UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)





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





For
the quarterly period ended January 31, 2009




o
            TRANSITION
      REPORT UNDER 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
              
              (IRS
      Employerincorporation
      or organization)
              
              Identification
      No.)





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


(Address
of principal executive offices)





(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.  Yes x No o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions 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) Yes o No x





As of
March 23, 2009, we had 168,398,291shares of common stock issued and
outstanding.


1


SPARTA
COMMERCIAL SERVICES, INC.


FORM
10-Q


FOR
THE QUARTER ENDED JANUARY 31, 2009





TABLE
OF CONTENTS





PagePART
      I.
              
              FINANCIAL
      INFORMATIONItem
      1.
              
              Financial
      Statements (Unaudited)
              
              3Condensed
      Consolidated Balance Sheets as of January 31, 2009 and April 30,
      2008
              
              3Condensed
      Consolidated Statements of Operations for the Three and Nine Months Ended
      January 31, 2009 and 2008
              
              4Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended January
      31, 2009 and 2008
              
              5Notes
      to Unaudited Condensed Consolidated Financial Statements
              
              6Item
      2.
              
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              18Item
      3.
              
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              24Item
      4.
              
              Controls
      and Procedures
              
              24PART
      II.
              
              OTHER
      INFORMATIONItem
      1.
              
              Legal
      Proceedings
              
              25Item
      1A.
              
              Risk
      Factors
              
              25Item
      2.
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              25Item
      3.
              
              Defaults
      Upon Senior Securities
              
              26Item
      4.
              
              Submission
      of Matters to a Vote of Security Holders
              
              26Item
      5.
              
              Other
      Information
              
              26Item
      6.
              
              Exhibits
              
              27Signatures
              
              28




2


PART
I. FINANCIAL INFORMATION





ITEM
1.   FINANCIAL STATEMENTS





SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





January
      31,
                                      
                                      
                                      April
      30,2009
                                      
                                      
                                      2008(Unaudited)ASSETSCash
      and cash equivalents
                                      
                                      $
                                      7,810
                                      
                                      
                                      $
                                      68,462RISC
      loan receivables, net of reserve of $96,972 and $86,312 respectively (NOTE
      D)
                                      
                                      
                                      3,811,034
                                      
                                      
                                      
                                      4,260,002Motorcycles
      and other vehicles under operating leases net of accumulated depreciation
      of $256,866 and $336,100 respectively, and loss reserve of $18,898 and
      $25,231 respectively (NOTE B)
                                      
                                      
                                      734,205
                                      
                                      
                                      
                                      1,251,631Purchased
      portfolio (NOTE G)
                                      
                                      
                                      82,554
                                      
                                      
                                      
                                      -Interest
      receivable
                                      
                                      
                                      56,405
                                      
                                      
                                      
                                      58,382Accounts
      receivable
                                      
                                      
                                      157,858
                                      
                                      
                                      
                                      37,024Inventory
      (NOTE C)
                                      
                                      
                                      68,437
                                      
                                      
                                      
                                      79,069Property
      and equipment, net of accumulated depreciation and amortization of
      $143,425 and $129,986 respectively (NOTE E)
                                      
                                      
                                      47,822
                                      
                                      
                                      
                                      61,261Deferred
      financing cost, net of amortization of $30,316 (NOTE K)
                                      
                                      
                                      697,259
                                      
                                      
                                      
                                      -Restricted
      cash
                                      
                                      
                                      410,930
                                      
                                      
                                      
                                      444,902Deposits
                                      
                                      
                                      48,967
                                      
                                      
                                      
                                      48,967Total
      assets
                                      
                                      $
                                      6,123,280
                                      
                                      
                                      $
                                      6,309,879LIABILITIES
      AND DEFICIENCY IN STOCKHOLDERS’ EQUITYLiabilities:Bank
      overdraft
                                      
                                      $
                                      57,378
                                      
                                      
                                      $
                                      -Accounts
      payable
                                      
                                      
                                      1,104,630
                                      
                                      
                                      
                                      916,152Interest
      payable
                                      
                                      
                                      385,657
                                      
                                      
                                      
                                      242,422Other
      accrued expenses
                                      
                                      
                                      389,361
                                      
                                      
                                      
                                      305,559Notes
      payable-Senior Lender (NOTE F)
                                      
                                      
                                      4,194,814
                                      
                                      
                                      
                                      5,029,864Secured
      Senior note payable, net (NOTE G)
                                      
                                      
                                      107,195
                                      
                                      
                                      
                                      -Convertible
      Notes payable (NOTE H)
                                      
                                      
                                      3,185,559
                                      
                                      
                                      
                                      2,665,359Notes
      payable-other (NOTE I)
                                      
                                      
                                      1,556,000
                                      
                                      
                                      
                                      1,147,500Loans
      payable-related parties (NOTE J)
                                      
                                      
                                      378,260
                                      
                                      
                                      
                                      244,760Other
      liabilities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6,741Deferred
      revenue
                                      
                                      
                                      14,400
                                      
                                      
                                      
                                      22,617Total
      liabilities
                                      
                                      
                                      11,373,255
                                      
                                      
                                      
                                      10,580,974Deficiency
      in Stockholders’ Equity:Preferred
      stock, $.001 par value; 10,000,000 shares authorized of which 35,850
      shares have been designated as Series A convertible preferred stock, with
      a stated value of $100 per share, 825 and 825 shares issued and
      outstanding, respectively
                                      
                                      
                                      82,500
                                      
                                      
                                      
                                      82,500Common
      stock, $.001 par value; 340,000,000 shares authorized, 167,422,291 and
      130,798,657 shares issued and outstanding, respectively
                                      
                                      
                                      167,422
                                      
                                      
                                      
                                      130,799Common
      stock to be issued, 16,045,733 and 12,160,210 shares,
      respectively
                                      
                                      
                                      16,046
                                      
                                      
                                      
                                      12,160Additional
      paid-in-capital
                                      
                                      
                                      20,387,915
                                      
                                      
                                      
                                      17,727,889Accumulated
      deficit
                                      
                                      
                                      (25,903,859
                                      )
                                      
                                      
                                      (22,224,442
                                      )Total
      deficiency in stockholders’ equity
                                      
                                      
                                      (5,249,976
                                      )
                                      
                                      
                                      (4,271,095
                                      )Total
      liabilities and deficiency in stockholders’ equity
                                      
                                      $
                                      6,123,280
                                      
                                      
                                      $
                                      6,309,879





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


3


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


FOR
THE THREE AND NINE MONTHS ENDED JANUARY 31, 2009 AND 2008


(UNAUDITED)





For
      the Three Months Ended
                                                    January
      31,
                                                  
                                                  
                                                  For
      the Nine Months Ended
                                                    January
      31,2009
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2009
                                                  
