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 July 31, 2010





 ̈
            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
September 13, 2010, we had 451,783,408 shares of common stock issued
and outstanding.





SPARTA
COMMERCIAL SERVICES, INC.





FORM
10-Q


FOR
THE QUARTER ENDED JULY 31, 2010





TABLE
OF CONTENTS





PagePART I.
                        FINANCIAL
      INFORMATIONItem 1.
                        Financial
      Statements (Unaudited)
                        3Condensed
      Consolidated Balance Sheetsas
      of July 31, 2010 and April 30, 2010
                        3Condensed
      Consolidated Statements of Lossesfor
      the Three Months Ended July 31, 2010 and 2009
                        4Condensed
      Consolidated Statement of Stockholder’s Deficit
                          for
      the Three Months ended July 31, 2010
                        5Condensed
      Consolidated  Statements of Cash Flowsfor
      the Three Months Ended July 31, 2010 and 2009
                        6Notes
      to Unaudited 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
                        27Item 4.
                        Controls
      and Procedures
                        27PART II.
                        OTHER
      INFORMATIONItem 1
                        Legal
      Proceedings
                        28Item 1A
                        Risk
      Factors
                        28Item 2.
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        32Item 3.
                        Defaults
      Upon Senior Securities
                        33Item 4.
                        (Removed
      and Reserved)
                        33Item 5.
                        Other
      Information
                        33Item 6.
                        Exhibits
                        34Signatures
                        
                        35


2


PART I.  FINANCIAL
INFORMATION





ITEM
1.        FINANCIAL
STATEMENTS





SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





July
      31,
                                        2010
                                      
                                      
                                      April
      30,
                                        2009(Unaudited)ASSETSCash
      and cash equivalents
                                      
                                      $
                                      3,801
                                      
                                      
                                      $
                                      11,994RISC
      loan receivables, net of reserve of $117,101 and $132,000, respectively
      (NOTE D)
                                      
                                      
                                      1,556,056
                                      
                                      
                                      
                                      1,761,474Motorcycles
      and other vehicles under operating leases net of accumulated depreciation
      of $227,278 and $219,492  respectively, and loss reserve of
      $14,889 and $15,865, respectively (NOTE B)
                                      
                                      
                                      281,906
                                      
                                      
                                      
                                      305,265Interest
      receivable
                                      
                                      
                                      25,046
                                      
                                      
                                      
                                      26,772Purchased
      Portfolio (NOTE G)
                                      
                                      
                                      31,237
                                      
                                      
                                      
                                      33,559Accounts
      receivable
                                      
                                      
                                      55,493
                                      
                                      
                                      
                                      98,322Inventory
      (NOTE C)
                                      
                                      
                                      7,140
                                      
                                      
                                      
                                      14,622Property
      and equipment, net of accumulated depreciation and amortization of
      $167,044 and $163,824, respectively (NOTE E)
                                      
                                      
                                      24,204
                                      
                                      
                                      
                                      27,423Prepaid
      Expenses
                                      
                                      
                                      22,954
                                      
                                      
                                      
                                      -Goodwill
                                      
                                      
                                      10,000
                                      
                                      
                                      
                                      -Restricted
      cash
                                      
                                      
                                      111,508
                                      
                                      
                                      
                                      146,333Other
      Assets
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,628Deposits
                                      
                                      
                                      48,967
                                      
                                      
                                      
                                      48,967Total
      assets
                                      
                                      $
                                      2,178,312
                                      
                                      
                                      $
                                      2,478,358LIABILITIES
      AND DEFICITLiabilities:Bank
      overdraft
                                      
                                      $
                                      30,542
                                      
                                      
                                      $
                                      -Accounts
      payable and accrued expenses
                                      
                                      
                                      886,082
                                      
                                      
                                      
                                      794,811Senior
      Secured Notes Payable (NOTE F)
                                      
                                      
                                      1,731,844
                                      
                                      
                                      
                                      2,010,989Notes
      Payable Net of Beneficial Conversion Feature of $60,902 and 0,
      respectively (NOTE G)
                                      
                                      
                                      1,032,445
                                      
                                      
                                      
                                      864,399Loans
      payable-related parties (NOTE H)
                                      
                                      
                                      383,760
                                      
                                      
                                      
                                      383,760Other
      liabilities
                                      
                                      
                                      33,283
                                      
                                      
                                      
                                      20,513Derivative
      Liabilities
                                      
                                      
                                      737,841
                                      
                                      
                                      
                                      0Deferred
      revenue
                                      
                                      
                                      6,300
                                      
                                      
                                      
                                      7,650Total
      liabilities
                                      
                                      
                                      4,842,097
                                      
                                      
                                      
                                      4,082,121Deficit:Preferred
      stock, $.001 par value; 10,000,000 shares authorized of which 35,850
      shares have been designated as Series A convertible preferred stock, with
      a stated value of $100 per share, 125and 125shares 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
                                      
                                      
                                      1
                                      
                                      
                                      
                                      1Preferred
      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
                                      
                                      
                                      
                                      42Common
      stock, $.001 par value; 740,000,000 shares authorized, 412,729,902 and
      392,782,210 shares issued and outstanding, respectively
                                      
                                      
                                      412,730
                                      
                                      
                                      
                                      392,782Common
      stock to be issued, 20,935,435, and 23,967,965
respectively
                                      
                                      
                                      20,935
                                      
                                      
                                      
                                      23,967Preferred
      Stock B to be issued, 5.4 and 0 shares, respectively
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Additional
      paid-in-capital
                                      
                                      
                                      31,695,268
                                      
                                      
                                      
                                      31,470,653Subscriptions
      Receivable
                                      
                                      
                                      (2,118,309
                                      )
                                      
                                      
                                      (2,118,309
                                      )Accumulated
      deficit
                                      
                                      
                                      (32,728,183
                                      )
                                      
                                      
                                      (31,385,400
                                      )Total
      deficiency in stockholders' equity
                                      
                                      
                                      (2,705,016
                                      )
                                      
                                      
                                      (1,603,763
                                      )Noncontrolling
      interest
                                      
                                      
                                      41,231
                                      
                                      
                                      
                                      -Total
      Deficit
                                      
                                      
                                      (2,663,785
                                      )
                                      
                                      
                                      (1,603,763
                                      )Total
      Liabilities and Deficit
                                      
                                      $
                                      2,178,312
                                      
                                      
                                      $
                                      2,478,358





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 MONTHS ENDED JULY 31, 2010 AND 2009


(UNAUDITED)





Three
      Months EndedJuly
      31,2010
                      
                      
                      2009RevenueRental
      Income, Leases
                      
                      $
                      29,753
                      
                      
                      $
                      53,068Interest
      Income, Loans
                      
                      
                      75,717
                      
                      
                      
                      138,865Other
                      
                      
                      26,677
                      
                      
                      
                      24,870132,147
                      
                      
                      
                      216,804Operating
      expenses:General
      and administrative
                      
                      
                      718,668
                      
                      
                      
