UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




(Mark
One)





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





For
the quarterly period ended January 31, 2010





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





For the
transition period from ________ to ___________.





Commission
file number: 0-9483





SPARTA
COMMERCIAL SERVICES, INC.


(Exact
name of registrant as specified in its charter)





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





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


(Address
of principal executive offices)  (Zip Code)





(212)
239-2666


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  x Yes  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 whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.


Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o (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





As of
March 17, 2010, we had 373,042,953 shares of common stock issued and
outstanding.









SPARTA
COMMERCIAL SERVICES, INC.





FORM
10-Q


FOR
THE QUARTER ENDED JANUARY 31, 2010





TABLE
OF CONTENTS





PagePART
      I.
                  FINANCIAL
      INFORMATIONItem
      1.
                  Financial
      Statements (Unaudited)
                  
                  
                  3Condensed
      Consolidated Balance Sheets as of January 31, 2010 and April 30,
      2009
                  
                  
                  3Condensed
      Consolidated Statements of Losses for the Three and Nine Months ended
      January 31, 2010 and 2009
                  
                  
                  4Condensed
      Consolidated Statement of Stockholders’ Equity (Deficit) for the Nine
      Months ended January 31, 2010
                  
                  
                  5Condensed
      Consolidated Statements of Cash Flows for the Nine Months ended January
      31, 2010 and 2009
                  
                  
                  6Notes
      to Unaudited Condensed Consolidated Financial Statements
                  
                  
                  7Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  
                  21Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  
                  
                  28Item
      4.
                  Controls
      and Procedures
                  
                  
                  28PART
      II.
                  OTHER
      INFORMATIONItem
      1.
                  Legal
      Proceedings
                  
                  
                  29Item
      1A.
                  Risk
      Factors
                  
                  
                  29Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  
                  
                  34Item
      3.
                  Defaults
      Upon Senior Securities
                  
                  
                  34Item
      4.
                  (Removed
      and Reserved)
                  
                  
                  34Item
      5.
                  Other
      Information
                  
                  
                  35Item
      6.
                  Exhibits
                  
                  
                  35Signatures
                  
                  
                  
                  36


2


PART
I.  FINANCIAL INFORMATION





ITEM 1.  FINANCIAL
STATEMENTS





SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





January 31
                      
                      
                      April 30,2010
                      
                      
                      2009(Unaudited)ASSETSCash
      and cash equivalents
                      
                      $
                      
                      
                      
                      $
                      2,790RISC
      loan receivables, net of reserve of $152,705 and $235,249, respectively
      (NOTE D)
                      
                      
                      2,045,525
                      
                      
                      
                      3,248,001Motorcycles
      and other vehicles under operating leases net of accumulated depreciation
      of  $228,810 and $256,485 respectively, and loss reserve of
      $17,694 and $32,726, respectively (NOTE B)
                      
                      
                      344,201
                      
                      
                      
                      621,797Interest
      receivable
                      
                      
                      31,789
                      
                      
                      
                      49,159Purchased
      Portfolio
                      
                      
                      38,017
                      
                      
                      
                      72,635Accounts
      receivable
                      
                      
                      94,608
                      
                      
                      
                      17,899Inventory
      (NOTE C)
                      
                      
                      154,833
                      
                      
                      
                      12,514Property
      and equipment, net of accumulated depreciation and amortization of
      $160,365 and $147,905,  respectively (NOTE E)
                      
                      
                      30,883
                      
                      
                      
                      43,342Prepaid
      Expenses
                      
                      
                      588,941
                      
                      
                      
                      593,529Long
      term notes receivable
                      
                      
                      2,118,309
                      
                      
                      
                      —Restricted
      cash
                      
                      
                      199,573
                      
                      
                      
                      348,863Deposits
                      
                      
                      48,967
                      
                      
                      
                      48,967Total
      assets
                      
                      $
                      5,695,644
                      
                      
                      $
                      5,059,497LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Bank
      Overdraft
                      
                      $
                      10,482
                      
                      
                      $
                      57,140Accounts
      payable and accrued expenses
                      
                      
                      1,100,543
                      
                      
                      
                      1,851,876Notes
      payable-Senior Lender (NOTE F)
                      
                      
                      2,417,574
                      
                      
                      
                      3,694,838Notes
      Payable (NOTE G)
                      
                      
                      584,399
                      
                      
                      
                      5,102,458Loans
      payable-related parties (NOTE H)
                      
                      
                      392,260
                      
                      
                      
                      378,260Other
      liabilities
                      
                      
                      —
                      
                      
                      
                      88,285Deferred
      revenue
                      
                      
                      9,000
                      
                      
                      
                      13,050Total
      liabilities
                      
                      
                      4,514,258
                      
                      
                      
                      11,185,907Stockholders'
      Equity:Preferred
      stock A, $.001 par value; 10,000,000 shares authorized of which 35,850
      shares have been designated as Series A convertible preferred stock, with
      a stated value of $100 per share, 125 and 125 shares issued and
      outstanding, respectively
                      
                      
                      12,500
                      
                      
                      
                      12,500Preferred
      Stock B, 1,000 shares have been designated as Series B redeemable
      preferred stock, $0.001 par value, with a liquidation and redemption value
      of $10,000 per share, 157 and 0 shares issued and outstanding,
      respectively
                      
                      
                      0
                      
                      
                      
                      0Preferred
      Stock C, 200,000 shares have been designated as Series C redeemable,
      convertible preferred, $0.001 par value, with a liquidation and redemption
      value of $10 per share, 42,000 and 0 shares issued and outstanding,
      respectively
                      
                      
                      42
                      
                      
                      
                      0Common
      stock, $.001 par value; 740,000,000 shares authorized, 358,443,904 and
      170,730,064 shares issued and outstanding, respectively
                      
                      
                      358,444
                      
                      
                      
                      170,730Common
      stock to be issued, 39,647,440 and 16,735,453 respectively
                      
                      
                      39,647
                      
                      
                      
                      16,735Additional
      paid-in-capital
                      
                      
                      30,915,701
                      
                      
                      
                      20,820,672Accumulated
      deficit
                      
                      
                      (30,044,948
                      )
                      
                      
                      (27,147,047
                      )Subtotal
                      
                      
                      1,281,387
                      
                      
                      
                      (6,126,410
                      )Less:
      Treasury Stock, at cost (2,000,000 shares at $0.05)
                      
                      
                      (100,000
                      )
                      
                      
                      0Total
      (deficiency in) stockholders' equity
                      
                      
                      1,181,387
                      
                      
                      
                      (6,126,410
                      )Total
      Liabilities and stockholders’ equity
                      
                      $
                      5,695,644
                      
                      
                      $
                      5,059,497





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.


3


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF LOSSES


FOR
THE THREE AND NINE MONTHS ENDED JANUARY 31, 2010 AND 2009


(UNAUDITED)





Three Months Ended
                    
                    
                    Nine Months EndedJanuary 31,
                    
                    
                    January 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Revenue:Rental
      Income, Leases
                    
                    $
                    36,017
                    
                    
                    $
                    70,235
                    
                    
                    $
                    135,327
                    
                    
                    $
                    238,573Interest
      Income, Loans
                    
                    
                    100,511
                    
                    
                    
                    184,405
                    
                    
                    
                    355,269
                    
                    
                    
                    582,113Other
                    
                    
                    24,557
                    
                    
                    
                    23,628
                    
                    
                    
                    75,839
                    
                    
                    
                    153,551Total
      Revenues
                    
                    
                    161,086
                    
                    
                    
                    278,268
                    
                    
                    
                    566,436
                    
                    
                    
                    974,237Operating
      expenses:General
      and administrative
                    
                    
                    681,129
                    
                    
                    
                    886,927
                    
                    
                    
                    2,114,152
                    
                    
                    
                    3,228,507Depreciation
      and amortization
                    
                    
                    112,407
                    
                    
                    
                    44,361
                    
                    
                    
                    350,906
                    
                    
                    
