sale of all or substantially all of our assets to a third
      party.
 
 If we
elect not to renew the employment agreement, he shall be entitled to receive
severance equal to thirty months of his base salary plus standard employment
benefits.  If we fail to fully perform all or any portion of our
post-termination obligations, we are be obligated to pay to him an amount equal
to five times the value of the unperformed obligation.
 
 Employment Agreement with
EVP
 
 We
entered into an employment agreement, effective September 22, 2006, with Anthony
W. Adler, to serve as our Executive Vice President and interim Chief Financial
Officer. The term of employment is three years. The employment term may be
extended for one year upon written agreement by the Company and Mr.
Adler.  His initial base salary is at an annual rate of
$185,000.  He is entitled to annual increases in his base salary and
other compensation as may be determined by the Board of Directors. He was
granted options to purchase 4,000,000 shares of our common stock, subject to
vesting and subject to continued employment. On September 22, 2006, 2007, and
2008, options for a total of 2,800,000 shares vested, and the remaining options
to purchase 1,200,000 shares are to vest on
September 22, 2009. He is entitled to four weeks of paid vacation during the
first year of employment, and five 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
receive his full base salary through the end of the then current employment
term
  58
  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
was granted 125,000 shares of our common stock, subject to vesting and subject
to continued employment.  On each of November 1, 2004, 2005, 2006 and
2007, 25,000 shares vested.  An additional 12,500 shares vested on
November 1, 2008.  An additional 12,500 shares are subject to vesting
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.
 
 Outstanding
Equity Awards at Fiscal Year End
 
 The
following table sets forth information concerning outstanding option awards held
by the Name Executive Officers as at April 30, 2009.
 
 Option
      Awards
                    
                    
                    Stock
      AwardsName
                    
                    Number
      of
                      securities
                      underlying
                      unexercised
                      options
                      (#)
                      Exercisable
                    
                    
                    Number
      of
                      securities
                      underlying
                      unexercised
                      options
                      (#)
                      Unexercisable
                    
                    
                    Option
                      exercise
                      price
                      ($)
                    
                    
                    Option
                      expiration
                      date
                    
                    
                    Number
      of
                      shares
      or units
                      of
      stock that
                      have
      not vested
                      (#)
                    
                    
                    Market
      value
                      of
      shares or
                      units
      of stock
                      that
      have
                      not
      vested
                      ($)(a)Anthony
      W. Adler (1)
                    
                    
                    2,800,000
                    
                    
                    
                    1,200,000
                    
                    
                    
                    0.1914
                    
                    
                    9/21/2011
                    
                    
                    
                    -
                    
                    
                    
                    -Richard
      P. Trotter (2)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    12,500
                    
                    
                    
                    875Richard
      P. Trotter (3)
                    
                    
                    175,000
                    
                    
                    
                    -
                    
                    
                    
                    0.605
                    
                    
                    4/29/2010
                    
                    
                    
                    -
                    
                    
                    
                    -Richard
      P. Trotter (3)
                    
                    
                    175,000
                    
                    
                    
                    -
                    
                    
                    
                    0.605
                    
                    
                    4/29/2011
                    
                    
                    
                    -
                    
                    
                    
                    -Richard
      P. Trotter (3)
                    
                    
                    175,000
                    
                    
                    
                    -
                    
                    
                    
                    0.605
                    
                    
                    4/29/2012
                    
                    
                    
                    -
                    
                    
                    
                    -Richard
      P. Trotter (3)
                    
                    
                    175,000
                    
                    
                    
                    -
                    
                    
                    
                    0.605
                    
                    
                    4/29/2013
                    
                    
                    
                    -
                    
                    
                    
                    -Richard
      P. Trotter (3)
                    
                    
                    175,000
                    
                    
                    
                    -
                    
                    
                    
                    0.605
                    
                    
                    4/29/2014
                    
                    
                    
                    -
                    
                    
                    