                      592,197Depreciation
      and amortization
                      
                      
                      19,561
                      
                      
                      
                      122,692Total
      operating expenses
                      
                      
                      738,229
                      
                      
                      
                      714,889Loss
      from operations
                      
                      
                      (606,082
                      )
                      
                      
                      (498,085
                      )Other
      expense:Interest
      expense and financing cost, net
                      
                      
                      80,823
                      
                      
                      
                      263,622Non-cash
      financing costs
                      
                      
                      90,648
                      
                      
                      
                      232,571Non-cash
      derivative liability costs
                      
                      
                      534,242
                      
                      
                      
                      -Total
      Finance Related Expenses
                      
                      
                      705,713
                      
                      
                      
                      496,193Net
      loss
                      
                      
                      (1,311,795
                      )
                      
                      
                      (994,279
                      )Net
      loss attributed to noncontrolling interest
                      
                      
                      8,769
                      
                      
                      
                      -Preferred
      dividend
                      
                      
                      (39,758
                      )
                      
                      
                      191Net
      loss attributed to common stockholders
                      
                      $
                      (1,342,784
                      )
                      
                      $
                      (994,461
                      )Basic
      and diluted loss per share
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )Basic
      and diluted loss per share attributed to common
    stockholders
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )Weighted
      average shares outstanding
                      
                      
                      300,447,151
                      
                      
                      
                      178,702,244





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


4


SPARTA
COMMERCIAL SERVICES, INC.


CONSOLIDATED
STATEMENT OF DEFICIT


FOR
THE THREE MONTHS ENDED JULY 31, 2010





Series A
                          
                          
                          Series B
                          
                          
                          Series C
                          
                          
                          
                          
                          
                          
                          
                          
                          Common Stock
                          
                          
                          
                          
                          
                          AdditionalPreferred Stock
                          
                          
                          Preferred Stock
                          
                          
                          Preferred Stock
                          
                          
                          Common Stock
                          
                          
                          to be issued
                          
                          
                          Subscription
                          
                          
                          Paid in
                          
                          
                          Accumulated
                          
                          
                          NoncontrollingShares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          Receivable
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          Interest
                          
                          
                          TotalBalance,
      April 30, 2010
                          
                          
                          125
                          
                          
                          
                          12,500
                          
                          
                          
                          157
                          
                          
                          
                          1
                          
                          
                          
                          42,000
                          
                          
                          
                          42
                          
                          
                          
                          392,782,210
                          
                          
                          
                          392,782
                          
                          
                          
                          23,966,965
                          
                          
                          
                          23,967
                          
                          
                          
                          (2,118,309
                          )
                          
                          
                          31,470,654
                          
                          
                          
                          (31,385,399
                          )
                          
                          
                          -
                          
                          
                          
                          (1,603,763
                          )Beneficial
      conversion discount
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          75,000
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          75,000Reclassification
      of warrant liability
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (142,697
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (142,697
                          )Sale
      of Stock
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          7,735,419
                          
                          
                          
                          7,735
                          
                          
                          
                          (2,031,530
                          )
                          
                          
                          (2,032
                          )
                          
                          
                          
                          
                          
                          
                          84,296
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          89,999Shares
      issued for financing cost
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          968,000
                          
                          
                          
                          968
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          14,680
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          15,648Shares
      issued for accrued interest
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Shares
      issued for conversion of notes & interest
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,126,917
                          
                          
                          
                          1,127
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          16,873
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          18,000Stock
      Compensation
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          9,400,000
                          
                          
                          
                          9,400
                          
                          
                          
                          (1,000,000
                          )
                          
                          
                          (1,000
                          )
                          
                          
                          
                          
                          
                          
                          115,800
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          124,200Shares
      issued for accounts payable
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          717,356
                          
                          
                          
                          717
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (717
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Employee
      options expense
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          21,807
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          21,807Pfd
      Stock B issued for dividend payable
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          39,572
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          39,572Subsidiary’s
      preferred series A stock
      issued for cash
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          40,000
                          
                          
                          
                          40,000Subsidiary’s common
      stock issued to purchase Cyclechex,
      LLC
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          10,000
                          
                          
                          
                          10,000Net
      Loss
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (1,342,784
                          )
                          
                          
                          (8,769
                          )
                          
                          
                          (1,351,553
                          )Balance
      July 31, 2010
                          
                          
                          125
                          
                          
                          
                          12,500
                          
                          
                          
                          157
                          
                          
                          
                          1
                          
                          
                          
                          42,000
                          
                          
                          
                          42
                          
                          
                          
                          412,729,902
                          
                          
                          
                          412,730
                          
                          
                          
                          20,935,435
                          
                          
                          
                          20,935
                          
                          
                          
                          (2,118,309
                          )
                          
                          
                          31,695,268
                          
                          
                          
                          (32,728,183
                          )
                          
                          
                          41,231
                          
                          
                          
                          (2,663,785
                          )





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


5


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED JULY 31, 2010 AND 2009


(UNAUDITED)





Three
      Months EndedJuly
      31,2010
                                            
                                            
                                            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
                                            
                                            $
                                            (1,311,795
                                            )
                                            
                                            $
                                            (994,279
                                            )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and Amortization
                                            
                                            
                                            13,298
                                            
                                            
                                            
                                            133,192Allowance
      for loss reserves
                                            
                                            
                                            15,875
                                            
                                            
                                            
                                            (38,992
                                            )Amortization
      of deferred revenue
                                            
                                            
                                            1,350
                                            
                                            
                                            
                                            (1,350
                                            )Beneficial
      Conversion Discount
                                            
                                            
                                            14,098
                                            
                                            
                                            
                                            -Shares
      issued for debt and accrued interest
                                            
                                            
                                            15,648
                                            
                                            
                                            
                                            -Equity
      based compensation
                                            
                                            
                                            146,007
                                            
                                            
                                            
                                            204,671Stock
      based finance cost
                                            
                                            
                                            -
                                            
                                            
                                            
                                            101,560Non
      cash derivative liability cost
                                            
                                            
                                            534,242
                                            
                                            
                                            
                                            -(Increase)
      decrease in operating assets and liabilities:Inventory
                                            
                                            
                                            7,482
                                            
                                            
                                            
                                            -Interest
      receivable
                                            
                                            
                                            1,726
                                            
                                            
                                            
                                            (10,149
                                            )Accounts
      receivable
                                            
                                            
                                            42,829
                                            
                                            
                                            
                                            -Prepaid
      expenses and other assets
                                            
                                            
                                            3,628
                                            
                                            
                                            
                                            3,738Restricted
      cash
                                            
                                            
                                            34,825
                                            
                                            
                                            
                                            77,214Portfolio
                                            
                                            
                                            (17,553
                                            )
                                            
                                            
                                            -Increase
      (decrease) in:
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Accounts
      payable and accrued expenses
                                            
                                            
                                            155,479
                                            
                                            
                                            
                                            155,431Net
      cash used in operating activities
                                            
                                            
                                            (342,861
                                            )
                                            