                    153,532Total
      operating expenses
                    
                    
                    793,536
                    
                    
                    
                    931,288
                    
                    
                    
                    2,465,058
                    
                    
                    
                    3,382,039Loss
      from operations
                    
                    
                    (632,450
                    )
                    
                    
                    (653,020
                    )
                    
                    
                    (1,898,623
                    )
                    
                    
                    (2,407,802
                    )Other
      expense:Interest
      expense and financing cost, net
                    
                    
                    224,856
                    
                    
                    
                    315,597
                    
                    
                    
                    956,541
                    
                    
                    
                    1,267,831Net
      loss
                    
                    
                    (857,306
                    )
                    
                    
                    (968,617
                    )
                    
                    
                    (2,855,164
                    )
                    
                    
                    (3,675,633
                    )Preferred
      dividend payable
                    
                    
                    22,876
                    
                    
                    
                    1,261
                    
                    
                    
                    42,738
                    
                    
                    
                    3,784Net
      loss attributed to common stockholders
                    
                    $
                    (880,182
                    )
                    
                    $
                    (969,878
                    )
                    
                    $
                    (2,897,901
                    )
                    
                    $
                    (3,679,417
                    )Basic
      and diluted loss per share
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.02
                    )Basic
      and diluted loss per share attributed to common
    stockholders
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.02
                    )Weighted
      average shares outstanding
                    
                    
                    346,435,384
                    
                    
                    
                    163,047,625
                    
                    
                    
                    279,717,310
                    
                    
                    
                    156,183,425





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.


4


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


FOR
THE NINE MONTHS ENDED JANUARY 31, 2010





Common Stock
                    
                    
                    AdditionalSeries A PreferredStock
                    
                    
                    Series B PreferredStock
                    
                    
                    Series C PreferredStock
                    
                    
                    Common Stock
                    
                    
                    to be issued
                    
                    
                    Paid in
                    
                    
                    AccumulatedShares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Deficit
                    
                    
                    TotalBalance,
      April 30, 2009
                    
                    
                    12,500
                    
                    
                    $
                    12,500
                    
                    
                    
                    —
                    
                    
                    $
                    —
                    
                    
                    
                    —
                    
                    
                    $
                    —
                    
                    
                    
                    170,730,063
                    
                    
                    $
                    170,729
                    
                    
                    
                    16,735,453
                    
                    
                    $
                    16,735
                    
                    
                    $
                    20,820,672
                    
                    
                    $
                    (27,147,047
                    )
                    
                    $
                    (6,126,410
                    )Cancellation
      of shares
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (400
                    )
                    
                    
                    (0.40
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    0.4
                    
                    
                    
                    —
                    
                    
                    
                    —correction
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,950
                    )
                    
                    
                    (1.95
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (2
                    )Sale
      of Pfd Stock B
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    157
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,320,000
                    
                    
                    
                    —
                    
                    
                    
                    1,320,000Pfd
      Stock C issued for A/P
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    42,000
                    
                    
                    
                    42
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    419,958
                    
                    
                    
                    —
                    
                    
                    
                    420,000Sale
      of Stock
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,409,869
                    
                    
                    
                    1,410
                    
                    
                    
                    1,007,049
                    
                    
                    
                    1,007
                    
                    
                    
                    117,583
                    
                    
                    
                    —
                    
                    
                    
                    120,000Shares
      issued upon warrant exercise
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    31,566,176
                    
                    
                    
                    31,566
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    2,086,743
                    
                    
                    
                    —
                    
                    
                    
                    2,118,309Shares
      issued upon conversion of preferred
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    10,733,974
                    
                    
                    
                    10,734
                    
                    
                    
                    (10,733,980
                    )
                    
                    
                    (10,733
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1Shares
      issued for financing cost
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,432,000
                    
                    
                    
                    3,432
                    
                    
                    
                    (84,000
                    )
                    
                    
                    (84
                    )
                    
                    
                    179,054
                    
                    
                    
                    —
                    
                    
                    
                    182,402Shares
      issued for accrued interest
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    200,000
                    
                    
                    
                    200
                    
                    
                    
                    (200,000
                    )
                    
                    
                    (200
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Shares
      issued for conversion of notes & interest
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    132,556,857
                    
                    
                    
                    132,558
                    
                    
                    
                    34,924,868
                    
                    
                    
                    34,924
                    
                    
                    
                    5,363,774
                    
                    
                    
                    —
                    
                    
                    
                    5,531,256Stock
      Compensation recorded
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    5,000,000
                    
                    
                    
                    5,000
                    
                    
                    
                    (2,000,000
                    )
                    
                    
                    (2,000
                    )
                    
                    
                    111,500
                    
                    
                    
                    —
                    
                    
                    
                    114,500Shares
      issued for accounts payable
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    2,815,371
                    
                    
                    
                    2,815
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    163,939
                    
                    
                    
                    —
                    
                    
                    
                    166,754Employee
      options expense
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    71,685
                    
                    
                    
                    —
                    
                    
                    
                    71,685Warrant
      compensation
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    153,028
                    
                    
                    
                    —
                    
                    
                    
                    153,028Warrant
      liability
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Forgiveness
      of accounts payable
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    65,601
                    
                    
                    
                    —
                    
                    
                    
                    65,601Purchase
      of treasury stock
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (100,000
                    )Pfd
      Stock B issued for dividend payable
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    42,164
                    
                    
                    
                    —
                    
                    
                    
                    42,164Net
      Loss
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (2,897,901
                    )
                    
                    
                    (2,897,901
                    )Balance,
      January 31, 2010
                    
                    
                    12,500
                    
                    
                    $
                    12,500
                    
                    
                    
                    157
                    
                    
                    $
                    0
                    
                    
                    
                    42,000
                    
                    
                    $
                    42
                    
                    
                    
                    358,443,910
                    
                    
                    $
                    358,444
                    
                    
                    
                    39,647,440
                    
                    
                    $
                    39,647
                    
                    
                    $
                    30,915,702
                    
                    
                    $
                    (30,044,948
                    )
                    
                    $
                    1,181,387





The
accompanying notes are an integral part of these unaudited consolidated
financial statements.


5


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE NINE MONTHS ENDED JANUARY 31, 2010 AND 2009


(UNAUDITED)





Nine Months EndedJanuary 31,2010
                        
                        
                        2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss
                        
                        $
                        (2,897,901
                        )
                        
                        $
                        (3,679,417
                        )Adjustments
      to reconcile net loss to net cash used in operating
    activities
                        
                        
                        —
                        
                        
                        
                        —Depreciation
      and Amortization
                        
                        
                        107,356
                        
                        
                        
                        153,533Allowance
      for loss reserves
                        
                        
                        (97,576
                        )
                        
                        
                        4,326Amortization
      of deferred revenue
                        
                        
                        —
                        
                        
                        
                        (8,217
                        )Amortization
      of deferred financing cost
                        
                        
                        —
                        
                        
                        
                        30,316Beneficial
      Conversion Discount
                        
                        
                        —
                        
                        
                        
                        325,000Equity
      based compensation
                        
                        
                        349,156
                        
                        
                        
                        1,040,324Stock
      based finance cost
                        
                        
                        224,713
                        
                        
                        
                        416,469Changes
      in operating assets and liabilities:
                        
                        
                        —
                        
                        
                        
                        —(Increase)
      decrease in:
                        
                        
                        —
                        
                        
                        
                        —Inventory
                        
                        
                        (142,319
                        )
                        
                        
                        —Interest
      Receivable
                        
                        
                        17,370
                        
                        
                        
                        —Accounts
      Receivable
                        
                        
                        (76,709
                        )
                        
                        
                        1,977Prepaid
      expenses and other assets
                        
                        
                        —
                        
                        
                        
                        (147,702
                        )Restricted
      cash
                        
                        
                        149,290
                        
                        
                        
                        33,973(Increase)
      decrease in:
                        
                        
                        —
                        
                        
                        
                        —Accounts
      payable and accrued expenses
                        
                        
                        226,043
                        
                        
                        