                                                  
                                                  2008Revenue:Rental
      Income, Leases
                                                  
                                                  $
                                                  70,235
                                                  
                                                  
                                                  $
                                                  100,612
                                                  
                                                  
                                                  $
                                                  238,573
                                                  
                                                  
                                                  $
                                                  302,953Interest
      Income, Loans
                                                  
                                                  
                                                  184,405
                                                  
                                                  
                                                  
                                                  153,685
                                                  
                                                  
                                                  
                                                  582,113
                                                  
                                                  
                                                  
                                                  446,338Other
                                                  
                                                  
                                                  23,628
                                                  
                                                  
                                                  
                                                  34,309
                                                  
                                                  
                                                  
                                                  153,551
                                                  
                                                  
                                                  
                                                  116,240278,268
                                                  
                                                  
                                                  
                                                  288,605
                                                  
                                                  
                                                  
                                                  974,237
                                                  
                                                  
                                                  
                                                  865,532Operating
      expenses:General
      and administrative
                                                  
                                                  
                                                  886,927
                                                  
                                                  
                                                  
                                                  683,698
                                                  
                                                  
                                                  
                                                  3,228,507
                                                  
                                                  
                                                  
                                                  2,950,249Depreciation
      and amortization
                                                  
                                                  
                                                  44,361
                                                  
                                                  
                                                  
                                                  67,930
                                                  
                                                  
                                                  
                                                  153,532
                                                  
                                                  
                                                  
                                                  218,755Total
      operating expenses
                                                  
                                                  
                                                  931,289
                                                  
                                                  
                                                  
                                                  751,628
                                                  
                                                  
                                                  
                                                  3,382,039
                                                  
                                                  
                                                  
                                                  3,169,004Loss
      from operations
                                                  
                                                  
                                                  (653,020
                                                  )
                                                  
                                                  
                                                  (463,023
                                                  )
                                                  
                                                  
                                                  (2,407,802
                                                  )
                                                  
                                                  
                                                  (2,303,472
                                                  )Other
      expense:Interest
      expense and financing cost, net
                                                  
                                                  
                                                  (315,597
                                                  )
                                                  
                                                  
                                                  (335,207
                                                  )
                                                  
                                                  
                                                  (1,267,831
                                                  )
                                                  
                                                  
                                                  (749,521
                                                  )Change
      in value of warrant liabilities
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  202
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  202Net
      loss
                                                  
                                                  
                                                  (968,617
                                                  )
                                                  
                                                  
                                                  (798,028
                                                  )
                                                  
                                                  
                                                  (3,675,633
                                                  )
                                                  
                                                  
                                                  (3,052,791
                                                  )Preferred
      dividend
                                                  
                                                  
                                                  1,261
                                                  
                                                  
                                                  
                                                  16,797
                                                  
                                                  
                                                  
                                                  3,784
                                                  
                                                  
                                                  
                                                  26,022Net
      loss attributed to common stockholders
                                                  
                                                  $
                                                  (969,878
                                                  )
                                                  
                                                  $
                                                  (814,825
                                                  )
                                                  
                                                  $
                                                  (3,679,417
                                                  )
                                                  
                                                  $
                                                  (3,078,813
                                                  )Basic
      and diluted loss per share
                                                  
                                                  $
                                                  (0.01
                                                  )
                                                  
                                                  $
                                                  (0.01
                                                  )
                                                  
                                                  $
                                                  (0.02
                                                  )
                                                  
                                                  $
                                                  (0.02
                                                  )Basic
      and diluted loss per share attributed tocommon
      stockholders
                                                  
                                                  $
                                                  (0.01
                                                  )
                                                  
                                                  $
                                                  (0.01
                                                  )
                                                  
                                                  $
                                                  (0.02
                                                  )
                                                  
                                                  $
                                                  (0.02
                                                  )Weighted
      average shares outstanding
                                                  
                                                  
                                                  163,047,625
                                                  
                                                  
                                                  
                                                  127,361,318
                                                  
                                                  
                                                  
                                                  156,183,425
                                                  
                                                  
                                                  
                                                  125,378,693





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


4


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE NINE MONTHS ENDED JANUARY 31, 2009 AND 2008


(UNAUDITED)




Nine
      Months EndedJanuary
      31,2009
                                          
                                          
                                          2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                          
                                          $
                                          (3,679,417
                                          )
                                          
                                          $
                                          (3,078,813
                                          )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                          
                                          
                                          153,533
                                          
                                          
                                          
                                          119,682Allowance
      for loss reserve
                                          
                                          
                                          4,326
                                          
                                          
                                          
                                          49,580Amortization
      of deferred revenue
                                          
                                          
                                          (8,217
                                          )
                                          
                                          
                                          (11,550
                                          )Amortization
      of deferred financing cost
                                          
                                          
                                          30,316
                                          
                                          
                                          
                                          -Amortization
      of deferred compensation
                                          
                                          
                                          -
                                          
                                          
                                          
                                          24,000Beneficial
      conversion discount
                                          
                                          
                                          325,000
                                          
                                          
                                          
                                          -Equity
      based compensation
                                          
                                          
                                          1,040,324
                                          
                                          
                                          
                                          439,511Stock
      based finance cost
                                          
                                          
                                          416,469
                                          
                                          
                                          
                                          334,225Forgiveness
      of dividends payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          224,163Changes
      in operating assets and liabilities:(Increase)
      decrease in:Receivables
                                          
                                          
                                          1,977
                                          
                                          
                                          
                                          (21,026
                                          )Prepaid
      expenses and other assets
                                          
                                          
                                          (147,702
                                          )
                                          
                                          
                                          (41,145
                                          )Restricted
      cash
                                          
                                          
                                          33,973
                                          
                                          
                                          
                                          (112,604
                                          )Increase
      (decrease) in:Accounts
      payable and accrued expenses
                                          
                                          
                                          499,716
                                          
                                          
                                          
                                          (85,243
                                          )Deferred
      revenue
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (8,748
                                          )Net
      cash used in operating activities
                                          
                                          
                                          (1,329,702
                                          )
                                          
                                          
                                          (2,167,968
                                          )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from (Payments for) motorcycles and other vehicles
                                          
                                          
                                          383,666
                                          
                                          
                                          
                                          (199,604
                                          )Proceeds
      from (Purchase of) RISC contracts
                                          
                                          
                                          438,309
                                          
                                          
                                          
                                          (1,114,317
                                          )Purchases
      of portfolio
                                          
                                          
                                          (82,554
                                          )
                                          
                                          
                                          -Net
      cash provided by (used in) investing activities
                                          
                                          
                                          739,421
                                          
                                          
                                          
                                          (1,313,921
                                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      payments for finance closing costs
                                          
                                          
                                          (727,575
                                          )
                                          
                                          
                                          -Net
      (repayment to) proceeds from notes from banks
                                          
                                          
                                          (835,050
                                          )
                                          