                                            
                                            (368,964
                                            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      liquidation of leased vehicles
                                            
                                            
                                            16,550
                                            
                                            
                                            
                                            58,535Net  Liquidation
      of RISC contracts
                                            
                                            
                                            220,317
                                            
                                            
                                            
                                            566,223Net
      cash provided by investing activities
                                            
                                            
                                            236,866
                                            
                                            
                                            
                                            624,758CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      proceeds from sale of series A preferred stock of
    subsidiary
                                            
                                            
                                            40,000Net
      proceeds from sale of common stock
                                            
                                            
                                            89,999
                                            
                                            
                                            
                                            50,000Net
      Payments to senior lender
                                            
                                            
                                            (279,145
                                            )
                                            
                                            
                                            (566,105
                                            )Net
      Proceeds from convertible notes
                                            
                                            
                                            246,948
                                            
                                            
                                            
                                            -Net
      Proceeds from other notes
                                            
                                            
                                            -
                                            
                                            
                                            
                                            298,399Net
      cash provided by (used in) financing activities
                                            
                                            
                                            97,802
                                            
                                            
                                            
                                            (217,706
                                            )Net
      Increase (decrease) in cash and cash equivalents
                                            
                                            $
                                            (8,193
                                            )
                                            
                                            $
                                            38,087Unrestricted
      cash and cash equivalents, beginning of period
                                            
                                            $
                                            11,994
                                            
                                            
                                            
                                            (54,349
                                            )Unrestricted
      cash and cash equivalents , end of period
                                            
                                            $
                                            3,801
                                            
                                            
                                            $
                                            (16,262
                                            )Cash
      paid for:Interest
                                            
                                            $
                                            55,513
                                            
                                            
                                            $
                                            118,077Income
      taxes
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Non-Cash
      Investing and Funding Activities (Note N)





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


JULY
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 July
31, 2010 and for the three month periods ended July 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. 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, 2010 as disclosed in the Company’s Form 10-K
for that year as filed with the Securities and Exchange Commission.





On
December 10, 2008, the Company formed Sparta Funding, LLC (“Sparta Funding”), a
Delaware limited liability company, for which the Company is the sole member.
Sparta Funding was formed as a special purpose company to borrow funds, but has
yet to be utilized. In May 2010, the Company formed Specialty Reports, Inc, a
Nevada Corporation (“SRI”), for the purpose of acquiring all of the assets of
Cyclechex LLC, a Florida limited liability company. Cyclechex sole business was
an e-commerce business which acquired the relevant motorcycle data and sold the
data in the form of motorcycle history reports over the internet to consumers
and dealers. As part of the transaction, the Company agreed to issue 24% of SRI
common stock to the sole owner of Cyclechex, LLC.





The
results of the three months ended July 31, 2010 are not necessarily indicative
of the results to be expected for the full year ending April 30,
2011.





Estimates





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





Revenue
Recognition





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


7


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





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.





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





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





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





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


JULY
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, 2010
or the three months ended July 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


JULY
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 July 31, 2010 and April
30, 2010, 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


JULY
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 three months ended July 31, 2010 and the year ended April
30, 2010, the Company incurred no advertising costs.





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


JULY
31, 2010


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





Per share
basic and diluted net loss attributable to common stockholders amounted to $0.01
and $0.01 for the quarters ended July 31, 2010 and 2009, respectively. At July
31, 2010 and 2009, 98,589,643 and 35,672,510 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 condensed consolidated financial statements, the Company has
incurred a net loss of $1,311,795 and $4,141,179 during the three months ended
July 31, 2010 and the year ended April 30, 2010, respectively. The Company’s
liabilities exceed its assets by $2,673,752 as of July 31, 2010.




Non-controlling
Interest
 
 As a
result of adopting FASB ASC 810-10 Consolidations – Variable Interest Entities,
the Company presents non-controlling as a component of equity on our
Consolidated Balance Sheets and Consolidated Statement of
Deficit.
 
 Derivative
Liabilities
 
 The
Company applies Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) Topic 815, “Derivatives and Hedging,” which provides a
two-step model to determine whether a financial instrument or an embedded
feature is indexed to an issuer’s own stock and thus able to qualify for equity
treatment. The Company determines which instruments or embedded features require
liability accounting and records the fair values as an accrued derivative
liability. The changes in the values of the accrued derivative liabilities are
shown in the accompanying statements of operations.
 
 The
pricing model we use for determining fair value of our derivatives is the
Black-Scholes Pricing Model. Valuations derived from this model are subject to
ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities.
Selection of these inputs involves management's judgment and may impact net
income.




Reclassifications





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





Recent Accounting
Pronouncements





In
January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value
Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value
Measurements” (FASB ASU 2010-06). FASB ASU 2010-06 amends Subtopic 820-10, Fair
Value Measurements and Disclosures - Overall, and requires new disclosures
related to the transfers in and out of Level 1 and 2, as well as requiring that
a reporting entity present separately information about purchases, sales,
issuances, and settlements rather than as one net number. Additionally, FASB ASU
2010-06 amends Subtopic 820-10 by clarifying existing disclosures related to
level of disaggregation as well as disclosures about inputs and valuation
techniques. FASB ASU 2010-06 is effective for reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances
and settlements in the roll forward of activity in Level 3 fair value
measurements, these disclosures are effective for reporting periods beginning
after December 15, 2010. The Company does not expect adoption of FASB ASU
2010-06 to have an impact on its financial condition or results of
operations.





In June
2009, the FASB issued Accounting Standards Update 2009-16 “Transfer and
Servicing,” which among other things, removes the concept of a qualifying
special-purpose entity, and changes the requirements for derecognizing
financial assets. Additionally, the update
requires additional disclosures about transfers of financial assets,
including securitization transactions and areas where companies have continued
exposure to the risks related to transferred financial assets. The
update is effective for annual reporting periods beginning after
November 15, 2009. The Company is currently evaluating the impact
that the update may have on future consolidated financial
statements.





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


12


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





NOTE
B - MOTORCYCLES UNDER OPERATING LEASE





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





July
      31,
                
                
                April
      30,2010
                
                
                2010Motorcycles
      and other vehicles
                
                $
                524,073
                
                
                $
                540,623Less:
      accumulated depreciation
                
                
                (227,278
                )
                
                
                (219,492
                )Motorcycles
      and other vehicles, net of accumulated depreciation
                
                
                296,795
                
                
                
                321,131Less:
      estimated reserve for residual values
                
                
                (14,889
                )
                
                
                (15,865
                )Motorcycles
      and other vehicles under operating leases, net
                
                $
                281,906
                
                
                $
                305,266





Depreciation
expense was $16,342 and $90,940 for the quarter ended July 31, 2010 and the year
ended April 30, 2010, respectively. Depreciation expense for the quarter ended
July 31, 2009 was $27,183.





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 July 31, 2010 the Company
had repossessed vehicles valued at market of $7,140. At April 30, 2010, the
Company had repossessed vehicles of value $14,622.