                    -
 
 (a)
              Reflects
      the closing market price of our common stock on April 30, 2009, multiplied
      by the number of restricted
      shares that were not vested at 2009 fiscal year
  end.
 (1)
              Granted
      pursuant to an option agreement dated September 22, 2006.  The
      options are exercisable for a period of five years from the vesting date
      at $0.1914 per share. Unexercisable options are subject to vesting on
      September 22, 2019.
 (2)
              Granted
      pursuant to an employment agreement dated November 1, 2004. Mr. Trotter is
      vested with an aggregate of 112,500 shares, and 12,500 shares remains
      subject to future vesting on November 1,
2009.
 (3)
              Granted
      pursuant to an option agreement dated April 29,
  2005.
  59
  Compensation
of Directors
 
 No
compensation was paid to non-employee directors in fiscal year
2009.
 
 ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
 
 Securities
Authorized for Issuance under Equity Compensation Plans
 
 The
following table summarizes our equity compensation plan information as of April
30, 2009.
 
 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 (a)
                        
                        
                        Number
      of securities
                          remaining
      available for
                          future
      issuance under
                          equity
      compensation planEquity
      compensation plans
                          approved
      by securities holders
                        
                        
                        650,000
                        
                        
                        $
                        0.19
                        
                        
                        
                        7,850,000Equity
      compensation plans not
                          approved
      by security holders (b)
                        
                        
                        9,432,833
                        
                        
                        $
                        0.21
                        
                        
                        
                        0Total
                        
                        
                        10,082,833
                        
                        
                        $
                        0.21
                        
                        
                        
                        7,850,000
 
 (a)
              Calculation
      excludes shares subject to restricted stock
  grants.
 (b)
              Includes
      100,000 shares pursuant to a restricted stock grant, of which 12,500
      shares are subject to future vesting and 87,500 shares have vested but
      have not been issued. There is no exercise price associated with the
      restricted stock grant.
 
 Plans
in the Shareholder Approved Category
 
 In July
2004, we adopted our 2005 Stock Incentive Compensation Plan.  The plan
authorizes 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, 2009, no options were granted
or exercised, and 150,000 unexercised options were cancelled.  As of
April 30, 2009, options to purchase 650,000 shares of common stock were
outstanding under the plan.
 
 Plans
Not in the Shareholder Approved Category
 
 On
November 1, 2004, pursuant to an employment agreement with Richard P. Trotter,
our Chief Operating Officer, we granted an award of 125,000 shares of our common
stock, subject to vesting and subject to continued employment.  Mr.
Trotter was previously issued 25,000 shares, and an additional 87,500 shares
have vested but have not yet been issued.  An additional 12,500 shares
remains subject to future vesting on November 1, 2009.
 
 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. 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, and additional options to purchase 175,000 shares
vested on each of April 29, 2006, 2007, 2008 and 2009.
 
 In
connection with the private placement during the year ended April 30, 2006, we
granted 1,755,537 common stock purchase warrants to the placement agent,
exercisable for five years at $0.215 per share.
  60
  On
September 22, 2006, pursuant to an option agreement with Anthony W. Adler, our
Executive Vice President, we issued stock options to purchase up to 4,000,000
shares of a common stock. Subject to vesting, the stock options are exercisable
for five years from the vesting date at $0.1914 per share. On September 22,
2006, stock options to purchase 800,000 shares vested, on September 22, 2007 an
additional 800,000 shares vested, and on September 22, 2008, stock options to
purchase 1,200,000 shares vested The remaining 1,200,000 stock options are to
vest on September 22, 2009.
 
 On
October 23, 2006, pursuant to an option agreement with Jeffrey Bean, one of our
directors, we issued stock options to purchase up to 500,000 shares of a common
stock. Subject to vesting, the stock options are exercisable for five years from
the vesting date at $0.12 per share. On October 23, 2006, stock options to
purchase 200,000 shares vested, and an additional 100,000 stock options vested
on each of October 23, 2007 and 2008. The remaining 100,000 options are to vest
on October 23, 2009.
 