                                          
                                          1,455,603Net
      proceeds from convertible notes
                                          
                                          
                                          1,348,000
                                          
                                          
                                          
                                          1,200,500Net
      proceeds from other notes
                                          
                                          
                                          408.500
                                          
                                          
                                          
                                          765,000Net
      loan proceeds from other related parties
                                          
                                          
                                          133,500
                                          
                                          
                                          
                                          40,000Net
      proceeds from secured note
                                          
                                          
                                          144,695
                                          
                                          
                                          
                                          -Net
      cash provided in financing activities
                                          
                                          
                                          472,070
                                          
                                          
                                          
                                          3,461,103Net
      (decrease) in cash
                                          
                                          
                                          (118,211
                                          )
                                          
                                          
                                          (20,786
                                          )Cash
      and cash equivalents, beginning of period
                                          
                                          
                                          68,642
                                          
                                          
                                          
                                          22,031Cash
      and cash equivalents, end of period
                                          
                                          $
                                          (49,569
                                          )
                                          
                                          $
                                          1,247Cash
      paid for:Interest
                                          
                                          $
                                          260,106
                                          
                                          
                                          $
                                          452,840Income
      Taxes
                                          
                                          $
                                          1,368
                                          
                                          
                                          $
                                          6,715Non-cash
      transactions:Common
      stock issued in satisfaction of debt
                                          
                                          $
                                          1,027,800
                                          
                                          
                                          
                                          -





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


5


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(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 Company is in the business as an originator and
indirect lender for retail installment loan and lease financing for the purchase
or lease of new or used motorcycles (specifically 55,000 and higher) and
utility-oriented 4-stroke all terrain vehicles (ATVs).





The
accompanying unaudited condensed consolidated financial statements as of January
31, 2009 and for the three and nine month periods ended January 31, 2009 and
2008 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, 2008 as disclosed in the
Company's 10-KSB for that year as filed with the SEC.





The
results of the three and nine months ended January 31, 2009 are not necessarily
indicative of the results to be expected for the full year ending April 30,
2009.





On
December 10, 2008, we formed Sparta Funding LLC, a Delaware limited liability
company, for which we are the sole member.





Estimates





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





Revenue
Recognition





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





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.  Interest income on these loans
is recognized when it is earned.


6


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





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





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





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





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





Stock Based
Compensation





The
Company adopted SFAS No. 123(R) during third quarter of fiscal year 2006, which
no longer permits the use of the intrinsic value method under APB No. 25. The
Company uses the modified prospective method to adopt SFAS No. 123(R), which
requires compensation expense to be recorded for all stock-based compensation
granted on or after January 1, 2006, as well the unvested portion of previously
granted options. The Company is recording the compensation expense on a
straight-line basis, generally over the explicit service period of three to five
years. The Company made no stock-based compensation grants prior to the adoption
of SFAS No. 123(R) and therefore has no unrecognized stock compensation related
liabilities or expense unvested or vested prior to 2006.





Net Loss Per
Share





The
Company uses Statement of Financial Accounting Standards (SFAS) No. 128,
"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. Diluted loss per share is computed similar to basic loss per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
shares had been issued and if the additional shares were dilutive. Common
equivalent shares are excluded from the computation of net loss per share if
their effect is anti-dilutive.





Per share
basic and diluted net loss attributable to common stockholders amounted to $0.01
and $0.01 for the three months ended January 31, 2009 and 2008, respectively,
and $0.02 and $0.02 for the nine months ended January 31, 2009 and 2008,
respectively. At January 31, 2009 and 2008, 35,536,084 and 25,293,361 potential
shares, respectively, were excluded from the shares used to calculate diluted
earnings per share as their inclusion would reduce net loss per
share.


7


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





New Accounting
Pronouncements





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
No. 141(R)”), which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption is
prohibited and the Company is currently evaluating the effect, if any, that the
adoption will have on its financial position results of operations or cash
flows.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in
Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”), which will
change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity within the balance sheets. SFAS No. 160 is effective as of the beginning
of the first fiscal year beginning on or after December 15, 2008. Earlier
adoption is prohibited and the Company is currently evaluating the effect, if
any, that the adoption will have on its financial position results of operations
or cash flows.





In June
2007, the Accounting Standards Executive Committee issued Statement of Position
07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment
Companies and Accounting by Parent Companies and Equity Method Investors for
Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance
for determining whether an entity is within the scope of the AICPA Audit and
Accounting Guide Investment Companies (the “Audit Guide”). SOP 07-1 was
originally determined to be effective for fiscal years beginning on or after
December 15, 2007, however, on February 6, 2008, FASB issued a final Staff
Position indefinitely deferring the effective date and prohibiting early
adoption of SOP 07-1 while addressing implementation issues.





In
December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (“EITF 07-1”). EITF 07-1 defines
collaborative arrangements and requires collaborators to present the result of
activities for which they act as the principal on a gross basis and report any
payments received from (made to) the other collaborators based on other
applicable authoritative accounting literature, and in the absence of other
applicable authoritative literature, on a reasonable, rational and consistent
accounting policy is to be elected. EITF 07-1 also provides for disclosures
regarding the nature and purpose of the arrangement, the entity’s rights and
obligations, the accounting policy for the arrangement and the income statement
classification and amounts arising from the agreement. EITF 07-1 will be
effective for fiscal years beginning after December 15, 2008, which will be the
Company’s fiscal year 2009, and will be applied as a change in accounting
principle retrospectively for all collaborative arrangements existing as of the
effective date. The Company has not yet evaluated the potential impact of
adopting EITF 07-1 on its financial position, results of operations or cash
flows.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment to FASB Statement No. 133” (“SFAS No.
161”).  SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows.  Entities are
required to provide enhanced disclosures about: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations; and (c)
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged.  The Company is currently evaluating
the impact of SFAS No. 161, if any, will have on its financial position, results
of operations or cash flows.


8


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets”.  This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and
Other Intangible Assets”.  The Company is required to adopt FSP 142-3
on September 1, 2009, and earlier adoption is prohibited.  The
guidance in FSP 142-3 for determining the useful life of a recognized intangible
asset shall be applied prospectively to intangible assets acquired after
adoption, and the disclosure requirements shall be applied prospectively to all
intangible assets recognized as of, and subsequent to, adoption.  The
Company is currently evaluating the impact of FSP 142-3 on its financial
position, results of operations or cash flows.





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





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





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.