NOTE
D - RETAIL (RISC) LOAN RECEIVABLES





RISC loan
receivables, which are carried at cost, were $1,673,157 and $1,893,474 at July
31, 2010 and April 30, 2010, respectively, including deficiency receivables of
$70,694 and $34,250, 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 July 31,2011
                  
                  $
                  793,2002012
                  
                  
                  603,8552013
                  
                  
                  274,0262014
                  
                  
                  2,076$
                  1,673,157




NOTE
E - GOODWILL




The
Company does not amortize goodwill. The company recorded goodwill in the amount
of $10,000 as a result of the acquisition of Cyclechex, LLC during the quarter
ended July 31, 2010. The Company will evaluate goodwill for impairment at year
end.




NOTE F
- PROPERTY AND EQUIPMENT





Property
and equipment at July 31, 2010 and April 30, 2010 consist of the
followings:




July
      31,
                  2010
                
                
                April
      30,
                  2010Computer
      equipment, software and furniture
                
                $
                191,247
                
                
                $
                191,247Less:
      accumulated depreciation and amortization
                
                
                167,043
                
                
                
                (163,824
                )Net
      property and equipment
                
                $
                24,204
                
                
                $
                27,423





Depreciation
expense was $3,220 and $17,919 for the quarter ended July 31, 2010 and the
year ended April 30, 2010, respectively. Depreciation and amortization
expense for the quarter ended July 31, 2009 was $4,480.


13





SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





NOTE G
- NOTES PAYABLE - SENIOR LENDER





(a)
            The
      Company finances certain of its leases through a third party. The
      repayment terms are generally one year to five years and the notes are
      secured by the underlying assets. The weighted average interest rate at
      July 31, 2010 is 10.47%.





(b)
            On
      October 31, 2008, the Company purchased certain loans secured by a
      portfolio of secured motorcycle leases (“Purchased Portfolio”) for a total
      purchase price of $100,000.  The Company paid $80,000 at
      closing, $10,000 in April 2009 and agreed to pay the remaining $10,000
      upon receipt of complete Purchase Portfolio documentation. As of July 31,
      2010, the complete documentation has not been received. To finance the
      purchase, the Company issued a $150,000 Senior Secured Note dated October
      31, 2008 (“Senior Secured Note”) in exchange for $100,000 from the Senior
      Secured Note holder.  Terms of the Senior Secured Note require
      the Company to make semi-monthly payments in amounts equal to all net
      proceeds from Purchased Portfolio lease payments and motorcycle asset
      sales received until the Company has paid $150,000 to the Senior Secured
      Note holder.  The Company was obligated to pay any remainder of
      the Senior Secured Note by November 1, 2009 and has granted the Senior
      Secured Note holder a security interest in the Purchased Portfolio. The
      Company and the Senior Secured Note holder are in discussion as to
      extension of the Senior Secured
Note.





Once the
Company has paid $150,000 to the Senior Secured Note holder 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 Senior Secured Note holder mutually agree the Purchase
Portfolio has no remaining proceeds.





As of
July 31, 2010, the Company carries the Purchased Portfolio at $31,237
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 $96,368.





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





12 months ended July 31,
                
                Amount2011
                
                $
                887,1102012
                
                
                596,7432013
                
                
                247,8392014
                
                
                152Total
                
                $
                1,731,844




Notes
payable to Senior Lenders at April 30, 2010 were $2,010,989.


14




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





NOTE H
- NOTES PAYABLE





Notes Payable
                
                July 31,
                  2010
                
                
                April 30,
                  2010Convertible
      notes (a)
                
                $
                563,948
                
                
                $
                280,000Notes
      payable (b)
                
                
                -
                
                
                
                100,000Bridge
      loans (c)
                
                
                206,000
                
                
                
                161,000Collateralized
      note (d)
                
                
                220,000
                
                
                
                220,000Convertible
      note (e)
                
                
                103,399
                
                
                
                103,399Sub
      Total
                
                
                1,093,347
                
                
                
                864,399Beneficial
      conversion discount on convertible notes
                
                
                60,902
                
                
                
                0Total
                
                $
                1,032,445
                
                
                $
                864,399





(a)
            As
      of July 31, 2010, the Company had outstanding convertible unsecured notes
      with an original aggregate principal amount of $563,948, which accrue
      interest at rates ranging from 8% to 15% per annum.   The
      majority of the notes are convertible into shares of common stock, at the
      Company’s option, ranging from $0.012 to $0.021 per share.  All
      but one of the convertible notes in the amount of $10,000 are current. One
      of the notes in the amount $50,000 is convertible at the note holder’s
      option at a variable conversion price such that during the period during
      which the notes are outstanding, the note is convertible at the lower of
      (i) the price per share at which the Company  sells or issues
      any shares of common stock (except for shares of common stock issued
      directly to vendors or suppliers of the Company in satisfaction of amounts
      owed to them, provided, however, that such vendors or suppliers shall not
      have an arrangement to transfer, sell or assign such shares of common
      stock prior to the issuance of such shares, shares issued pursuant to the
      Company's Employee Stock Option Plan, or any shares of common stock issued
      for no consideration or for a consideration per share before deduction of
      reasonable expenses or commissions or underwriting discounts or allowances
      in connection therewith,  or (ii) 58% multiplied by the average
      of the lowest three lowest closing bid prices for the common stock during
      the ten  trading day period ending one trading day prior to the
      submission date of the conversion notice by the note holder  to
      the Company. The Company recorded a beneficial conversion discount of
      $45,000 for this note as of April 30, 2010. Another note in the amount of
      $10,000 due August 15, 2010 is convertible at $0.012 per share. In May
      2010, the Company sold to one accredited investor a $25,000, 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. The
      Company has reserved up to 10,775,195 shares of its common stock for
      conversion pursuant to the terms of the note.  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.





During
the quarter ended July 31, 2010, the Company sold to an accredited investor five
one year, unsecured notes in the aggregate amount of
$170,000.   The notes bare 8% simple interest, payable in cash or
shares, at the Company’s option, with principal and accrued interest payable at
maturity. At the Company’s option, the notes are convertible into shares of
common stock ranging from $0.012 to $0.018 per share.




15


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





NOTE H
- NOTES PAYABLE (continued)





During
the quarter ended July 31, 2010, three note holders holding $80,000 in notes
(all of which had been classified as notes payable (b) at April 30, 2010) sold
their notes and the accrued interest there on to two accredited investors and
simultaneously, the Company then exchanged one “old” $25,000 note for a
$25,000  new 0% one year note convertible at the holder’s option into
common stock at the lesser of $0.06 per share or sixty  percent
of  the average of the three lowest closing prices of the Company’s
common stock for the twenty successive trading days immediately preceding the
day the holder elects to convert all or part of the note. In the event the note
is not paid when due, the interest rate is increased to eighteen percent until
the note is paid in full. Additionally, the Company exchanged with the other
investor three “old” notes aggregating $55,000 for three new one year 8% notes
aggregating $81,947.94. The notes are convertible at the holder’s option at a
conversion price equal to 70% of the lowest closing bid price of the Company’s
common stock for the three trading days prior to the day on which the Company
receives a Notice of Conversion. In the event the note is not paid when due, the
interest rate is increased to twenty-four percent until the note is paid in
full.