 On
December 16, 2006, pursuant to an option agreement with Loofbourrow and
Associates, a consultant, we issued options to purchase up to 100,000 shares of
our common stock exercisable at $.08 per share.
 
 In July
2007, we entered into a three month consulting agreement with a consulting firm
pursuant to which we issued five year warrants to purchase 1,000,000 shares of
common stock exercisable at $0.05 per share.
 
 In
September 2007, we issued, pursuant to a consulting agreement, five year
warrants to purchase 400,000 shares of common stock exercisable at $0.05 per
share.
 
 In
October 2007, we entered into a consulting agreement for financial advisory
services with an individual pursuant to which we issued five year warrants to
purchase 375,000 shares of common stock exercisable at $0.05 per
share.
 
 On
January 31, 2008, we issued to a consultant pursuant to a placement agency
agreement five year warrants to purchase 1,632,833 shares of common stock
exercisable at $0.0438 per share.
 
 On
January 1, 2009, we entered into a consulting agreement for financial advisory
services pursuant to which we issued to the consultant five year warrants to
purchase 250,000 shares of common stock at $0.05 per share.
 
 On
February 27, 2009, we issued to two consultants five year warrants to purchase
an aggregate of 100,000 shares of common stock at $0.05 per share.
 
 Common
Stock Ownership
 
 The table
below sets forth information regarding the beneficial ownership of our common
stock as of April 30, 2009 by: each of our directors; each of our executive
officers; all of our executive officers and directors as a group; and each
person known by us to be the beneficial owner of more than 5% of our common
stock.
 
 Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting and investment power. Under SEC rules, a person is deemed to be the
beneficial owner of securities which may be acquired by such person upon the
exercise of options and warrants or the conversion of convertible securities
within 60 days from the date on which beneficial ownership is to be determined.
Each beneficial owner's percentage ownership is determined by dividing the
number of shares beneficially owned by that person by the 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.
 
 Name
      (a)
                  
                  Number
      of Shares
                    Beneficially
      Owned
                  
                  
                  Percentage
      of Class
                    Beneficially
      OwnedAnthony
      L. Havens (1)
                  
                  
                  30,933,250
                  
                  
                  
                  17.8Kristian
      Srb (2)
                  
                  
                  33,066,562
                  
                  
                  
                  19.0Jeffrey
      Bean (3)
                  
                  
                  416,000
                  
                  
                  
                  *Anthony
      W. Adler (4)
                  
                  
                  3,895,000
                  
                  
                  
                  2.2Richard
      P. Trotter (5)
                  
                  
                  912,500
                  
                  
                  
                  *Sandra
      L. Ahman
                  
                  
                  580,865
                  
                  
                  
                  *All
      current directors and named officers as a group (6 in all)
                  
                  
                  68,804,177
                  
                  
                  
                  38.7
  61
  *
              Represents
      less than 1%
 (a)
              Unless
      indicated otherwise, the address for each person named in the table is c/o
      Sparta Commercial Services, Inc., 462 Seventh Ave, 20th Floor, New York,
      NY 10018, and each .
 (1)
              Mr.
      Havens' minor son owns approximately 500,000 shares of common stock in a
      trust account. Mr. Havens is not the trustee for his son's trust account,
      and does not have the sole or shared power to vote or direct the vote of
      such shares.  Mr. Havens disclaims beneficial ownership of such
      shares held in his son's trust
account.
 (2)
              Includes
      62,500 shares of common stock held by Mr. Srb's minor daughter, for which
      Mr. Srb may be deemed to have beneficial ownership of such
      shares.
 (3)
              Includes
      400,000 vested stock options. Pursuant to an option agreement, Mr. Bean is
      entitled to up to 500,000 options, of which on October 23, 2006, 2007 and
      2008, options to purchase 200,000, 100,000 and 100,000 shares vested,
      respectively.  Options to purchase an additional 200,000 shares
      are to vest on October 23, 2009.
 (4)
              Includes
      2,800,000 vested stock options. Pursuant to an option agreement, Mr. Adler
      is entitled to up to 4,000,000 options, of which on September 22, 2006,
      2007 and 2008, options to purchase 800,000, 800,000 and 1,200,000 shares
      vested, respectively. Options to purchase an additional 1,200,000 shares
      are to vest on September 22, 2009.
 (5)
              Includes
      112,500 vested shares, although only 25,000 of such vested shares have
      been issued.  Pursuant to an employment agreement, Mr. Trotter
      is entitled to up to 125,000 shares of common stock, of which an aggregate
      of 112,500 shares have vested, and 12,500 shares remains subject to future
      vesting on November 1, 2009. Percentage ownership gives effect to the
      vested, but not yet issued, shares.  Also includes 875,000
      vested stock options, The stock options are exercisable for five years
      from the vesting date at $0.605 per share. On each of April 29, 2005,
      2006, 2007, 2008 and 2009, stock options to purchase 175,000 shares
      vested.
 