Reclassification





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


9


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE
B - MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING LEASES





Motorcycles
and other vehicles under operating leases at January 31, 2009 and April 30, 2008
consist of the following:





January
      31,
                          2009
                        
                        
                        April
      30,
                          2008Motorcycles
      and other vehicles
                        
                        $
                        1,009,970
                        
                        
                        $
                        1,612,962Less: accumulated
      depreciation
                        
                        
                        (256,867
                        )
                        
                        
                        (336,100
                        )Motorcycles
      and other vehicles, net of accumulated depreciation
                        
                        
                        753,103
                        
                        
                        
                        1,276,862Less: estimated reserve
      for residual values
                        
                        
                        (18,898
                        )
                        
                        
                        (25,231
                        )Motorcycles
      and other vehicles under operating leases, net
                        
                        $
                        734,205
                        
                        
                        $
                        1,251,631




Depreciation
expense for vehicles for the three and nine months ended January 31, 2009 was
$39,882 and $140,094, respectively. Depreciation expense for vehicles for the
three and nine months ended January 31, 2008 was $59,515 and $190,315,
respectively.





NOTE
C - INVENTORY





Inventory
is comprised of repossessed vehicles and vehicles which have been returned at
the end of their lease. Inventory is carried at the lower of depreciated cost or
market, applied on a specific identification basis. At January 31, 2009, the
Company had repossessed vehicles of value $68,437, which will be
resold.





NOTE
D - RETAIL (RISC) LOAN RECEIVABLES





RISC loan
receivables, which are carried at cost, were $3,908,006 and $4,346,315 at
January 31, 2009 and April 30, 2008, respectively, including deficiency
receivables of $29,112 and $30,397, respectively. The following is a schedule by
years of future principal payments related to these
receivables.





12
      Months Ending
                                  January
      31,
                                
                                Amount2010
                                
                                $
                                939,7682011
                                
                                
                                1,093,2292012
                                
                                
                                1,055,1692013
                                
                                
                                675,6862014
                                
                                
                                144,153$
                                3,908,006Less:
      allowance for doubtful receivables
                                
                                
                                (96,972
                                )Net
      receivables
                                
                                $
                                3,811,034




10


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE
E - PROPERTY AND EQUIPMENT





Property
and equipment at January 31, 2009 and April 30, 2008 consist of the
followings:




January
      31,
                                  2009
                                
                                April
      30,
                                  2008Computer
      equipment, software and furniture
                                
                                $
                                191,247
                                
                                191,247Less:
      accumulated depreciation and amortization
                                
                                
                                (143,425)
                                
                                (129,986
                                )Net
      property and equipment
                                
                                $
                                47,822
                                
                                61,261





Depreciation
expense was $4,479 and $13,439 for the three and nine months ended January 31,
2009, respectively. Depreciation and amortization expense was $8,415 and $28,441
for the three and nine months ended January 31, 2008, respectively.





NOTE
F - NOTES PAYABLE TO SENIOR LENDER





The
Company finances certain of its leases through a third party. The repayment
terms are generally one year to five years and the notes are secured by the
underlying assets. The weighted average interest rate at January 31, 2009 is
10.42%.





At
January 31, 2009, the notes payable mature as follows:





12
      Months EndingJanuary
      31,
                            
                            Amount2010
                            
                            $
                            1,230,7852011
                            
                            
                            1,133,6642012
                            
                            
                            1,040,7952013
                            
                            
                            644,5592014
                            
                            
                            145,012Total
                            
                            $
                            4,194,814





Notes
payable to Senior Lender at April 30, 2008 were $5,029,864.





NOTE
G - PURCHASED PORTFOLIO AND SECURED SENIOR NOTE





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





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


11


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE
G - PURCHASED PORTFOLIO AND SECURED SENIOR NOTE (continued)





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
January 31, 2009, the Company carries the Purchased Portfolio at $82,554
representing its $100,000 cost, which is less than its estimated market value,
less collections through the period. The Company and carries the liability for
the Senior Secured Note at $107,195, which is net of note reductions and is net
of $37,500 in deferred financing costs that is being amortized over the
estimated one-year term of the Senior Secured Note.





NOTE
H – CONVERTIBLE NOTES PAYABLE





Convertible
      Notes Payable
                        
                        January
      31,
                          2009
                        
                        
                        April
      30,
                          20086%
      Convertible Notes, due various dates from April 22, 2008 to March 31,
      2009
                        
                        $
                        1,853,059
                        
                        
                        $
                        2,625,3596.5%
      Convertible Notes, due various dates from March 31, 2009
      toMay
      20, 2009
                        
                        
                        410,000
                        
                        
                        
                        -9%
      Convertible Note, due March 31, 2009
                        
                        
                        40,000
                        
                        
                        
                        40,0008%
      Convertible Notes, due various dates from March 25, 2009 to May15,
      2009
                        
                        
                        477,500
                        
                        
                        
                        -10%
      Convertible Note, on March 31, 2009
                        
                        
                        405,000
                        
                        
                        
                        -Total
                        
                        $
                        3,185,559
                        
                        
                        $
                        2,665,359





As of
January 31, 2009, an aggregate of $424,000 of Convertible Notes Payable
were past due.









During
the nine months ended January 31, 2009, the Company borrowed $400,000 in 10%
short term unsecured notes with due dates from July 19, 2008 to March 31,
2009 of which $50,000 has been repaid in the period.  At the
option of the note holder, the notes are convertible at a conversion price based
upon a price equal to a 40% discount from the lowest closing price of the
Company’s common Stock for the five trading days immediately preceding the
receipt of funds by the Company from the purchaser of note.





In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company recognized an embedded
beneficial conversion feature present in the notes. The Company allocated a
portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital. The Company recognized and measured an aggregate of
$318,182 of the proceeds, which is equal to the intrinsic value of the embedded
beneficial conversion feature, to additional paid-in capital and a discount
against the notes. The debt discount attributed to the beneficial conversion
feature was expensed during the three months ended July 31, 2008.





During
the nine months ended January 31, 2009, the Company sold short-term unsecured
notes in the aggregate amount of $410,000. The notes bear 6.5% simple interest,
payable in cash or shares, at the Company’s option, with principal and accrued
interest payable at maturity. Should the Company opt to convert these notes at
maturity, these notes will be convertible into shares of common stock at prices
ranging from $0.013 to $0.06 per share. The notes will mature on various dates
through May 20, 2009.


12


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE
H – CONVERTIBLE NOTES PAYABLE (continued)





During
the nine months ended January 31, 2009, the Company sold short-term unsecured
notes in the aggregate amount of $82,500. The notes bear 6% simple interest,
payable in cash or shares, at the Company’s option, with principal and accrued
interest payable at maturity. Should the Company opt to convert these notes at
maturity, these notes will be convertible into shares of common stock at prices
ranging from $0.05 to $0.07 per share. Notes for $30,000 matured in November
2009 and the other notes will mature on March 31, 2009.





During
the nine months ended January 31, 2009, the Company sold four-month unsecured
notes in the aggregate amount of $477,500. The notes bear 8% simple interest,
payable in cash or shares, at the Company’s option, with principal and accrued
interest payable at maturity. Should the Company opt to convert these notes at
maturity, these notes will be convertible into shares of common stock at prices
ranging from $0.013 to $0.042 per share. The notes will mature on various dates
through May 15, 2009.