(b)
            As
      of April 30, 2010, the Company had outstanding unsecured notes with an
      original principal amount of $100,000, which accrue interest ranging from
      6% to 15% per annum, all of which were past due. In July 2010, $80,000 of
      these notes were purchased by a third party who exchanged the notes with
      the Company for new convertible notes all of which are
      current  (see a above).  The remaining $20,000 note
      was due August 8, 2009 and is accruing interest at a default rate of 15%
      and is also accruing penalty shares at the rate of 20,000 shares per month
      and this note has been reclassified as a Bridge loan (see c). The Company
      is in discussions with this note holder to recast the
  note.





(c)
            During
      the year ended April 30, 2007, the Company sold to five accredited
      investor’s 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, with simple interest rate
      of 10%, and Additional Equity in the aggregate amount of 165,000
      unregistered shares of common stock to be issued. Thereafter, the Company
      was in default on repayment of these notes.  During the year
      ended April 30, 2009, $99,000 of these loans was repaid and during 2010,
      $15,000 of these notes and accrued interest thereon was converted into
      approximately 463,000 shares of the Company’s common stock. The holders of
      the remaining notes have agreed to contingently convert those notes plus
      accrued interest into approximately 8,000,000 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. In July 2010, the Company sold to an accredited investor
      a one week 10%, $25,000 note and issued 25,000 shares of its restricted
      common stock as inducement for the note.  The note is
      convertible at the holder’s option into shares of common stock at $0.005
      per share. In the event the note is not paid when due, the interest rate
      is increased to twenty percent until the note is paid in full and the
      Company is required to issue 50,000 shares of common stock per month until
      the note is paid in full. During the quarter ending July 31, 2010 one
      $20,000 note (which was classified as Notes Payable (see b above)), has
      been reclassified as a Bridge Loan, was  due August 8, 2009 and
      is accruing interest at a default rate of 15% and is also accruing penalty
      shares at the rate of 20,000 shares per month.. The Company is in
      discussions with this note holder to recast the
  note.


16


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





NOTE H
- NOTES PAYABLE (continued)





(d)
            During
      the year ended April 30, 2009, the Company sold a secured note in the
      amount of $220,000. The note bore 12.46% simple interest. The note matured
      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 2010, the note
      holder agreed to convert the note and all accrued interest thereon into
      approximately 12,000,000 shares of the Company’s common stock upon
      theCompany
      demonstrating that it can meet all conditions precedent to begin drawing
      down on a senior credit facility.





(e)
            On
      September 19, 2007, the Company sold to one accredited investor for the
      purchase price of $150,000 securities consisting of a $150,000 convertible
      debenture due December 19, 2007, 100,000 shares of unregistered common
      stock, and 400,000 common stock purchase warrants. The debentures bear
      interest at the rate of 12% per year compounded monthly and are
      convertible into shares of the Company's common stock at $0.0504 per
      share. The warrants may be exercised on a cashless basis and are
      exercisable until September 19, 2007 at $0.05 per share. In the event the
      debentures are not timely repaid, the Company is to issue 100,000 shares
      of unregistered common stock for each thirty day period the debentures
      remain outstanding. The Company has accrued interest and penalties as per
      the terms of the note agreement.  In May, 2008, the Company
      repaid $1,474 of principal and $3,526 in accrued interest. Additionally,
      from April 26, 2008 through April 30, 2009, a third party to the note
      paid, on behalf of the Company, $41,728 of principal and $15,272 in
      accrued interest on the note, and the note holder converted $3,399 of
      principal and $6,601 in accrued interest into 200,000 shares of our common
      stock.  As of July 31, 2010, the balance outstanding was past
      due.





NOTE I
- LOANS PAYABLE TO RELATED PARTIES





At July
31, 2010 and April 30, 2010, included in accounts receivable, are $169 and
$10,189.09, respectively, due from American Motorcycle Leasing Corp., a company
controlled by a director and formerly controlled by the Company's Chief
Executive Officer, for the purchase of motorcycles.  Additionally, at
July 31, 2010 and April 30, 2010, the Company had notes payable to an officer
and a director of $383,760 and $383,760 respectively.


17


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





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 July 31, 2010 and April 30, 2010,
respectively.  The Company had 157 and no shares of Series B Preferred
stock issued and outstanding as of July 31, 2010 and April 30, 2010,
respectively. The Company had 42,000 and 42,000 shares of Series C preferred
stock issued and outstanding as of July 31, 2010 and April 30, 2010,
respectively The Company has 412,729,902 and 392,782,210 shares of common stock
issued and outstanding as of July 31, 2010 and April 30, 2010,
respectively.





Preferred Stock Series
A





No shares
of Preferred Stock Series A were issued during the quarter ended July 31, 2010.
However, a $185 preferred stock dividend, payable in Preferred Stock Series A,
was declared during the quarter.





Preferred Stock Series
B





No shares
of Preferred Stock Series B were issued during the quarter ended July 31, 2010.
However, a $39,573 preferred stock dividend, payable in Preferred Stock Series
B, was declared during the quarter.





Preferred Stock Series
C





No shares
of Preferred Stock Series C were issued during the quarter ended July 31,
2010.





Common
Stock





During
the quarter ended July 31, 2010 and the quarter ended July 31, 2009, the Company
expensed $146,007 and $43,660, respectively, for non-cash charges related to
stock and option compensation expense.





During
the quarter ended July 31, 2010:





·
            The
      Company issued 1,126,917 shares of its common stock upon the conversion of
      $18, 000 of notes payable.


·
            The
      Company sold 7,735,419 shares of common stock for $105,000 and issued
      three year warrants to purchase 7,735,419 shares of common stock at $0.07
      per share.


·
            The
      Company issued, pursuant to penalty provisions of notes, 888,000
      shares of unregistered common stock, valued at
  $14,208.


·
            The
      Company issued, pursuant to the terms of a promissory note, 80,000 shares
      of unregistered common stock valued at
$1,440.


·
            The
      Company issued, pursuant to three consulting agreements, 4,900,000 shares
      of its common stock valued at $88,200, 1,000,000 ($18,000) of the shares
      had been accrued in the prior year.


·
            The
      Company issued to a consultant 1,000,000 shares of its common stock valued
      at $12,000.


·
            The
      Company issued to four members of its Advisory Council, 3,500,000 shares
      of its common stock valued at
$42,000.


18


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)





NOTE
J - EQUITY TRANSACTIONS (continued)





·
            The
      Company issued stock options, exercisable at $0.025 per share until May
      12, 2015, subject to vesting at the rate of 20% on the grant date, 40% on
      May 12, 2011, and 40% on May 12, 2011, to the following officers and
      directors:  Anthony Havens, 6,672,500 options; Kristian Srb,
      2,465,000 options; Richard Trotter, 4,016,250 options; Jeffrey Bean,
      956,000 options; Anthony Adler, 3,995,000 options; and Sandra Ahman,
      3,145,000 options.