                        499,716Portfolio
                        
                        
                        34,618
                        
                        
                        
                        —Net
      cash used in operating activities
                        
                        
                        (2,105,958
                        )
                        
                        
                        (1,329,702
                        )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      Proceeds from motorcycles and other vehicles
                        
                        
                        223,270
                        
                        
                        
                        383,666Net
      Proceeds from RISC contracts
                        
                        
                        1,285,020
                        
                        
                        
                        438,309Paid
      for Purchase of AML Portfolio
                        
                        
                        —
                        
                        
                        
                        (82,554
                        )Net
      cash used in investing activities
                        
                        
                        1,508,290
                        
                        
                        
                        739,421CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from sale of common stock
                        
                        
                        120,000
                        
                        
                        
                        —Net
      proceeds from sale of preferred stock
                        
                        
                        1,320,000
                        
                        
                        
                        —Net
      repayments to senior lender
                        
                        
                        (1,277,264
                        )
                        
                        
                        (835,050
                        )Net
      proceeds from convertible notes
                        
                        
                        464,800
                        
                        
                        
                        1,348,000Net
      payments for finance closing costs
                        
                        
                        —
                        
                        
                        
                        (727,575
                        )Net
      proceeds from other notes
                        
                        
                        —
                        
                        
                        
                        408,500Net
      loan proceeds from other related parties
                        
                        
                        14,000
                        
                        
                        
                        133,500Net
      proceeds secured note
                        
                        
                        —
                        
                        
                        
                        144,695Net
      cash provided by financing activities
                        
                        
                        641,536
                        
                        
                        
                        472,070Net
      Increase (decrease) in cash and cash equivalents
                        
                        $
                        43,868
                        
                        
                        $
                        (118,211
                        )Unrestricted
      cash and cash equivalents, beginning of period
                        
                        $
                        (54,350
                        )
                        
                        
                        68,642Unrestricted
      cash and cash equivalents , end of period
                        
                        $
                        (10,482
                        )
                        
                        
                        (49,569
                        )Cash
      paid for:Interest
                        
                        $
                        283,393
                        
                        
                        $
                        260,106Income
      taxes
                        
                        $
                        4,817
                        
                        
                        $
                        1,368Non-Cash
      Transactions:Common
      stock issued in exchange for previously incurred debt
                        
                        $
                        4,982,859
                        
                        
                        $
                        1,027,800Common
      stock issued for financing costs
                        
                        $
                        182,402
                        
                        
                        
                        —Common
      stock issued for accounts payable
                        
                        $
                        539,923
                        
                        
                        
                        —Common
      stock issued for compensation
                        
                        $
                        114,500
                        
                        
                        
                        —Preferred
      stock issued for preferred dividends payable
                        
                        $
                        42,164
                        
                        
                        
                        —





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.


6





SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES





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





Basis of
Presentation





The
accompanying unaudited condensed consolidated financial statements as of January
31, 2010 and for the three and nine month periods ended January 31, 2010 and
2009 have been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission, including Form 10-Q and Regulation S-K
and Regulation S-B.  The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments), which
are, in the opinion of management, necessary to fairly present the operating
results for the respective periods.  Certain information and footnote
disclosures normally present in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such rules and regulations.  The
Company believes that the disclosures provided are adequate to make the
information presented not misleading.  These financial statements
should be read in conjunction with the audited financial statements and
explanatory notes for the year ended April 30, 2009 as disclosed in the
Company’s 10-K for that year as filed with the SEC.





The
results of operations for the three and nine months ended January 31, 2010 are
not necessarily indicative of the results to be expected for any other interim
period or the full year ending April 30, 2010.





New Accounting Requirements
and Disclosures





Accounting Standards Codification
and GAAP Hierarchy —Effective for interim and annual periods
ending after September 15, 2009, the Accounting Standards Codification and
related disclosure requirements issued by the FASB became the single official
source of authoritative, nongovernmental GAAP.  The ASC simplifies
GAAP, without change, by consolidating the numerous, predecessor accounting
standards and requirements into logically organized topics.  All other
literature not included in the ASC is non-authoritative.  We adopted
the ASC as of October 31, 2009, which did not have any impact on our results of
operations, financial condition or cash flows as it does not represent new
accounting literature or requirements.  All references to pre-codified
U.S. GAAP have been removed from this Form 10Q.





Estimates





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





Revenue
Recognition





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


7


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Direct
financing leases are recorded at the gross amount of the lease receivable
(principal amount of the contract plus the calculated earned income over the
life of the contract), and the 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.





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.





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





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.


8


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Income
Taxes





Deferred
income taxes are provided using the asset and liability method for financial
reporting purposes in accordance with the provisions of ASC 740-10, "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.





ASC
740-10, “Accounting for Uncertainty in Income
Taxes 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.  ASC 740also provides
guidance on derecognition, classification, treatment of interest and penalties,
and disclosure of such positions.  As a result of implementing ASC
740, there has been no adjustment to the Company’s financial statements and the
adoption of ASC 740 did not have a material effect on the Company’s consolidated
financial statements for the year ending April 30, 2009 or the three months or
nine months ended January 31, 2010.





Fair Value
Measurements




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





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




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




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





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


9


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Impairment of Long-Lived
Assets





In
accordance ASC 360-10, “Impairment or Disposal of Long-Lived
Assets”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





In
accordance with ASC 220-10, “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, ASC 220-10 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
January31, 2010 and April 30, 2009, the Company has no items of other
comprehensive income.





Segment
Information





The
Company does not have separate, reportable segments under ASC 280-10, “Disclosures about Segments of an
Enterprise and Related Information”.  ASC 280-10 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.  ASC
280-10 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 ASC 718-10, which records compensation expense on a
straight-line basis, generally over the explicit service period of three to five
years.





ASC
718-10 requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model.  The value
of the portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company’s Consolidated
Statement of Operations.  The Company is using the Black-Scholes
option-pricing model as its method of valuation for share-based
awards.  The Company’s determination of fair value of share-based
payment awards on the date of grant using an option-pricing model is affected by
the Company’s stock price as well as assumptions regarding a number of highly
complex and subjective variables.  These variables include, but are
not limited to the Company’s expected stock price volatility over the term of
the awards, and certain other market variables such as the risk free interest
rate.


10


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





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.





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 nine months ended January 31, 2010 and the year
ended April 30, 2009, the Company
incurred  $6,986  and  $18,318 in advertising
costs, respectively.





Net Loss Per
Share





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


11


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Per share
basic and diluted net loss attributable to common stockholders amounted to $0.00
and $0.01 for the three months ended January 31, 2010 and 2009, respectively,
and $0.01 and $0.02 for the nine months ended January 31, 2010 and 2009,
respectively.  At January 31, 2010 and 2009, 61,737,102 and 35,536,084
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 $2,897,901 and $4,921,846 during the nine months ended January 31,
2010 and the year ended April 30, 2009, respectively.  The Company’s
net worth was $1,181,387 at January 31, 2010.





Reclassifications





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





NOTE
B – MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING LEASES





Motorcycles
and other vehicles under operating leases at January 31, 2010 and April 30, 2009
consist of the following:





January 31,
                                          
                                          
                                          April 30,2010
                                          
                                          
                                          2009Motorcycles
      and other vehicles
                                          
                                          $
                                          590,705
                                          
                                          
                                          $
                                          911,008Less:
      accumulated depreciation
                                          
                                          
                                          (228,810
                                          )
                                          
                                          
                                          (256,485
                                          )Motorcycles
      and other vehicles, net of accumulated depreciation
                                          
                                          
                                          361,895
                                          
                                          
                                          
                                          654,523Less:
      estimated reserve for residual values
                                          
                                          
                                          (17,694
                                          )
                                          
                                          
                                          (32,726
                                          )Motorcycles
      and other vehicles under operating leases, net
                                          
                                          $
                                          344,201
                                          
                                          
                                          $
                                          621,797




Depreciation
expense for vehicles for the three and nine months ended January 31, 2010 was
$19,489 and $69,359, respectively.  Depreciation expense for vehicles
for the three and nine months ended January 31, 2009 was $39,882 and $140,094,
respectively.