During
the nine months ended January 31, 2009, the Company sold four-month unsecured
notes in the aggregate amount of $55,000. The notes bear 10% simple interest,
payable in cash or shares, at the Company’s option, with principal and accrued
interest payable at maturity. Should the Company opt to convert these notes at
maturity, these notes will be convertible into shares of common stock at prices
ranging from $0.014 to $0.034 per share. The notes will mature in four months on
various dates through March 31, 2009.





During
the quarter ended July 31, 2008, the Company issued 723,684 shares of common
stock, valued at $29,205, in lieu of cash as interest for convertible notes
which were converted during the quarter. Additionally, the Company issued
16,941,072 shares of common stock, valued at $700,000, upon conversion of
$700,000 in convertible notes.





During
the quarter ended January 31, 2009, the Company issued 227,068 shares of common
stock, valued at $6,812.05, in lieu of cash as interest for convertible notes
which were converted during the quarter. Additionally, the Company issued
3,773,148 shares of common stock, valued at $127,800, upon conversion of
$127,800 in convertible notes.


13




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)




NOTE
I - NOTES PAYABLE - OTHER




Notes Payable - Other
                    
                    January 31,
                      2009
                    
                    
                    April 30,
                      20086%
      Bridge Loan, due March 31, 2009
                    
                    $
                    75,000
                    
                    
                    $
                    75,0008%
      Note, due March 31, 2009
                    
                    
                    40,000
                    
                    
                    
                    40,0008%
      Demand Notes
                    
                    
                    485,000
                    
                    
                    
                    375,00010%
      Bridge Loans, due March 31, 2009
                    
                    
                    321,000
                    
                    
                    
                    275,00010%
      Notes, due various dated from January 15, 2009 to March 31,
      2009
                    
                    
                    107,500
                    
                    
                    
                    232,50012%
      Notes due March 31, 2009
                    
                    
                    145,000
                    
                    
                    
                    150,00012%
      Bridge Notes due November 2, 2008 to January 1, 2009
                    
                    
                    162,500
                    
                    
                    
                    012.46%
      Collateralized note due October 29, 2010
                    
                    
                    220,000
                    
                    
                    
                    0Total
                    
                    $
                    1,556,000
                    
                    
                    $
                    1,147,500





As of
January 31, 2009, an aggregate amount of $117,500 of Notes Payable Other was
past due.





A 12%
Note in the amount of $100,000 issued in September 2008, of which $7,500 has
been repaid leaving a balance of $92,500 which is currently past due. In the
event of default on repayment by the Borrower, the Default interest rate on the
unpaid principal balance shall be increased to an annual rate of twenty (20%)
percent. Additionally, In the event of default on repayment by the Borrower, the
number of Commitment Shares issued to the Holder shall be increased by twenty
(20%) percent for each month or portion thereof that such default has not been
cured.





During
the nine months ended January 31, 2009, the Company sold an unsecured demand
note in the amount of $110,000. The note bears 8% simple interest and the
interest may be paid in cash or shares of the Company. The principal and
interest owing thereon will become due and payable immediately in the event of
default on repayment by the Company.





During
the nine months ended January 31, 2009, the Company repaid $99,000 of 10% Bridge
notes and issued 1,634,662 shares of its common stock valued at $.0336 per share
in lieu of cash for the $54,925 accrued interest thereon.





During
the nine months ended January 31, 2009, the Company sold unsecured notes in the
aggregate amount of $70,000. The notes bear 10% simple interest and the interest
may be paid in cash or shares of the Company. The principal and interest owing
thereon will become due and payable immediately in the event of default on
repayment by the Company. The notes mature in two months on various dates
through March 31, 2009.




14




SPARTA
COMMERCIAL SERVICES, INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JANUARY
31, 2009
 (UNAUDITED)




NOTE I - NOTES PAYABLE – OTHER
(continued)




During
the nine months ended January 31, 2009, the Company sold unsecured Bridge notes
in the aggregate amount of $130,000 and authorized the issuance of 520,000
shares of its common stock valued at $37,800 as inducements for the loans. The
notes bear 10% simple interest and the interest may be paid in cash or shares of
the Company. The principal and interest owing thereon will become due and
payable immediately in the event of default on repayment by the Company. The
notes mature in four months on various dates through May 26, 2009.





During
the nine months ended January 31, 2009, the Company sold an unsecured bridge
note in the amount of $20,000. The note bears 10% simple interest and the
interest may be paid in cash or shares of the Company. The principal and
interest owing thereon will become due and payable immediately in the event of
default on repayment by the Company. The note matures on March 31,
2009.





During
the nine months ended January 31, 2009, the Company sold an unsecured note in
the aggregate amount of $25,000 and authorized the issuance of 100,000 shares of
its common stock valued at $7,000 as inducement for the loan. The note bears 10%
simple interest. The principal and interest owing thereon will become due and
payable immediately in the event of default on repayment by the Company. The
note matured on January 15, 2009.


15


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)




NOTE
I - NOTES PAYABLE – OTHER (continued)





Additionally,
during the nine months ended January 31, 2009, one 10% note in the amount of
$200,000, plus accrued interest thereon in the amount of $16,931.51, were
converted into 3,615,523 shares of common stock. As of December 15, 2008, these
shares have not been issued.





During
the nine months ended January 31, 2009, the Company sold unsecured notes in the
amount of $170,000 of which $7,500 was repaid. The notes bear 12% simple
interest. The notes mature in two months on various dates through November 2,
2008.





During
the nine months ended January 31, 2009, the Company sold a secured note in the
amount of $220,000. The notes bear 12.46% simple interest. The note matures on
October 29, 2010 and is secured by a second lien on a pool of
motorcycles.





NOTE
J - LOANS PAYABLE TO RELATED PARTIES





During
the nine months ended January 31, 2009, the Company borrowed $136,000 from a
Director on a demand basis without interest and repaid $2,500 to one officer. As
of January 31, 2009, aggregated loans payable to officers and Directors were
$378,260.




NOTE
K -  REVOLVING CREDIT AGREEMENT





On
December 19, 2008, our wholly owned subsidiary, Sparta Funding LLC, entered into
a one year, extendable revolving secured credit agreement with Autobahn Funding
Company LLC as Lender and DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ
Bank”) as Administrative Agent and Liquidity Agent in the amount of $25,000,000
for the purpose of financing retail installment sales contracts and leases
secured by new and used powersports vehicles (motorcycles over 600cc, select
scooters and ATVs). Additionally, a portion of this facility can be used to
finance municipal and commercial fleet leases.  Prior to the initial
drawdown from the facility,  the Company is required to meet certain
financial covenants. As of January 31, 2009, the Company has not met those
covenants.