NOTE K
– NONCONTROLLING INTEREST
 
 In May
2010, the Company formed Specialty Reports, Inc, a Nevada Corporation (“SRI”),
for the purpose of acquiring all of the assets of Cyclechex LLC, a Florida
limited liability company. Cyclechex sole business was an e-commerce business
which acquired the relevant motorcycle data and sold the data in the form of
motorcycle history reports over the internet to consumers and dealers. As part
of the transaction, the Company agreed to issue 24% of SRI common stock to the
sole owner of Cyclechex, LLC.
 
 In May
2010, the Company formed a new subsidiary, Specialty Reports, Inc. (“SRI”), and
issued a 24% equity interest in SRI in consideration for substantially all of
the assets of Cyclechex, LLC valued at $10,000.
 
 During
the three months ended July 31, 2010, SRI sold 8 shares of its Series A
Preferred stock to three accredited investors for $40,000.  The Series
A Preferred stock does not pay a dividend. Each share has a liquidating value of
$5,000 and is redeemable by SRI at any time after one year. Each share is
convertible at the holder’s option at any time into either 2,632 shares of SRI
common stock, or 277,778 shares of the Company’s common stock.
 
 For the
three months ended July 31, 2010 the noncontrolling interest is summarized as
follows:
 
 AmountBalance
      at May 1, 2010
                  
                  $
                  -Issuance
      of Series A Preferred Stock
                  
                  
                  40,000Issuance
      of SRI Common stock for the purchase of Cyclechex, LLC
                  
                  
                  10,000Noncontrolling
      interest’s share of losses
                  
                  
                  (8,769
                  )Balance
      at June 30, 2010
                  
                  $
                  41,231
 
 NOTE L – FAIR VALUE
MEASURMENTS
  The
Company follows the guidance established pursuant to ASC 820 which established a
framework for measuring fair value and expands disclosure about fair value
measurements. ASC 820 defines fair value as the amount that would be received
for an asset or paid to transfer a liability (i.e., an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820 also
establishes a fair value hierarchy that requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 describes the following three levels of inputs that may be
used:
  Level 1:
Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for identical assets and liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.
  Level 2:
Observable prices that are based on inputs not quoted on active markets but
corroborated by market data.
  Level 3:
Unobservable inputs when there is little or no market data available, thereby
requiring an entity to develop its own assumptions. The fair value hierarchy
gives the lowest priority to Level 3 inputs.
  The table
below summarizes the fair values of our financial liabilities as of July 31,
2010:
  Fair Value at
                  
                  
                  Fair Value Measurement UsingJune 30,
                    2010
                  
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3Derivative
      liability
                  
                  $
                  737,841
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  737,841$
                  737,841
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  737,841
  The
table below sets forth a summary of changes in the fair value of the Company’s
Level 3 financial liabilities (derivative liabilities) for the three months
ended July 31, 2010:
 
 2010Balance
      at beginning of year
                    
                    $
                    -Additions
      to derivative instruments
                    
                    
                    232,128Change
      in fair value of warrant liability
                    
                    
                    505,713Balance
      at end of period
                    
                    $
                    737,841
 
 The
following is a description of the valuation methodologies used for these
items:
  Derivative liability — these
instruments consist of certain variable conversion features related to notes
payable obligations and certain outstanding warrants.  These
instruments were valued using pricing models which incorporate the Company’s
stock price, volatility, U.S. risk free rate, dividend rate and estimated
life.
 
 The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented in the balance sheets at fair value in accordance with
ASC Topic 825.


NOTE M
- SUBSEQUENT EVENTS





From
August 1, 2010 through September 10, 2010, the Company:





·
            Sold
      to one accredited investor, 1,133,333 shares of restricted common stock
      for $17,000.


·
            Issued
      to four accredited investors, $40,000 of 12%, three month notes and a
      total of 350,000 shares issued as inducements for the
    loans.


·
            Issued
      to one accredited investor, a $25,000, 12%, three month note and 250,000
      shares issued as inducements for the
loan.


·
            Issued
      to one accredited investor a $30,000, 8%, one year notes convertible at
      the Company’s option into shares of common stock at $0.018 per
      share.


·
            Issued
      to one accredited investor a $25,000, 8% 9 month note convertible at the
      note holders option into shares of the company’s common stock at the lower
      of (i) the price per share at which the Company  sells or issues
      any shares of common stock or (ii) 58% multiplied by the average of the
      lowest three lowest closing bid prices for the common stock during the
      ten  trading day period ending one trading day prior to the
      submission date of the conversion notice by the note holder  to
      the Company.


·
            The
      Company’s majority owned subsidiary Specialty Reports, Inc., sold 30
      shares of its Series A Preferred stock to eight accredited investors for
      $152,000.  The Series A Preferred stock does not pay a dividend.
      Each share has a liquidating value of $5,000 and is redeemable by
      Specialty Reports at any time after one year. Each share is convertible at
      the holder’s option at any time into either 2,632 shares of Specialty
      Reports, Inc common stock, or 277,778 shares of Sparta Commercial Services
      common stock.


·
            Issued
      996,350 shares of common stock upon conversion of $15,017 of its
      promissory notes.


·
            Issued
      1,815,000 shares of common stock which had been accrued in the Quarter
      ended July 31, 2010.


·
            The
      Company issued, pursuant to penalty provisions of notes, 296,000
      shares of unregistered common stock, valued at
  $8,880.


·
            The
      Company issued, pursuant to two consulting agreements, 1,000,000 shares of
      its common stock valued at $18,000.




19


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2010


(UNAUDITED)




NOTE N - GOING CONCERN
MATTERS





The
accompanying unaudited condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As shown
in the accompanying unaudited consolidated financial statements during the
period October 1, 2001 (date of inception) through July 31, 2010, the Company
incurred a cumulative loss of $32,728,183. Of these losses, $1,342,784 was
incurred in the quarter ending July 31, 2010 and $994,279 in the quarter ending
July 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.





The
Company’s existence is dependent upon management’s ability to develop profitable
operations. Management is devoting substantially all of its efforts to
developing its business and raising capital and there can be no assurance that
the Company’s efforts will be successful. While, the planned principal
operations have commenced, 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, 2010 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 July 31, 2010 to the Three Months Ended July 31,
2009





For the
three months ended July 31, 2010 and 2009, we have generated limited sales
revenues, have incurred significant, but declining expenses, and have sustained
significant, but declining losses. We believe we will continue to earn revenues
from operations during the remainder of our fiscal year ending April 30,
2011.





Revenues





Revenues
totaled $132,147 during the three months ended July 31, 2010 as compared to
$216,804 during the three months ended July 31, 2009. Current period revenue was
comprised primarily of $75,717 in interest income from RISC Loans, $29,753 in
lease revenue, and $26,667 in other income. For the three months ended July 31,
2009, revenues were comprised primarily of $53,068 in lease revenue, $138,865 in
interest income from RISC loans, and $24,870 in other income.