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 January 31, 2010, the Company’s inventory of repossessed or
returned vehicles valued at market was $154,833, which will be
resold.


12


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE D – RETAIL (RISC) LOAN
RECEIVABLES





RISC loan
receivables, which are carried at cost, were $2,198,230 and $3,483,250 at
January 31, 2010 and April 30, 2009, respectively, including deficiency
receivables of $16,725 and $122,554, respectively.  The following is a
schedule by years of future principal payments related to these
receivables.  Certain of the assets are pledged as collateral for the
note described in Note F.





Year
      ending January 31,2011
                
                $
                809,1682012
                
                
                777,2532013
                
                
                502,6002014
                
                
                109,2092015
                
                
                —$
                2,198,230




NOTE E – PROPERTY AND
EQUIPMENT





Major
classes of property and equipment at January 31, 2010 and April 30, 2009 consist
of the followings:





January31,
                              2010
                            
                            
                            April
      30,
                              2009Computer
      equipment, software and furniture
                            
                            $
                            191,247
                            
                            
                            $
                            191,247Less:
      accumulated depreciation and amortization
                            
                            
                            (160,365
                            )
                            
                            
                            (147,905
                            )Net
      property and equipment
                            
                            $
                            30,882
                            
                            
                            $
                            43,342





Depreciation
and amortization expense for property and equipment was $3,889 and $14,460 for
the three months and nine months ended January 31, 2010, respectively, and
$17,919 for the year ended April 30, 2009.  Depreciation and
amortization expense for the three and nine months ended January 31, 2009 were
$4,480 and $13,439, respectively.





NOTE
F – PURCHASED PORTFOLIO AND SECURED SENIOR NOTE





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
January 31, 2010 is 10.48%.





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 started 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
lender.  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 lender.


13


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
F – PURCHASED PORTFOLIO AND SECURED SENIOR NOTE (continued)





The
Company is obligated to pay any remainder of the Senior Secured Note by November
1, 2009 and has granted the lender a security interest in the Purchased
Portfolio.  The Company and the lender are currently in discussions to
amend the terms of the Senior Secured Note.





Once the
Company has paid $150,000 to the lender from Purchased Portfolio proceeds, the
Company is obligated to pay fifty percent of all net proceeds from Purchased
Portfolio lease payments and motorcycle asset sales until the Company and the
lender mutually agree the Purchase Portfolio has no remaining
proceeds.





As of
January 31, 2010, the Company carries the Purchased Portfolio at $38,016
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 $104,782, which is net of note
reductions.





At
January 31, 2010, the notes payable mature as follows:





12
      Months EndedJanuary
      31,
                
                Amount2011
                
                $
                1,000,4862012
                
                
                797,2062013
                
                
                512,9162014
                
                
                106,9652015
                
                
                —$
                2,417,574





Notes
payable to Senior Secured lender at April 30, 2009 were $3,694,838.





NOTE
G – NOTES PAYABLE





Notes
      Payable
                                        
                                        January 31,
                                          2010
                                        
                                        
                                        April 30,
                                          2009Convertible
      notes (a)
                                        
                                        $
                                        20,000
                                        
                                        
                                        $
                                        4,055,560Notes
      payable (b)
                                        
                                        
                                        80,000
                                        
                                        
                                        
                                        547,500Bridge
      loans (c)
                                        
                                        
                                        161,000
                                        
                                        
                                        
                                        176,000Collateralized
      note (d)
                                        
                                        
                                        220,000
                                        
                                        
                                        
                                        220,000Convertible
      note (e)
                                        
                                        
                                        103,399
                                        
                                        
                                        
                                        103,399Total
                                        
                                        $
                                        584,399
                                        
                                        
                                        $
                                        5,102,458





(a)
            As
      of January 31, 2010, the Company had outstanding  a convertible
      unsecured note with an original aggregate principal amount of $20,000,
      which accrues  interest at 10% per annum.  The note is
      past due.  This note is convertible, at the holder’s option,
      with a conversion price of $0.02. The holder of this note has agreed to
      contingently convert the note plus accrued interest into shares of the
      Company’s common stock upon theCompany’s
      ability to meet all conditions precedent to begin drawing down on a senior
      credit facility.


14





SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
G – NOTES PAYABLE (continued)





(b)
            As
      of January 31, 2010, the Company had outstanding unsecured notes with an
      original principal amount of $80,000, which accrue interest ranging from
      6% to 10% per annum all of which  were past due.  The
      Company and the holders of the notes are in negotiation as to the
      disposition of these notes.





(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 September 30, 2009. The Company is in
      discussions with the note holders to extend the due dates of the
      notes.  During the year ended April 30, 2009, $99,000 of these
      loans was repaid. The holders of the remaining notes have agreed to
      contingently convert those notes plus accrued interest into shares of the
      Company’s common stock upon theCompany’s
      ability to meet all conditions precedent to begin drawing down on a senior
      credit facility.





(d)
            During
      the year ended April 30, 2009, the Company sold a secured note in the
      amount of $220,000.  The notes bears 12.46% simple
      interest.  The note was due on January 29, 2010 and has been
      extended to September 1, 2010, and is secured by a second lien on a pool
      of motorcycles.  In July 2009, the note holder agreed to convert
      the note at the Company’s option and all accrued interest thereon into
      shares 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 the Company’s common
      stock.  As of January 31, 2010, the balance outstanding was past
      due and the Company and the note holder are in negotiations as to the
      disposition of the note.


15


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE
H – LOANS PAYABLE TO RELATED PARTIES





As of
January 31, 2010, aggregated loans payable, without demand and with no interest,
to officers and Directors were $392,260.  At January 31, 2010 and
April 30, 2009, included in accounts receivable, are $169 and $169,
respectively, due from American Motorcycle Leasing Corp., a company controlled
by a director and formerly controlled by the Company's Chief Executive
Officer.





NOTE
I – FAIR VALUE MEASUREMENTS





The
following table sets forth certain assets and liabilities as of January 31, 2010
which is measured at fair value on a recurring basis by level within the fair
value hierarchy.  As required by ASC No. 820, these are classified
based on the lowest level of input that is significant to the fair value
measurement:





Level
      1
                  
                  
                  Level
      2
                  
                  
                  Level
      3RISC
      loan receivables
                  
                  $
                  2,181,505
                  
                  
                  
                  —
                  
                  
                  
                  —Secured
      full recourse notes receivable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  2,118,309Senior
      secured notes payable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  2,417,574Loans
      payable related parties
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  392,260Notes
      payable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  584,399





NOTE J – EQUITY
TRANSACTIONS





The
Company is authorized to issue 10,000,000 shares of preferred stock with $0.001
par value per share, of which 35,850 shares have been designated as Series A
convertible preferred stock with a $100 stated value per share, 1,000 shares
have been designated as Series B Preferred Stock with a $10,000 stated value per
share, and 200,000 shares have been designated as Series C Preferred Stock with
a $10 per share liquidation value, and 750,000,000 shares of common stock with
$0.001 par value per share.  The Company had 125 and 125 shares of
Series A preferred stock issued and outstanding as of January 31, 2010 and April
30, 2009, respectively.  The Company had 157 and no shares of Series B
preferred stock issued and outstanding as of January 31, 2010 and April 30,
2009, respectively.  The Company had 42,000 and no shares of Series C
preferred stock issued and outstanding as of January 31, 2010 and April 30,
2009, respectively.  The Company has 358,443,904 and 170,730,064
shares of common stock issued and outstanding as of January 31, 2010 and April
30, 2009, respectively.





Preferred Stock Series
A





During
the quarter ended July 31, 2009, 10,733,974 shares of common stock previously
recorded as shares to be issued for conversion of Series A Preferred Stock were
issued.