During
the three months ended January 31, 2009, the Company incurred financing closing
cost of $727,575 related to the above revolving credit agreement.  The
Company anticipates satisfying the financial covenants required to begin drawing
on the facility and therefore is amortizing the deferred financing costs over
the expected two year term of the revolving credit agreement. However, there can
be no assurance that the financial covenants can be satisfied. The amortization
expenses on deferred financing cost was $30,316 for the three and nine months
ended January 31, 2009.





NOTE L – EQUITY
TRANSACTIONS





The
Company is authorized to issue 10,000,000 shares of preferred stock with $0.001
par value per share and $100 stated value per share, of which 35,850 shares have
been designated as Series A convertible preferred stock, and 340,000,000 shares
of common stock with $0.001 par value per share. As of January 31, 2009 and
April 30, 2008, the Company had 825 shares of Series A preferred stock issued
and outstanding. As of January 31, 2009 and April 30, 2008, the Company had
167,422,291 and 130,798,657 shares of common stock issued and outstanding,
respectively.





Preferred Stock Series
A





On July
20, 2007, one shareholder holding 16,745 shares of Series A preferred stock
converted those shares into 10,733,974 shares of common stock and forgave
$215,253 in accumulated but unpaid dividends on the preferred shares. On January
31, 2008, three shareholders holding 2,225 shares of preferred stock converted
those shares into 1,426,230 shares of common stock. The 12,160,204 shares of
common stock issuable upon conversion of the preferred shares had not been
physically issued as of January 31, 2009.





Common
Stock





During
the nine months ended January 31, 2009 and 2008, the Company expensed $1,456,793
and $773,736, respectively, for non-cash charges related to stock and option
compensation expense.





During
the nine months ended January 31, 2009, the Company issued 940,000 shares of
common stock valued at $60,600 as inducements for loans which amount was
expensed as financing cost. During the nine months ended January 31, 2009, the
Company issued 4,384,000 shares of common stock, valued at $314,140, as
penalties for loans.  During the nine months ended January 31, 2009,
the Company issued 2,585,420 shares of common stock, valued at $90,942, in lieu
of cash as interest for bridge and convertible loans. During the nine months
ended January 31, 2009, the Company issued 16,941,070 shares of common stock,
valued at $700,000, upon conversion of $700,000 in convertible notes resulting
in an increase in additional-paid-in capital of $683,059. During the nine months
ended January 31, 2009, the Company issued 3,773,147 shares of common stock,
valued at $127,800, upon conversion of $127,800 in convertible notes resulting
in an increase in additional-paid-in capital of
$124,027.


16


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JANUARY
31, 2009


(UNAUDITED)





NOTE L – EQUITY TRANSACTIONS
(continued)





During
the nine months ended January 31, 2009, the Company issued 1,500,000 shares of
common stock valued at $90,000 to three individuals who are members of the
Company’s Advisory Council.





During
the nine months ended January 31, 2009, pursuant to agreements with two investor
relations consultants, the Company issued 6,500,000 shares of common stock
valued at $550,000.





During
the nine months ended January 31, 2009, the Company agreed to issued 3,333,333
shares of common stock, valued at $200,000, upon conversion of $200,000 of
Bridge notes and the Company agreed to issue 282,190 shares of common stock,
valued at $16,932, in lieu of cash as interest for the Bridge notes resulting in
an increase in additional-paid-in capital of $223,316.  These shares
had not been issued as of January 31, 2009.





NOTE
M – SUBESQUENT EVENTS





In
February 2009, a holder of 200 shares of preferred stock requested the
conversion of its’ preferred shares, according to the terms of the preferred
stock, into 128,210 shares of common stock.





In
February, the Company borrowed $33,000 on a demand basis with interest at
8%.





During
February and March 2009, the Company sold four-month unsecured notes in the
aggregate amount of $145,000. The notes bear 8% simple interest, payable in cash
or shares, at the Company’s option, with principal and accrued interest payable
at maturity. Should the Company opt to convert these notes at maturity, these
notes will be convertible into shares of common stock at prices ranging from
$0.02 to $0.05 per share. The notes will mature in six months on various dates
through July 2, 2009.





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 financial statements during the period October 1, 2001 (date
of inception) through January 31, 2009, the Company incurred losses of
$25,903,859. Of these losses, $3,679,417 were incurred in the nine months ending
January 31, 2009 and $3,708,813 in the nine months ending January 31, 2008.
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 provide cash from
financing activities and develop profitable operations. Management is devoting
substantially all of its efforts to developing its business and raising capital
and there can be no assurance that the Company’s efforts will be successful.
However, there can be no assurance 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 seeking to begin
drawing on its revolving credit agreement (see Note K) by actively pursuing
additional equity financing through discussions with investment bankers and
private investors and the US Government. There can be no assurance the Company
will be successful in its effort to secure additional equity
financing.


17


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, 2008 as disclosed in our annual report on Form 10-K for that year as
filed with the SEC.





"FORWARD-LOOKING"
INFORMATION





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





RESULTS
OF OPERATIONS





COMPARISON
OF THE THREE MONTHS ENDED JANUARY 31, 2009 TO THE THREE MONTHS ENDED JANUARY 31,
2008





For the
three months ended January 31, 2009 and 2008, we have generated limited, but
increasing, sales revenues, have incurred significant expenses, and have
sustained significant losses. We believe we will continue to earn increasing
revenues from operations during the remainder of fiscal 2009 and in the upcoming
fiscal year.





REVENUES





Revenues
totaled $278,268 during the three months ended January 31, 2009 as compared to
$288,605 during the three months ended January 31, 2008. Current period revenue
was comprised of $70,235 in lease revenue, $184,405 in loan revenue, $1,350 in
Private Label and Preferred Provider Program fees and $22,278 in other income.
Prior period revenue was comprised primarily of $100,612 in lease revenue,
$153,685 in loan revenue, $3,850 in Private Label and Preferred Provider Program
fees and $30,459 in other income.





COSTS
AND EXPENSES





General
and administrative expenses were $886,927 during the three months ended January
31, 2009, compared to $683,698 during the three months ended January 31, 2008,
an increase of $203,230 or 29.7%. Expenses incurred during the current three
month period consisted primarily of the following expenses: Rent, utilities and
Telecom $371,445; Accounting, audit and professional fees, $48,597; Consulting
fees, $48,475; Rent, utilities and telecom, $89,371, Travel and meals and
entertainment, $7,070 and Advertising, Marketing and Website expenses of $6,608.
Expenses incurred during the comparative three month period in 2008 consisted
primarily of the following expenses: Compensation and related costs, $385,540;
Accounting, audit and professional fees, $44,410; Consulting fees, $34,348; Rent
and utilities, $66,670, Travel and entertainment, $14,600 and Marketing expenses
of $4,134.