Costs
and Expenses





General
and administrative expenses were $718,668 during the three months ended July 31,
2010, compared to $592,197 during the three months ended July 31, 2009, an
increase of $126,471 or 21.4%. Expenses incurred during the current three month
period consisted primarily of the following expenses: compensation and related
costs of $297,499; legal and accounting fees of $89,512; consulting fees of
$32,184; rent and utilities of $88,269; and general office expenses of $65,197.
Expenses incurred during the comparative three month period in 2009 consisted
primarily of the following expenses: compensation and related costs, $308,531;
accounting, audit and professional fees, $58,764; consulting fees, $38,866; rent
and utilities, $88,467; and general office expenses, $97,569.





During
the three months ended July 31, 2010, we incurred the following non-cash, equity
based compensation charges: consulting, $124,200; employee stock and option
compensation, $21,807, financing costs, $15,648; beneficial conversion discount
expense, $75,000; and derivative expenses of $534,242. During the three months
ended July 31, 2009, we incurred the following non-cash, equity based
compensation charges: consulting, $30,000; employee stock and option
compensation, $43,660, and financing costs $232,571.


21


Net Loss





We
incurred a net loss before preferred dividends of $1,311,795 for our three
months ended July 31, 2010 as compared to $994,279 for the corresponding three
month period in 2009. The $317,517or 31.9% increase in our net loss before
preferred dividends and net loss attributed to noncontrolling interest for our
three month interim period ended July 31, 2010 was attributable primarily to
$534,242 derivative liability expenses not incurred in the same period last
year, $126,471 or 21.4% increase in general and administrative expenses, a
$182,799 or a 69.4% decrease in interest expense, a $141,923 or 61% decrease in
non-cash financing costs, a $103,131 or 84% decrease in depreciation, and a
$84,657 or 39% decrease in revenues.





Our net
loss attributable to common stockholders increased to $1,342,784 for our three
month period ended July 31, 2010 as compared to $994,279 for the corresponding
three month period in 2009.





LIQUIDITY
AND CAPITAL RESOURCES





As of
July 31, 2010, the Company had a negative net worth of $2,663,785. The Company
generated a deficit cash flow from operations of $342,861 for the three months
ended July 31, 2010.





Cash
flows provided by investing activities for the three months ended July 31, 2010
was $236,866, primarily due to the pay offs of RISC Loans in the amount of
$220,317 and net pay-offs of leases of $16,550.





Cash
provided by financing activities during the three month period ended July 31,
2010, was $97,802 primarily due to:  the sale of $90,000 of common
stock proceeds from the sale of subsidiary preferred stock of $40,000, the net
sale of notes payable in the amount of $246,948, and the net pay down of bank
debt in the amount of $279,145.





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.  At July 31, 2010 we had 10
full time employees. If we fully implement our business plan, we anticipate our
employment base may increase by approximately 100% during the next twelve
months. As we continue to expand, we will incur additional cost for personnel.
This projected increase in personnel is dependent upon our generating revenues
and obtaining sources of financing. There is no guarantee that we will be
successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees.





While we
have raised capital to meet our working capital and financing needs in the past,
additional financing is required in order to meet our current and projected cash
flow deficits from operations and development.





We
continue seeking additional financing, which may be in the form of senior debt,
subordinated debt or equity. We have signed a letter of interest with a senior
lender with whom we are negotiating terms of a senior secured transaction,
however, there is no assurance that we will be successful in these negotiations
and we currently have no commitments for financing. There is no guarantee that
we will be successful in raising the funds required to support our
operations.





We
estimate that we will need approximately $2,000,000 in addition to our normal
operating cash flow to conduct operations during the next twelve
months.  Based on the above, on capital received from equity financing
to date, and certain indications of interest to purchase our equity, we believe
that we have a reasonable chance to raise sufficient capital resources to meet
projected cash flow deficits through the next twelve months.  There
can be no assurance that additional private or public financing, including debt
or equity financing, will be available as needed, or, if available, on terms
favorable to us. Any additional equity financing may be dilutive to stockholders
and such additional equity securities may have rights, preferences or privileges
that are senior to those of our existing common or preferred stock. Furthermore,
debt financing, if available, will require payment of interest and may involve
restrictive covenants that could impose limitations on our operating
flexibility. However, if we are not successful in generating sufficient
liquidity from operations or in raising sufficient capital resources, on terms
acceptable to us, this could have a material adverse effect on our business,
results of operations, liquidity and financial condition, and we will have to
adjust our planned operations and development on a more limited
scale.




22




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, 2010 and 2009 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.





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





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.




23




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.





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.




24


Revenue
Recognition





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





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





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





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





Early
lease terminations also occur because of (i) a default by the lessee, (ii) the
physical loss of the motorcycle, or (iii) the exercise of the lessee's early
termination. In those instances, we receive the proceeds from either the resale
or release of the repossessed motorcycle, or the payment by the lessee's
insurer. We record a gain or loss for the difference between the proceeds
received and the net book value of the motorcycle. We charge fees to
manufacturers and other customers related to creating a private label version of
our financing program including web access, processing credit applications,
consumer contracts and other related documents and processes. Fees received are
amortized and booked as income over the length of the contract.





Stock-Based
Compensation





The
Company adopted 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.




25


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.


Derivative
Liabilities
 
 The
Company applies Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) Topic 815, “Derivatives and Hedging,” which provides a
two-step model to determine whether a financial instrument or an embedded
feature is indexed to an issuer’s own stock and thus able to qualify for equity
treatment. The Company determines which instruments or embedded features require
liability accounting and records the fair values as an accrued derivative
liability. The changes in the values of the accrued derivative liabilities are
shown in the accompanying statements of operations.
 
 The
pricing model we use for determining fair value of our derivatives is the
Black-Scholes Pricing Model. Valuations derived from this model are subject to
ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities.
Selection of these inputs involves management's judgment and may impact net
income.





RECENT
ACCOUNTING PRONOUNCEMENTS





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.





26





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 were 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.


27


PART
II. OTHER INFORMATION





ITEM
1.         LEGAL
PROCEEDINGS





Not
applicable.





ITEM
1A. RISK
FACTORS





We are
subject to certain risks and uncertainties in our business operations which are
described below. The risks and uncertainties described below are not the only
risks we face. Additional risks anduncertainties not
presently known or that are currently deemed immaterial may also impair our
business operations.





We
have an operating history of losses.





Through
our fiscal year ended April 30, 2010, we have generated cumulative sales
revenues of $4,010,634, have incurred significant expenses, and have sustained
significant losses. Our net loss for the year ended April 30, 2010 was
$4,141,179 (after $1,558,078 in non-cash charges).  As of April 30,
2010, we had a deficit net worth of $1,603,763. Through our first quarter ended
July 31, 2010, we have generated cumulative sales revenues of $4,142,781, have
incurred significant expenses, and have sustained significant losses. Our net
loss for the quarter year ended July 31, 2010 was $1,342,784 (after $624,890 in
non-cash charges).  As of July 31, 2010, we had a deficit net worth of
$2,692,523.