Preferred Stock Series
B





On July
24, 2009, the Company designated 1,000 shares as Series B Preferred
Stock.  The Series B Preferred Stock, with respect to dividend rights
and rights upon liquidation, winding-up or dissolution, rank senior to the
Company’s common stock and any other class or series of preferred stock, and
junior to all of the Company’s existing and future indebtedness.  The
Series B Preferred Stock accrue dividends at an annual rate of
10%.  Accrued dividends are payable upon redemption of the Series B
Preferred Stock.  The Company’s common stock may not be redeemed while
shares of Series B Preferred Stock are outstanding.  The Series B
Preferred Stock certificate of designations provides that, without the approval
of a majority of the shares of Series B Preferred Stock, the Company 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 Preferred
Stock, liquidate, dissolve or wind-up the Company’s 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 Preferred
Stock.  The Series B Preferred Stock 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 the Company’s
business.  The shares of Series B Preferred Stock are redeemable at
the Company’s option on or after the fifth anniversary of the date of its
issuance.


16


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE J – EQUITY TRANSACTIONS
(continued)





On July
29, 2009, the Company 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 the
Company’s Series B Preferred Stock for a one year period.  From time
to time, the Company may send a notice requiring Optimus to purchase shares of
the Company’s 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 the Company’s
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 the
Company’s common stock.





On the
date of delivery of each purchase notice under the agreement, the Company will
also issue to Optimus five-year warrants to purchase the Company’s common stock
at an exercise price equal to the closing price of the Company’s 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
Company 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 six months
from the date of the agreement, the Company agreed to pay a non-refundable
commitment fee of $250,000 to Optimus.  Pursuant to a concurrent
transaction between Optimus and several of the Company’s non-affiliated
stockholders, Optimus may borrow up to 33,990,000 shares of the Company’s common
stock from such stockholders.  On July 31, 2009, pursuant to the
agreement, the Company requested Optimus to purchase 90 shares of the Company’s
Series B Preferred Stock valued at $900,000 and issued five year warrants to
purchase 13,500,000 shares of common stock at $0.09 per share.  On
August 14, 2009, the Company sold to Optimus 90 shares of Series B Preferred
Stock for gross proceeds of $900,000.  On October 21, 2009, pursuant
to the agreement, the Company requested Optimus to purchase 67 shares of the
Company’s Series B Preferred Stock valued at $670,000 and issued five year
warrants to purchase 18,066,176 shares of common stock at $0.068 per
share.  On November 6, 2009, the Company sold to Optimus 67 shares of
Series B Preferred Stock for gross proceeds of $670,000, and purchased from
Optimus 2,000,000 shares of the Company’s common stock at a price of $0.05 or
$100,000.


17


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE J – EQUITY TRANSACTIONS
(continued)





Preferred Stock Series
C
 
 In
November 2009, the Company authorized a new series of 200,000 shares of
preferred stock designated as Series C Convertible Preferred Stock, each share
having a par value of $0.001 per share.  The Series C Preferred Stock shall,
upon liquidation, winding-up or dissolution, rank: (a) senior to the
Company's common stock and any other class or series of preferred stock of the
Company which by their terms are junior to the Series C Preferred Stock
(collectively, together with any warrants, rights, calls or options exercisable
for or convertible into such Preferred Stock, the “Junior Shares”); (b)
junior to all existing and future indebtedness of the Company; and (c) junior to
the Company's Series A and Series B Preferred Stock.  The Series C
Preferred Stock is not entitled to receive any dividends, has a liquidation
value of $10.00 per share, redeemable at the Company’s option at $10.00 per
share, and is convertible at the option of the holder into shares of common
stock as follows: the number of such shares of common stock to be received for
each share of Series C Preferred Stock so converted shall be determined by (A)
dividing the number of shares of Series C Preferred Stock to be converted by the
weighted average closing price per share of the Company's common stock for the
ten (10) trading days immediately preceding the date on which the Company agrees
to issue shares of Series C Preferred Stock to such holder multiplied by (B) the
Series C liquidation value.





Pursuant
to an agreement reached on October 31, 2009 to convert certain accounts payable
to Series C Preferred Stock, the Company recorded the conversion of $125,000 of
accounts payable, as of October 31, 2009, into 12,500 shares of Series C
Preferred Stock.  On November 2, 2009, the Company issued 30,000
shares of Series C Preferred Stock for services.  On November 18,
2009, the Company redeemed 500 shares of Series C Preferred Stock by paying the
holder $5,000.





Common
Stock





During
the nine months ended January 31, 2010 and the nine months ended January 31,
2009, the Company expensed $71,685 and $1,456,793, respectively, for non-cash
charges related to stock and option compensation expense.





During
the nine months ended January 31, 2010:





·
            the
      Company sold 1,409,869 shares of its common stock for
      $120,000.  1,007,049 of the shares were classified as to be
      issued as of January 31, 2010 and issued three year warrants to purchase
      1,409,869 shares of its common stock exercisable at $0.15 per
      share;


·
            the
      Company issued, pursuant to penalty provisions of notes, 3,432,000 shares
      of unregistered common stock, valued at
  $181,900;


·
            the
      Company issued, pursuant to the terms of a note, 200,000 shares of its
      common stock in payment of $6,600 in accrued interest and $3,400 for
      principal reduction of the note;


·
            the
      Company issued 132,556,857 shares of unregistered common stock (of which
      3,615,520 had been classified as shares to be issued at April 30, 2009),
      valued at $4,512,150, upon conversion of $3,955,343 in notes and
      convertible notes  and accrued interest resulting in an increase
      in additional-paid-in capital of
$4,383,208;


·
            the
      Company agreed to issue 38,512,530 shares of unregistered common stock,
      valued at $1,019,106, upon the conversion of notes and convertible notes
      and accrued interest resulting in an increase in additional
      paid-in-capital of $980,566;


·
            the
      Company issued, pursuant to two consulting agreements, 5,000,000 shares of
      its common stock valued at
$115,000;


·
            the
      Company issued 2,815,371 shares of common stock under its 2009 Consultant
      Stock Plan in satisfaction of accounts payable of
  $163,939;


·
            the
      Company issued 31,566,176 shares of common stock, upon the exercise of
      common stock purchase warrants, for four year, 2%, secured, full recourse
      notes in the amount of $2,118,309;
and


18


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE J – EQUITY TRANSACTIONS
(continued)





·
            the
      Company issued to a consultant three year warrants to purchase 500,000
      shares of common stock at an exercise price of $0.066 per
      share.





On August
14, 2009, the Company filed a Schedule 14C with the Securities and Exchange
Commission, and at the same time notified the Company’s shareholders via an
Information Statement, that in April, 2009, the holders of a majority of votes
represented by the issued and outstanding shares of the Company common stock, at
that time, by means of a written consent in lieu of a special meeting of the
stockholders, voted in favor of amending the Company’s Articles of Incorporation
to increase the authorized number of shares of the Common Stock from 340,000,000
to 750,000,000.  This increase in authorized shares of common stock
became effective on September 21, 2009.





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 from its adoption.





NOTE K– SUBSEQUENT EVENTS





In
accordance with ASC No. 855, the Company has evaluated subsequent events through
the date of this filing.





In
February 2010, the Company sold to one accredited investor $100,000 principal
amount of 8% four month notes which are convertible at the Company’s option into
shares of common stock at $0.021 per share.





In
February 2010, the Company sold to one accredited investor a $50,000, nine
month, 8% note convertible at the holder’s option into such number of shares of
the Company’s common stock as determined by a forty-four percent discount from
the average of the three lowest closing prices of the Company’s common stock for
the ten trading days immediately preceding the day the holder notices the
Company of its intent to convert.  The conversion price is subject to
certain anti dilutive previsions.  In the event the note is not paid
when due, the interest rate is increased to twenty-two percent until the note is
paid in full. Additionally, the Company issued 13,000,000 shares of unregistered
common stock to be held in trust by our transfer agent pending conversion of the
note.





In
February 2010, the Company entered into a modification of a consulting agreement
originally entered into in January 2009, as amended in November
2009.  Under the modification, the Company issued to the consultant
2,000,000 shares of common stock, in exchange for 500,000 common stock purchase
warrants which were due pursuant to the agreement but which had not been issued.