 Changes
in Control
 
 We do not
have any arrangements that may result in a change in control.
 
 ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
 
 During
the fiscal year ended April 30, 2009, we received seven non-interest bearing
demand loans in the aggregate amount of $136,000 from Kristian Srb, one of our
directors. As of April 30, 2009, this amount remains to be repaid.
 
 During
the fiscal year ended April 30, 2007, we received a $180,000 non-interest
bearing demand loan from Kristian Srb, one of our directors. As of April 30,
2009, $18,000 remains to be repaid.
 
 During
the fiscal year ended April 30, 2007, we received a $14,760 non-interest bearing
demand loan from Sandra Ahman, one of our officers and a director, of which
$1,000 was repaid during the year ended April 30, 2007. As of April 30, 2009,
$13,760 remains to be repaid.
 
 During
the fiscal year ended April 30, 2007, we received a $8,500 non-interest bearing
demand loan from Richard Trotter, one of our officers. As of April 30, 2009,
$8,500 remains to be repaid.
 
 During
the fiscal year ended April 30, 2007, we received two, $20,000 non-interest
bearing demand loans from Kristian Srb, one of our directors. As of April 30,
2009, $20,000 remains to be repaid.
 
 During
the fiscal year ended April 30, 2007, we received a $2,500 non-interest bearing
demand loan from Anthony Adler, one of our officers, which was repaid in fiscal
2009.
 
 On
October 31, 2008, the Company purchased certain loans secured by a portfolio of
all American Motorcycle Leasing Corp's motorcycle leases for a total purchase
price of $100,000. At April 30, 2008 and 2009, included in accounts receivable,
are $169 and $2,354 respectively, due from American Motorcycle Leasing Corp. for
the purchase of motorcycles.  American Motorcycle Leasing Corp. is
controlled by a director and formerly controlled by the Company's Chief
Executive Officer.  From time to time, we have engaged in certain
transactions with American Motorcycle Leasing Corp.  Certain of our
officers, directors, and employees have worked for American Motorcycle Leasing
Corp. and may continue to do so on a limited basis for the near future, and have
had equity interests in American Motorcycle Leasing Corp.  While our
business plans differ from those of American Motorcycle Leasing Corp., we
operate in the same industry as American Motorcycle Leasing
Corp.  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.
  62
  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.
 
 Director
Independence
 
 None of
our directors, other than Jeffrey Bean, is deemed an independent
director.  For purposes of determining independence, we are applying
the independence standards of the NASDAQ Stock Market LLC.
 
 ITEM
14.       PRINCIPAL ACCOUNTANT FEES AND
SERVICES
 
 Audit
Fees
 
 Fees for
audit services provided by RBSM LLP (formerly Russell Bedford Stefanou
Mirchandani LLP), our principal independent registered public accounting firm,
during the fiscal years ended April 30, 2009 and 2008 were $139,832 and $162,046
respectively. Audit fees consist of the aggregate fees billed for the audits of
our annual financial statements, the reviews of our quarterly financial
statements, and services that are normally provided in connection with statutory
and regulatory filings or engagements for those fiscal years.
 