We
have an agreement for a credit line with an institutional lender, who has
acquired preferences and rights senior to those of our capital stock and placed
restrictions on the payment of dividends.  This line had been
suspended.





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 or any of their borrowers; however, they have not formally
terminated the facility.  As of July 31, 2010, we owed New World an
aggregate of $1,635,476 (which is secured by $1,969,952 of consumer Retail
Installment Sales Contracts and Leases and $111,508 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.





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 raise additional senior debt as well as capital
to support the portion of the future leases and retail installment sales
contracts which are 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 $2 million over the next twelve months to support our business
plan.  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.


28





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, 2010 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.





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.


29





Failure
to perfect a security interest could harm our business.





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





Risks
associated with leasing.





Our
business is subject to the risks generally associated with the ownership and
leasing of vehicles.  A lessee may default in performance of its
consumer lease obligations and we may be unable to enforce our remedies under a
lease.  As a result, certain of these customers may pose credit risks
to us.  Our inability to collect receivables due under a lease and our
inability to 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.


30





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
do not intend to pay dividends on our common stock.





We have
never declared or paid any cash dividend on our common stock. We currently
intend to retain any future earnings and do not expect to pay any dividends on
our common stock in the foreseeable future. Future cash dividends on the common
stock, if any, will be at the discretion of our board, and will depend on our
future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions imposed by lending or other
agreements, including agreements with holders of senior or preferential rights,
and other factors that the board may consider important.




We
have authorized a class of preferred stock which may alter the rights of common
stock holders by giving preferred stock holders greater dividend rights,
liquidation rights and voting rights than our common stockholders
have.




Our board
is empowered to issue, without stockholder approval, preferred stock, on one or
more series, with dividend, liquidation, conversion, voting or other rights that
could adversely affect the voting power or other rights of the holders of common
stock.  From time to time, we have designated, and may in the future
designate, series of preferred stock carrying various preferences and rights
different from, and greater than, our common stock.  As of July 31,
2010, we have three series of preferred stock outstanding. Preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the company.





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 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 July 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.


31





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 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.





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





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.  The Company applied proceeds from financing activities
described below to working capital.





In the
three months ended July 31, 2010, and in August 2010, the Company sold to one
accredited investor  two $25,000, nine month, 8% notes convertible at
the holder’s option into such number of shares of the Company’s common stock as
determined by a forty-two 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 standard anti-dilutive
provisions. The Company has reserved up to 21,203,449 shares of its common stock
in the event of conversion pursuant to the terms of the note.  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. In August 2010, $5,000 of
these notes was converted into 390,625 shares of common stock.





In July,
2010, the Company sold to an accredited investor a one week 10%, $25,000 note
and issued 25,000 shares of its restricted common stock as inducement for the
note.  The note is convertible at the holder’s option into shares of
common stock at $0.005 per share. In the event the note is not paid when due,
the interest rate is increased to twenty percent until the note is paid in full
and the Company is required to issue 50,000 shares of common stock per month
until the note is paid in full.





In the
four months ending August 31, 2010, the Company sold to an accredited investor
seven one year, unsecured notes in the aggregate amount of
$200,000.  The notes bare 8% simple interest, payable in cash or
shares, at the Company’s option, with principal and accrued interest payable at
maturity. At the Company’s option, the notes are convertible into shares of
common stock ranging from $0.012 to $0.018 per share.


32


In June
2010, three note holders holding $80,000 in notes sold their notes and the
accrued interest thereon to two accredited investors, and simultaneously, the
Company then exchanged one old $25,000 note for a $25,000 new 0% one year note
convertible at the holder’s option into common stock at the lesser of $0.06 per
share or sixty percent of the average of the three lowest closing prices of the
Company’s common stock for the twenty successive trading days immediately
preceding the day the holder elects to convert all or part of the note. In the
event the note is not paid when due, the interest rate is increased to eighteen
percent until the note is paid in full. Additionally, the Company exchanged with
the other investor three old notes aggregating $55,000 for three new one year 8%
notes aggregating $81,947.94. The notes are convertible at the holder’s option
at a conversion price equal to 70% of the lowest closing bid price of the
Company’s common stock for the three trading days prior to the day on which the
Company receives a Notice of Conversion. In the event the note is not paid when
due, the interest rate is increased to twenty-four percent until the note is
paid in full. In June, July and August 2010, $26, 017 of these notes were
converted into 1,736,642 shares of common stock.





In the
three months ended July 31, 2010, the Company sold to three accredited investors
7,735,419 shares of its common stock and three year warrants to purchase
7,735,419 shares of its common stock, exercisable at $0.07 per share, for
$90,000.  As of July 31, 2010, 1,815,000 of the shares had not been
issued.





In June
and July, 2010, the Company issued, pursuant to three consulting agreements an
aggregate of 4,900,000 shares of its common stock valued at $88,200, 1,000,000
($18,000) of the shares had been accrued in the prior year.





In May,
2010, the Company issued to a consultant 1,000,000 shares of its common stock
valued at $12,000.





In May,
2010, the Company issued to four members of its Advisory Council an aggregate of
3,500,000 shares of its common stock valued at $42,000





In
August, 2010, the Company sold to one accredited investor 1,133,333 shares of
restricted common stock for $17,000.





In
August, 2010, the Company sold to five accredited investors, $65,000 of 12%,
three month notes and issued a total of 600,000 shares issued as inducements for
the loans.





In the
three months July 31, 2010, the Company’s majority owned subsidiary, Specialty
Reports, Inc., sold 8 shares of its Series A Preferred stock to three accredited
investors for $40,000, and, in the period from August 1, 2010 to September 10,
2010, sold an additional 30 shares to eight accredited investors for
$152,000.  The Series A Preferred stock does not pay a dividend. Each
share has a liquidating value of $5,000 and is redeemable by Specialty Reports
at any time after one year. Each share is convertible at the holder’s option at
any time into either 2,632 shares of Specialty Reports common stock, or 277,778
shares of Sparta Commercial Services common stock.





ITEM
3.         DEFAULTS UPON SENIOR
SECURITIES





Not
applicable.





ITEM
4.         (REMOVED AND
RESERVED)





None





ITEM
5.         OTHER
INFORMATION





None


33


ITEM
6.         EXHIBITS





The
following exhibits are filed with this report:





Exhibit Number
                      
                      Description of ExhibitExhibit
      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.Exhibit
      31.1*
                      
                      Certification
      of Chief Executive Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)Exhibit
      31.2*
                      
                      Certification
      of Principal Financial Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)Exhibit
      32.1*
                      
                      Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350Exhibit
      32.2*
                      
                      Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section
      1350




* Filed
herewith


34


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:
      September 20, 2010
              By:
              /s/ Anthony L. HavensAnthony
      L. HavensChief
      Executive OfficerDate:
      September 20, 2010
              By:
              /s/ Anthony W. AdlerAnthony
      W. AdlerPrincipal
      Financial Officer


35