We
incurred non-cash charges of $186,043 during the three months ended January 31,
2009, of which $125,636 is related to options and shares of common stock issued
for consulting fees and services, $55,407 is related to shares and warrants for
financing cost and $5,000 for stock based employee compensation. We incurred
non-cash charges of $236,598 during the three months ended January 31, 2008, of
which $69,703 is related to options and shares of common stock issued to
employees and $166,895 is related to shares and warrants for financing
cost.


18


NET
LOSS





We
incurred a net loss before preferred dividends of $968,617 for our three months
ended January 31, 2009 as compared to $798,028 for the corresponding interim
period in 2008. The $170,589 or 21.4% increase in our net loss before preferred
dividends for our three month interim period ended January 31, 2009 was
attributable primarily to a 3.6% decrease in revenue and a 27.9% increase in
operating expenses and a 14.9% decrease in interest expense and financing costs.
We also incurred non-cash preferred dividend expense of $1,261 for our three
month period ended January 31, 2009, compared with an expense of $16,797 in the
corresponding interim period of 2008.





Our net
loss after dividends attributable to common stockholders increased to $969,878
for our three month period ended January 31, 2009 as compared to $814,825 for
the corresponding period in 2008. The $155,053 increase in net loss attributable
to common stockholders for our three month period ended January 31, 2009 was due
to the $10,337 decrease in revenuers and the $209,977 in crease in operating
expenses, the $49,926 decrease in interest expenses and financing costs and the
$15,536 decrease in preferred dividend.





COMPARISON
OF THE NINE MONTHS ENDED JANUARY 31, 2009


TO
THE NINE MONTHS ENDED JANUARY 31, 2008





For the
nine months ended January 31, 2009 and 2008, we have generated limited, but
increasing, sales revenues, have incurred significant expenses, and have
sustained significant losses. We believe we will continue to earn increasing
revenues from operations during the remainder of fiscal 2009 and in the upcoming
fiscal year.





REVENUES





Revenues
totaled $974,237 during the nine months ended January 31, 2009 as compared to
$865,532 during the nine months ended January 31, 2008. Current period revenue
was comprised primarily of $238,573 in lease revenue, $582,113 in loan revenue,
$5,217 in Preferred Provider Program fees, and $148,334 in other income. Prior
period revenue was comprised primarily of $302,953 in lease revenue, $446,338 in
loan revenue, $23,550 in Preferred Provider Program fees, and $92,690 in other
income.





COSTS
AND EXPENSES





General
and administrative expenses were $3,228,507 during the nine months ended January
31, 2009, compared to $2,950,249 during the nine months ended January 31, 2008,
an increase of $278,258 or 9.4%. Expenses incurred during the current nine month
period consisted primarily of the following expenses: Compensation and related
costs, $1,124,479; Accounting, audit, legal and other professional fees,
$272,942; Consulting fees, $152,650; Rent and utilities, $287,500; Travel and
entertainment, $38,343 and Advertising and Marketing of $16,337. Expenses
incurred during the comparative nine month period in 2008 consisted primarily of
the following expenses: Compensation and related costs, $1,319,027; Accounting,
audit, legal and other professional fees, $206,003; Consulting fees, $300,897;
Rent and utilities, $212,617 Travel and entertainment, $53,198 and Advertising
and Marketing of  $18,729.





For the
nine months ended January 31, 2009, we had expensed non-cash costs of $396,804
related to shares and warrants granted in connection with debt financing,
$318,182 for beneficial discount on debt conversion privileges, $194,688 in
stock and options issued to employees and $645,449 in stock and warrants issued
to consultants. During nine months ending January 31, 2008, we recorded non-cash
income of $299,663 related to the decrease in value of warrants issued with
registration rights and other expenses. For the nine months ended January 31,
2008, we had expensed non-cash costs of $297,401 related to shares and warrants
granted in connection with debt financing, $217,311 in stock and options issued
to employees and $167,160 in stock and warrants issued to
consultants.


19


NET
LOSS





We
incurred a net loss before preferred dividends of $3,675,633 for our nine months
ended January 31, 2009 as compared to $3,052,791 for the corresponding interim
period in 2008. The $622,843 or 20.4% increase in our net loss before preferred
dividends for our nine month interim period ended January 31, 2009 was
attributable to a $108,705 or 12.6% increase in revenue, a $278,258 or 9.4%
increase in operating expenses and non-cash financing costs (of which there was
an $455,666 (118.5%) increase in non-cash equity based compensation), and a
$488,197 or 65.2% increase in interest expense and  non-cash financing
costs of which $418,306 was an 139.6% increase in non-cash financing
costs.





We also
incurred non-cash preferred dividend expense of $3,784 for our nine month period
ended January 31, 2009 as compared with a non-cash expense of $26,022 in the
corresponding interim period of 2008. The decrease in preferred dividend expense
primarily attributable to the conversion of preferred shares to common stock
during the nine month period ended January 31, 2009.





Our net
loss attributable to common stockholders of $3,679,417 for our nine month period
ended January 31, 2009 was $600,604 or 19.5% greater than the nine month period
ending January 31, 2008 due to the $108,705 (12.6%) increase in revenues, the
$278,258 (9.4%) increase in operating expenses (of which there was an $455,666
(118.5%) increase in non-cash equity based compensation),and the $488,197
(65.2%) increase in interest expense and financing cost of which $418,306 was an
139.6% increase in non-cash financing costs.





LIQUIDITY
AND CAPITAL RESOURCES





As of
January 31, 2009, we had a deficit net worth of $5,249,976. We generated a
deficit in cash flow from operations of $1,329,702 for the nine months ended
January 31, 2009. This deficit is primarily attributable to our net loss of
$3,679,417, partially offset by depreciation and amortization of $153,533,
$1,040,324 in equity based compensation, $416,469 in stock based finance costs,
$325,000 in beneficial conversion discount, and to changes in the balances of
current assets and liabilities. Accounts payable and accrued expenses increased
$499,716, and pre-paid expenses increased $147,702.





Cash
provided by investing activities for the nine months ended January 31, 2009 was
$739,421, primarily due to the net pay offs of RISC contracts of $438,309, of
leased motorcycles and vehicles of $383,666, and the net cost of purchased
portfolio of $82,554.





We met
our cash requirements during the nine month period through net proceeds from
convertible notes payable of $1,348,000, net proceeds from notes payable of
$408,500, loans payable to officers of $133,500, and net proceeds of secured
notes payable of $107,195. Additionally, we have received limited revenues from
leasing and financing motorcycles and other vehicles, private label programs and
from dealer sign-up fees and municipal lease origination fees.





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 January 31, 2009, we had
15 full time employees. If we fully implement our business plan, we anticipate
our employment base may increase by approximately 50% during the next twelve
months. As we continue to expand, we will incur additional cost for personnel.
This projected increase in personnel is dependent upon our generating revenues
and obtaining sources of financing. There is no guarantee that we will be
successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees.