In
February and March 2010 the Company issued, pursuant to penalty provisions of
notes, 592,000 shares of unregistered common stock, valued at
$17,760.





In
February 2010, the Company issued 1,007,049 shares of unregistered common stock
which had previously been classified as common stock to be issued.





NOTE L – GOING CONCERN
MATTERS





The
accompanying unaudited condensed financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.  As
shown in the accompanying financial statements during the period January 1, 2001
(date of inception) through January 31, 2010, the Company incurred loss of
$30,044,948.  Of these losses, $2,897,901 was incurred in the nine
months ending January 31, 2010 and $3,679,417 in the nine months ending January
31, 2009.  These factors among others may indicate that the Company
will be unable to continue as a going concern for a reasonable period of
time.


19


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2010


(UNAUDITED)





NOTE L – GOING CONCERN MATTERS
(continued)





The
Company’s existence is dependent upon management’s ability to develop profitable
operations.  Management is devoting substantially all of its efforts
to developing its business and raising capital and there can be no assurance
that the Company’s efforts will be successful.  However, there can be
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.


20


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





General





The
following discussion of our financial condition and results of operations should
be read in conjunction with (1) our interim unaudited financial statements and
their explanatory notes included as part of this quarterly report, and (2) our
annual audited financial statements and explanatory notes for the year ended
April 30, 2009 as disclosed in our annual report on Form 10-K for that year as
filed with the SEC.





“Forward-Looking”
Information





This
report on Form 10-Q contains 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.





RESULTS
OF OPERATIONS





Comparison
of the Three Months Ended January 31, 2010 to the Three Months Ended January 31,
2009





For the
three months ended January 31, 2010 and 2009, we have generated limited sales
revenues, have incurred significant expenses, and have sustained significant
losses.





Revenues





Revenues
totaled $161,086 during the three months ended January 31, 2010 as compared to
$278,268 during the three months ended January 31, 2009.  Current
period revenue was comprised of $36,017 in lease revenue, $100,511 in interest
income from RISC loans, and $24,557 in other income.  Prior period
revenue was comprised of $70,235 in lease revenue, $184,405 in interest income
from RISC loans, and $23,628 in other income.





Costs
and Expenses





General
and administrative expenses were $681,129 during the three months ended January
31, 2010, compared to $886,927 during the three months ended January 31, 2009, a
decrease of $205,798 or 23.2%.  Expenses incurred during the current
three month period consisted primarily of the following expenses: Compensation
and related costs, $336,995; Accounting, audit and professional fees, $48,338;
Consulting fees, $53,497; Rent, utilities and Telecomm expenses $113,411; Travel
and entertainment, $11,106; and stock based compensation,
$41,401.  Expenses incurred during the comparative three month period
in 2009 consisted primarily of the following expenses: Compensation and related
costs, $371,445; Accounting, audit and professional fees, $48,597; Consulting
fees, $48,475; Rent, utilities and Telecomm expenses $89,371; Travel and
entertainment, $7,070; and stock based compensation, $185,408.





Net
Loss





We
incurred a net loss before preferred dividends of $857,306 for our three months
ended January 31, 2010 as compared to $968,617 for the corresponding interim
period in 2009, an $111,311 or 11.5% decrease.  The decrease in our
net loss before preferred dividends for our three month interim period ended
January 31, 2010 was attributable primarily to a $117,182 or 42.1% decrease in
revenue which was partially offset by a 14.8% decrease in operating expenses and
a 28.8% decrease in interest expense and financing costs.


21


We also
incurred non-cash preferred dividend expense of $22,876 for our three month
period ended January 31, 2010, with a dividend expense of $1,261 in the
corresponding interim period of 2009.  The increase in preferred
dividend expense was attributable to the issuance of series B Preferred stock
during the quarter.





Our net
loss attributable to common stockholders decreased to $880,182 for our three
month period ended January 31, 2010 as compared to $969,878 for the
corresponding period in 2009.  The $89,696 or 9.2% decrease in net
loss attributable to common stockholders for our three month period ended
January 31, 2010 was due primarily to the $21,615 or 1,714% increase in
preferred dividends, the 14.8% decrease in operating expenses, and the 28.8%
decrease in interest expense and financing costs.





Comparison
of the Nine Months Ended January 31, 2010 to the Nine Months Ended January 31,
2009





For the
nine months ended January 31, 2010 and 2009, we have generated limited sales
revenues, have incurred significant expenses, and have sustained significant
losses.





Revenues





Revenues
totaled $566,436 during the nine months ended January 31, 2010 as compared to
$974,237 during the nine months ended January 31, 2009.  Current
period revenue was comprised of $135,327 in lease revenue, $355,269 in interest
income from RISC Loans and $75,839 in other income.  Prior period
revenue was comprised of $238,573 in lease revenue, $582,113 in interest income
from RISC loans, and $153,551 in other income.





Costs
and Expenses





General
and administrative expenses were $2,114,152 during the nine months ended January
31, 2010, compared to $3,228,507 during the nine months ended January 31, 2009,
a decrease of $1,114,355, or 34.5%.  Expenses incurred during the
current nine month period consisted primarily of the following expenses:
Compensation and related costs, $978,275; Accounting, audit and professional
fees, $337,382; Consulting fees, $120,322; Rent, utilities and Telecomm expenses
$314,252; Travel and entertainment, $30,326; and non-cash stock based
compensation, $186,685.  Expenses incurred during the comparative nine
month period in 2009 consisted primarily of the following expenses: Compensation
and related costs, $1,124,479; Accounting, audit and professional fees,
$272,942; Consulting fees, $152,650; Rent, utilities and Telecomm expenses
$287,501; Travel and entertainment, $38,343; and non-cash stock based
compensation, $840,137.





For the
nine months ended January 31, 2010, we incurred a non-cash charge of $334,928
related to shares of common stock and warrants issued for financing cost and
$37,500 for debt offer expense.  For the nine months ended January 31,
2009, we incurred a non-cash charge of $396,804 related to shares of common
stock and warrants issued for financing cost and $318,812 related to beneficial
conversion discount.





Net
Loss





We
incurred a net loss before preferred dividends of $2,855,164 for our nine months
ended January 31, 2010 as compared to $3,675,633 for the corresponding interim
period in 2009.  The $820,470 or 22.3% decrease in our net loss before
preferred dividends for our nine month interim period ended January 31, 2010 was
attributable to a $407,801, 41.9%, decrease in revenue, a $1,114,255, 34.5% a
decrease in general and administrative expenses, a $197,374, 128.6% increase in
depreciation and amortization and a $311,290, 24.6% decrease in interest expense
and financing cost.





We also
incurred non-cash preferred dividend expense of $42,738 for our nine month
period ended January 31, 2010 as compared with a non-cash expense of $3,784 in
the corresponding interim period of 2009.  The increase in preferred
dividend expense was attributable to the issuance of Series B Preferred
Stock.


22


Our net
loss attributable to common stockholders decreased to $2,897,901for our nine
month period ended January 31, 2010 as compared to $3,679,417, for the
corresponding period in 2009.  The $781,516 decrease in net loss
attributable to common stockholders for our nine month period ended January 31,
2010 was due to the decrease in net loss and the increase in preferred
dividends.





LIQUIDITY
AND CAPITAL RESOURCES





As of
January 31, 2010, we had net worth of $1,281,387.  We generated a
deficit in cash flow from operations of $2,105,958 for the nine months ended
January 31, 2010.  This deficit is primarily attributable to our net
loss from operations of $2,897,901, partially offset by depreciation and
amortization of $107,356, other non-cash charges totaling $573,869 and to
changes in the balances of current assets and liabilities.  Accounts
payable and accrued expenses decreased by $226,043 receivables and inventory
increased $142,319 and $59,339, respectively, and portfolio assets declined by
$34,618.