 Audit-Related
Fees
 
 Fees for
audit-related services provided by our principal independent registered public
accounting firm during the fiscal years ended April 30, 2009 and 2008 were
$0.  Audit-related fees consist of fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of our financial statements outside of those fees disclosed above under
the caption Audit Fees.
 
 Tax
Fees
 
 Fees for
tax services provided by our principal independent registered public accounting
firm during the fiscal years ended April 30, 2009 and 2008 were $0. Tax fees
consist of fees billed for tax compliance, tax advice, and tax
planning.
 
 All
Other Fees
 
 There
were no other fees billed for services our principal independent registered
public accounting firm for the fiscal years ended April 30, 2009 and
2008.
 
 Pre-Approval
Policies and Procedures
 
 Our Board
of Directors has a policy that requires pre-approval of all audit,
audit-related, tax services, and other services, including non-audit services,
performed by our independent registered public accounting firm.  All
services performed by our principal independent registered public accounting
firm, and all fees paid, in our fiscal years ended April 30, 2009 and 2008 were
pre-approved.  The Board of Directors is responsible for matters
typically performed by an audit committee. We do not presently have a separate
audit committee of the Board of Directors. The Board of Directors considered
whether, and determined that, the auditor's provision of non-audit services was
compatible with maintaining the auditor's independence.
  63
  ITEM
15.       EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
 
 (a)
              List
      of documents filed as a part of this
report:
 
 (1)
              Index
      to Consolidated Financial
Statements
 
 Report
      of
      Registered Independent Certified Public Accounting
  Firm
 BalanceSheets
      as of April 30, 2009 and 2008
 Statementsof
      Losses for the years ended April 30, 2009 and
  2008
 Statementof
      Deficiency in Stockholders' Equity for the years ended April 30, 2009 and
      2008
 Statementsof
      Cash Flows for the years ended April 30, 2009 and
  2008
 Notesto
      Financial Statements
 
 (2)
              Index
      to Financial Statement Schedules
 
 Not
      required.
 
 (3)
              Index
      to Exhibits
 
 Exhibit
      Number
                  
                  Description
      of Exhibit3(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)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)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)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)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)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)3(i)(7)
                  
                  Certificate
      of Designation for Series B Preferred Stock (Incorporated by reference to
      Exhibit B to Preferred Stock Purchase Agreement, dated as of July 29, 2009
      (see Exhibit 10.24 below)3(ii)(1)
                  
                  By-laws
      (Incorporated by reference to Exhibit 3(ii) (1) of Form 10-KSB filed on
      August 13, 2004)3(ii)(2)
                  
                  By-laws
      Resolution (Incorporated by reference to Exhibit 3(ii) (2) of Form 10-KSB
      filed on August 13, 2004)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)10.1
                  
                  Service
      Agreement with American Motorcycle Leasing Corp. (Incorporated by
      reference to Exhibit 10.1 of Form 10KSB filed on August 13,
      2004)10.2
                  
                  License
      Agreement with American Motorcycle Leasing Corp. (Incorporated by
      reference to Exhibit 10.1 of Form 10KSB filed on August 13,
      2004)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)10.4
                  
                  Lease
      for office facilities (Incorporated by reference to Exhibit 10 of Form
      10-QSB filed on December 15, 2004)10.5+
                  
                  Form
      of Employment Agreement with Anthony Havens (Incorporated by reference to
      Exhibit 10.4 of Form 10-KSB filed on August 13, 2004)10.6+
                  
                  Employment
      Agreement with Richard Trotter (Incorporated by reference to Exhibit 10 of
      Form 8-K filed on October 29,
2004)
  64
 
 10.7+
                  
                  Option
      Agreement with Richard Trotter (Incorporated by reference to Exhibit 10.1
      of Form 8-K filed on May 5, 2005)10.8+
                  