Cash
flows provided by investing activities for the nine months ended January 31,
2010 was $1,508,290 primarily due to the net proceeds of RISC contracts of
$1,285,020 and payments from motorcycle and vehicle leases of
$223,270.





We met
our cash requirements during the nine month period through net proceeds of
convertible notes of $464, 800, proceeds of notes payable to related parties of
$14,000, and the net proceeds from the sale of common and preferred equity in
the amount of $1,440,000.  We made net payments on senior secured debt
financing of $1,277,264.  Additionally, we have received limited
revenues from leasing and financing motorcycles and other vehicles, fees from
our municipal lease program, and from our Preferred Provider
Program.





We do not
anticipate incurring significant research and development expenditures, and we
do not anticipate the sale or acquisition of any significant property, plant or
equipment, during the next twelve months.  As of December 4, 2009, we
signed a letter of intent to purchase certain assets, including a portfolio of
motorcycle loans for a total value of approximately $15 million.  To
purchase these assets we have agreed to assume approximately $9 million in bank
debt and issue notes and common stock valued at approximately $5
million.  As of March 17, 2010 we and the seller of the assets have
commenced re negotiation of the terms of the purchase.  However, there
can be no assurances that this transaction will be consummated.  At
January 31, 2010 we had 11 full time employees.  If we are able to
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 obtaining sources of
financing originating loans and leases and generating revenues there
from.  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.





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 (the “RCA”).  We were required to satisfy
certain tangible net worth and committed capital thresholds as a condition of
accessing funds under the DZBank credit facility.  On October 13,
2009, we notified DZ Bank that we believed we had satisfied such conditions and
requested that we be allowed to start utilizing the credit
facility.  As we were approaching the one year anniversary of the
signing of the RCA we formally requested that the RCA be extended for one year
as provided for in the RCA.  Subsequently, without permitting us to
commence utilizing the credit facility, in December 2009, the Company was
verbally notified by representatives of DZ Bank that the Company’s request to
extend the term of its Revolving Credit Agreement (the “RCA”) for one year was
denied due to DZ Bank’s German parent’s concern over the United States general
economic condition and, more specifically, the weakness in the overall U.S.
consumer market.  Therefore, the RCA terminated on December 18,
2009.


23


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.  On August 12,
2009, we closed the initial tranche sale to Optimus in the amount of $900,000,
and on November 6, 2009 we closed a second tranche sale to Optimus in the amount
of $670,000.





We
believe that the proceeds from the sale of preferred stock to Optimus, as
described above, when combined with the conversion of notes outstanding at
October 31, 2009 as described above, had satisfied the minimum thresholds to
utilize the DZBank credit facility.





We
continue seeking additional financing, which may be in the form of subordinated
debt, senior debt or equity to support our operations.  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 $1,500,000 in addition to our normal
operating cash flow to conduct operations during 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.





GOING
CONCERN ISSUES





The
independent auditors report on our April 30, 2009 and 2008 financial statements
included in the Company’s Annual Report states that the Company’s historical
losses and the lack of revenues raise substantial doubts about the Company’s
ability to continue as a going concern, due to the losses incurred and its lack
of significant operations.  If we are unable to develop our business,
we have to discontinue operations or cease to exist, which would be detrimental
to the value of the Company’s common stock.  We can make no assurances
that our business operations will develop and provide us with significant cash
to continue operations.





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





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





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


24


INFLATION





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





OFF-BALANCE
SHEET ARRANGEMENTS





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





TRENDS,
RISKS AND UNCERTAINTIES





We have
sought to identify what we believe to be the most significant risks to our
business, but we cannot predict whether, or to what extent, any of such risks
may be realized nor can we guarantee that we have identified all possible risks
that might arise.





Our
annual operating results may fluctuate significantly in the future as a result
of a variety of factors, most of which are outside our control, including: the
demand for our products and services; seasonal trends in purchasing, the amount
and timing of capital expenditures and other costs relating to the commercial
and consumer financing; price competition or pricing changes in the market;
technical difficulties or system downtime; general economic conditions and
economic conditions specific to the consumer financing sector.





Our
annual results may also be significantly impacted by the impact of the
accounting treatment of acquisitions, financing transactions or other
matters.  Particularly at our early stage of development, such
accounting treatment can have a material impact on the results for any
quarter.  Due to the foregoing factors, among others, it is likely
that our operating results may fall below our expectations or those of investors
in some future quarter.





Our
future performance and success is dependent upon the efforts and abilities of
our management.  To a very significant degree, we are dependent upon
the continued services of Anthony L. Havens, our President and Chief Executive
Officer and member of our Board of Directors.  If we lost the services
of either Mr. Havens, or other key employees before we could get qualified
replacements, that loss could materially adversely affect our
business.  We do not maintain key man life insurance on any of our
management.





Our
officers and directors are required to exercise good faith and high integrity in
our management affairs.  Our bylaws provide, however, that our
directors shall have no liability to us or to our shareholders for monetary
damages for breach of fiduciary duty as a director except with respect to (1) a
breach of the director’s duty of loyalty to the corporation or its stockholders,
(2) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (3) liability which may be specifically defined
by law or (4) a transaction from which the director derived an improper personal
benefit.





The
present officers and directors own approximately 20% of the outstanding shares
of common stock, without giving effect to shares underlying convertible
securities, and therefore are in a position to elect all of our Directors and
otherwise control the Company, including, without limitation, authorizing the
sale of equity or debt securities of Sparta, the appointment of officers, and
the determination of officers’ salaries.  Shareholders have no
cumulative voting rights.


25


We may
experience growth, which will place a strain on our managerial, operational and
financial systems resources.  To accommodate our current size and
manage growth if it occurs, we must devote management attention and resources to
improve our financial strength and our operational systems.  Further,
we will need to expand, train and manage our sales and distribution
base.  There is no guarantee that we will be able to effectively
manage our existing operations or the growth of our operations, or that our
facilities, systems, procedures or controls will be adequate to support any
future growth.  Our ability to manage our operations and any future
growth will have a material effect on our stockholders.





If we
fail to remain current on our reporting requirements, we could be removed from
the OTC Bulletin Board which would limit the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market.  Companies trading on the OTC Bulletin Board, such
as us, must be reporting issuers under Section 12 of the Securities Exchange Act
of 1934, as amended, and must be current in their reports under Section 13, in
order to maintain price quotation privileges on the OTC Bulletin
Board.  If we fail to remain current on our reporting requirements, we
could be removed from the OTC Bulletin Board.  As a result, the market
liquidity for our securities could be severely adversely affected by limiting
the ability of broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary market.





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 policies involves the most complex, difficult
and subjective estimates and judgments.





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 (principal amount of the contract plus the calculated
earned income over the life of the contract), and the 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.


26


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.





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.





Stock-Based
Compensation





On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123(R), (revised 2004) now codified as ASC
718,  “Share-Based Payment” which is a revision of FASB Statement No.
123, “Accounting for Stock-Based Compensation”.  ASC 718 supersedes
APB opinion No. 25, “Accounting for Stock Issued to Employees”, and amends FASB
Statement No. 95 now ASC 230, “Statement of Cash Flows”.  Generally,
the approach in ASC 718 is similar to the approach described in SFAS
123.  However, ASC 718 requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values.  Pro-forma disclosure is no
longer an alternative.  Management has elected to apply ASC 718 in the
third quarter of fiscal year 2006.





Website
Development Costs





We have
incurred costs to develop a proprietary web-based private label financing
program for processing including web access, processing credit applications,
consumer contracts and other related documents and processes.  The
Company has elected to recognize the costs of developing its website and related
intellectual property the website development costs in accordance with Emerging
Issue Task Force (“EITF”) No.  00-02, now ASC 720 “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 is included in cost of net
revenues in the current period expenses.  During the nine months ended
January 31, 2010 and, 2009, the Company expensed $4,459 and $5,449 respectively
as website development costs.





RECENT
ACCOUNTING PRONOUNCEMENT





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





27


ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM
4.  CONTROLS AND PROCEDURES





Our
management, with the participation of our Chief Executive Officer and our
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 covered by this
report.  Based on that evaluation, our Chief Executive Officer and
Principal Financial Officer concluded that our disclosure controls and
procedures as of the end of the period covered by this report are
effective.





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





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


28


PART II. OTHER
INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





Not
applicable.





ITEM
1A.  RISK FACTORS





We
have a history of operating 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.





Through
our third fiscal quarter ended January 31, 2010, we have generated cumulative
sales revenues of $3,863,707, have incurred significant expenses, and have
sustained significant losses.  Our net loss for the nine months ended
January 31, 2010 was $2,855,164 (after $583,649 in non-cash
charges).  As of January 31, 2010, we had a net worth of
$1,281,387.





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, New World is not extending new
loans to us.  As of January 31, 2010, we owed an aggregate of
$2,417,574(which is secured by $2,560,125 of consumer Retail Installment Sales
Contracts and Leases and $199,573 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 special purpose subsidiary, Sparta Funding LLC,
entered into an agreement for a secured credit facility with DZ Bank (the
“RCA”).  The DZ Bank facility requires, among other things, that we
have a minimum tangible net worth of $2,000,000 (plus (i) 50% of the aggregate
amount of our consolidated net income since December 19, 2008 and (ii) 90% of
the net proceeds (net capital less expenses and distributions) of any new equity
contributions we raise after December 19, 2008, including any subordinated debt)
before Sparta Funding can draw upon that credit facility 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 DZ Bank facility.  We are engaged in discussions with
potential investors regarding such commitments, but as of July 31, 2009, with
the exception of the agreement with Optimus Capital Partners, no definitive
agreements have been reached for such commitments, nor have we reached any
agreement on potential terms of any such commitments.  On October 13,
2009, we notified DZ Bank that we believed we had satisfied such conditions and
requested that we be allowed to start utilizing the credit
facility.  As we were approaching the one year anniversary of the
signing of the RCA we formally requested that the RCA be extended for one year
as provided for in the RCA.  Subsequently, without permitting us to
commence utilizing the credit facility, in December 2009, the Company was
verbally notified by representatives of DZ Bank that the Company’s request to
extend the term of its Revolving Credit Agreement RCA for one year was denied
due to DZ Bank’s German parent’s concern over the United States general economic
condition and, more specifically, the weakness in the overall U.S. consumer
market.  The RCA terminated on December 18, 2009.


29


There can
be no assurance that the funding available under the Purchase Agreement with
Optimus Capital Partners will be sufficient to fund our working capital
requirements.  If Sparta is not able to secure senior debt financing,
we will not be able to implement our business plan, which would have a material
adverse effect on our future viability.





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





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.  Without a senior bank line of credit, it will be extremely
difficult to maintain and grow our business.  We will have to raise
approximately $1.5 million over the next twelve months to support our
business.  As our business grows, we will need to seek additional
financing to fund growth.  To the extent that our revenues do not
provide sufficient cash flow to cover such equity requirements and any reserves
required under any 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.





We are
required to have our common stock traded on the OTC Bulletin Board or one of
several other national markets for trading equity securities as a condition of
selling Optimus shares of our Series B Preferred Stock.  Therefore, if
we are removed from the OTC Bulletin Board, we may not be able to require
Optimus to purchase shares of our Series B Preferred Stock.  This may
also negatively affect our ability to access funds under the DZ Bank credit
facility.





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.


30


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





As a
lender or lessor, 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.





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.


31


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 profitably 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 used vehicles composed of off-lease and
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 our credit decisioning and underwriting software system, iPLUS®, 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.





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 GE Capital.  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.


32


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 20% of our common stock as of January 31,
2010.  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 our company and could affect the price of our common
stock and limit our ability to sell shares of our Series B Preferred Stock to
Optimus Capital Partners, LLC.





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 effect on our ability to implement our business
plan.  While we have entered into employment agreements with certain
executive officers, including our Chief Executive Officer, Principal Financial
Officer and Chief Operating Officer, employment agreements could be
terminated for a variety of reasons.  The employment agreements with
our Principal Financial Officer and our Chief Operating Officer have
expired and are being renegotiated.
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 effect on our business,
financial condition or results of operations.


33


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





(a)           Unregistered
Sales of Equity 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.





In
November 2009, the Company issued 500,000 shares of common stock to a consultant
pursuant to a modification of a January 1, 2009 consulting
agreement.  Additionally, the consultant agreed to surrender 250,000
warrants which had been issued to the consultant in January 2009, and 250,000
warrants which were due in April 2009 but had not been issued.  All
other terms of the original agreement remain unchanged.  In February
2010, the Company and the consultant entered into a further modification of the
consulting terms, extending the term until April 30, 2010 and agreeing to issue
to the consultant 2,000,000 shares in full satisfaction of the Company’s
obligations under the consulting arrangement.





During
the three months ended January 31, 2010, the Company sold to one accredited
investor $94,000 in 8%, four month notes, convertible at the Company’s option
into shares of the Company’s common stock at $0.02 per share.





In
February 2010, the Company sold to one accredited investor $100,000 principal
amount of 8% four month notes which are convertible at the Company’s option into
shares of common stock at $0.021 per share.





In
February 2010, the Company sold to one accredited investor a $50,000, nine
month, 8% note convertible at the holder’s option into such number of shares of
the Company’s common stock as determined by a forty-four percent discount from
the average of the three lowest closing prices of the Company’s common stock for
the ten trading days immediately preceding the day the holder notices the
Company of its intent to convert.  The conversion price is subject to
certain anti dilutive previsions.  In the event the note is not paid
when due, the interest rate is increased to twenty-two percent until the note is
paid in full.





(c)           Issuer
Purchases of Equity Securities





Period
                  
                  Total Number of
                    Shares Purchased
                  
                  
                  Average Price Paid
                    Per Share
                  
                  
                  Total Number of
                    Shares Purchased as
                    Part of Publically
                    Announced Plans or
                    Programs
                  
                  
                  Maximum Number
                    (or Approximate
                    Dollar Value) Shares
                    That May Yet Be
                    Purchased Under
                    Plans or ProgramsNovember
      1, 2009 to
                    November
      30, 2009 (a)
                  
                  
                  2,000,000
                  
                  
                  $
                  0.05
                  
                  
                  
                  —
                  
                  
                  
                  —Total
                  
                  
                  2,000,000
                  
                  
                  $
                  0.05
                  
                  
                  
                  —
                  
                  
                  
                  —





(a)
            These
      shares were purchased pursuant to an agreement with Optimus Capital
      Partners, LLC; see Note J to Financial
  Statements.





ITEM
3.  DEFAULTS UPON SENIOR SECURITIES





Not
applicable.





ITEM
4.  (REMOVED AND RESERVED)





Not
applicable.


34


ITEM
5.  OTHER INFORMATION





Not
applicable.





ITEM
6.  EXHIBITS





The
following exhibits are filed with this report:





Exhibit No.
                    
                    Description3(i)(1)
                    
                    Certificate
      of Designations of Preferences, Rights and Limitations of Series C
      Convertible Preferred Stock (Incorporated by reference to Exhibit 5.03(i)
      of Form 8-K filed on November 19, 2009)11
                    
                    Statement
      re: computation of per share earnings is hereby incorporated by reference
      to “Financial Statements” of Part I - Financial Information, Item 1 -
      Financial Statements, contained in this Form 10-Q.31.1*
                    
                    Certification
      of Chief Executive Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)31.2*
                    
                    Certification
      of Principal Financial Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)32.1*
                    
                    Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    135032.2*
                    
                    Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section
      1350


*
Filed herewith


35


SIGNATURES





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





SPARTA
      COMMERCIAL SERVICES, INC.Date:  March
      22, 2010
              By:
              /s/ Anthony L.
      HavensAnthony
      L. HavensChief
      Executive OfficerDate:  March
      22, 2010
              By:
              /s/ Anthony W.
      AdlerAnthony
      W. AdlerPrincipal
      Financial Officer





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