                  Employment
      Agreement with Anthony W. Adler (Incorporated by reference to Exhibit 10.1
      of Form 8-K filed on October 2, 2006)10.9+
                  
                  Stock
      Option Agreement with Jeffrey Bean, dated October 23, 2006 (Incorporated
      by reference to Exhibit 10.1 of Form 8-K filed on October 24,
      2006)10.10+
                  
                  2005
      Stock Incentive Compensation Plan (Incorporated by reference to Exhibit 4
      of Form 10-KSB filed on August 13, 2004)10.11
                  
                  2009
      Consultant Stock Plan (Incorporated by reference to Exhibit 99.1 of Form
      S-8 filed on May 12, 2009)10.12
                  
                  Master
      Loan and Security Agreement - Motor Vehicles (Incorporated by reference to
      Exhibit 10.1 of Form 8-K filed on July 28, 200510.13
                  
                  Master
      Loan and Security Agreement (Installment Sale Contract) (Incorporated by
      reference to Exhibit 10.2 of Form 8-K filed on July 28,
    2005)10.14
                  
                  Form
      of Warrant included in Units (Incorporated by reference to Exhibit 10.1 of
      Form 10-QSB filed on March 22, 2006)10.15
                  
                  Form
      of Loan Agreement, December 2005 (Incorporated by reference to Exhibit
      10.1 of Form 10-QSB filed on March 22, 2006)10.16
                  
                  Form
      of Subscription Agreement (Incorporated by reference to Exhibit 10.1 of
      Form 8-K filed on January 4, 200610.17
                  
                  Form
      of Promissory Note (Incorporated by reference to Exhibit 10.3 of Form
      10-QSB filed on December 18, 2006)10.18
                  
                  Form
      of Promissory Note (Incorporated by reference to Exhibit 10.4 of Form
      10-QSB filed on December 18, 2006)10.19
                  
                  Form
      of Convertible Debenture (Incorporated by reference to Exhibit 10.1 of
      Form 10-QSB filed on December 21, 200710.20
                  
                  Revolving
      Credit Agreement dated December 19, 2008 (Incorporated by reference to
      Exhibit 10.1 of Form 8-K filed on March 23, 2009)10.21
                  
                  Preferred
      Stock Purchase Agreement, dated as of July 29, 2009, by and among Sparta
      Commercial Services, Inc. and Optimus Capital Partners, LLC (Incorporated
      by reference to Exhibit 10.1 of Form 8-K filed on July 30,
      2009)11
                  
                  Statement
      re: computation of per share earnings is hereby incorporated by reference
      to Part II, Item 8 of this report23.1
                  
                  Consent
      of RBSM LLP31.1*
                  
                  Certification
      of Chief Executive Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)31.2*
                  
                  Certification
      of Principal Financial Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)32.1*
                  
                  Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    135032.2*
                  
                  Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section
      1350
 ___
 * Filed
herewith.
 +  Represents
executive compensation plan or agreement
  65
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 SPARTA
      COMMERCIAL SERVICES, INC.By:
                  /s/ Anthony L. HavensAnthony
      L. HavensChief
      Executive OfficerDate:  August
      13, 2009
 
 Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
 
 By:
                  /s/ Anthony L. HavensAnthony
      L. HavensChief
      Executive Officer, Presidentand
      Chairman of the BoardDate:  August
      13, 2009By:
                  /s/ Anthony W. AdlerAnthony
      W. AdlerExecutive
      Vice President, andInterim
      Principal Financial OfficerDate:  August
      13, 2009By:
                  /s/ Sandra L. AhmanSandra
      L. AhmanVice
      President and DirectorDate:  August
      13, 2009By:
                  /s/ Kristian SrbKristian
      SrbDirectorDate:  August
      13, 2009By:
                  /s/ Jeffrey BeanJeffrey
      BeanDirectorDate:  August
      13, 2009
 66