While we
have raised capital to meet our working capital and financing needs in the past,
additional financing is required in order to meet our current and projected cash
flow deficits from operations and development. We are seeking financing, which
may take the form of debt, convertible debt or equity, in order to provide the
necessary working capital. There is no guarantee that we will be successful in
raising the funds required.


20


We
estimate that we will need to raise approximately $2,000,000 in additional funds
to fully implement our business plan during the next twelve months and for our
general operating expenses. As of January 31, 2009, we have do not have
sufficient operating capital to continue our planned business operations for the
next twelve months and for our general operating expenses.





The
Company obtained a senior credit facility in July 2005, which was subsequently
renewed.  In August 2008, reflective of the current restrictive credit
environment, this lender severely tightened its lending criteria which, in turn,
has caused us to tighten our credit criteria, thereby severely limiting our
ability to purchase RISC Contracts and purchase vehicles for lease. On December
19, 2008, our wholly owned subsidiary, Sparta Funding LLC, entered into a one
year, extendable revolving credit agreement with Autobahn Funding Company LLC as
Lender and DZ Bank AG Deutsche Zentral-Genossenschaftsbank New York Branch (“DZ
Bank”) as Administrative Agent and Liquidity Agent in the amount of $25,000,000
for the purpose of financing retail installment sales contracts and leases
secured by new and used Powersports Vehicles (motorcycles over 600cc, select
scooters and ATVs). Additionally, a portion of this facility can be used to
finance municipal and commercial fleet leases.  Prior to the initial
drawdown from the facility the registrant is required to meet certain financial
covenants. As of January 31, 2009, we have not met those covenants. We have an
agreement with a domestic bank for the leasing of vehicles and equipment by
state, political subdivisions thereof or other governmental or 501(c) (3), not
for profit entities. Under this agreement, we receive certain fees for finding,
negotiating and documenting lease transactions purchased by this bank. This
agreement is exclusive as to motorcycles and other powersports equipment and
non-exclusive for other equipment and vehicles. A number of these transactions
are solicited from our dealer base. In October 2008, we entered into a Vendor
Program Agreement with a private funding source which will provide commercial,
non-governmental, non-consumer leases, rentals and other customized funding
arrangements for the acquisition of powersports vehicles to customers referred
to this funding source by the Company. Under this agreement, we receive certain
fees for finding, negotiating and documenting lease transactions purchased by
this funding source. We are continuously seeking additional credit facilities
and long term debt financing. Any debt financing, if available, would likely
require payment of interest and may involve restrictive covenants that could
impose limitations on the operating flexibility of the Company. If we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources to finance our general operating expenses and our
growth, on terms acceptable to us, this would 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 to a more limited
scale.





GOING
CONCERN ISSUES





The
independent auditors report on our April 30, 2008 and 2007 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.


21


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
risks and uncertainties relating to the global recession, its duration, severity
and impact on overall consumer activity; the demand for our products and
services; seasonal trends in purchasing, the amount and timing of capital
expenditures and other costs relating to the commercial and consumer financing;
price competition or pricing changes in the market; technical difficulties or
system downtime; general economic conditions and economic conditions specific to
the consumer financing sector.





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





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





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





The
present officers and directors own approximately 50% 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.


22


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





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





CRITICAL
ACCOUNTING POLICIES





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





Revenue
Recognition





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





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





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


23


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





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





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





Stock-Based
Compensation





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





Impairment
of Long-Lived Assets









RECENT
ACCOUNTING PRONOUNCEMENT





Refer to
Note A – Interim Financial Data of the Notes to Condensed Consolidated Financial
Statements.





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.


24


PART
II. OTHER INFORMATION





ITEM
1.   LEGAL PROCEEDINGS





Not
applicable.





ITEM
1A.   RISK FACTORS





Not
applicable.





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





In
November 2007, in a transaction deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, the Company
sold to one accredited investor, a 10% $25,000 bridge loan, of which $17,500 has
been repaid, and in December 2008, the Company issued 240,000 shares in
consideration of the loan and 20,000 shares as penalty for late
payment.





During
November 2008, in transactions deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, the Company
sold to two accredited investors, short-term unsecured notes in the aggregate
amount of $10,000. The notes bear 6.5% simple interest, payable in cash or
shares, at the Company’s option, with principal and accrued interest payable at
maturity. Should the Company opt to convert the notes at maturity, the notes
will be convertible into shares of common stock at prices ranging from $0.013 to
$0.026 per share. The notes mature on various dates in May 2009.





During
November 2008, in transactions deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, the Company
sold to three accredited investors, four month unsecured notes in the aggregate
amount of $35,000. The notes bear 10% simple interest, payable in cash or
shares, at the Company’s option, with principal and accrued interest payable at
maturity. Should the Company opt to convert these notes at maturity, these notes
will be convertible into shares of common stock at prices ranging from $0.014 to
$0.024 per share. The notes will mature on various dates through March 31,
2009.





In
December 2008, in transactions deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, the Company
issued to an accredited investor, 3,773,148 shares of its common stock upon
conversion of $127,800 of 6% convertible notes and 227,068 shares in lieu of
$6,812.05 accrued interest thereon.





In
December 2008, in a transaction deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, the Company
sold to one accredited investor, a short term unsecured note in the amount of
$25,000.  The note bears 10% simple interest.  As inducement
for the loan the Company authorized the issuance of 100,000 shares of its common
stock.  The note matured in January 2009.





During
three months ended January 31, 2009, in transactions deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, the Company sold to eleven accredited investors, four month
unsecured notes in the aggregate amount of $452,500. The notes bear 8% simple
interest, payable in cash or shares, at the Company’s option, with principal and
accrued interest payable at maturity. Should the Company opt to convert the note
at maturity; the notes will be convertible into shares of common stock at prices
ranging from $0.013 to $0.042 per share. The notes will mature on various dates
through May 15, 2009.





During
the three months ended January 31, 2009, in transactions deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, the Company sold to three accredited investors, four month
unsecured notes in the aggregate amount of $130,000. The notes bear 10% simple
interest, payable in cash or shares, at the Company’s option, with principal and
accrued interest payable at maturity. As inducement for the loans the Company
authorized the issuance of 520,000 shares of its common stock valued at $0.07
per share. The notes will mature on various dates through May 26,
2009.


25


In
January 2009, in transactions deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, the Company
issued to three consultants an aggregate of 1,500,000 shares of its common stock
for consulting services.





In
January 2009, in a transaction deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, the Company
issued to a consultant in connection with a one year consulting agreement
500,000 shares of its common stock and warrants to purchase 250,000 shares of
common stock, exercisable at $0.05 per share until December 13,
2013.  The warrants may be exercised on a cashless
basis.  The Company is to issue additional warrants to purchase
250,000 shares of common stock, exercisable for a five year term, on each of
April 2, 2009, June 1, 2009, August 1, 2009, October 1, 2009, and December 1,
2009, with exercise prices of $.10, $.15, $.20, $.25, and $.30,
respectively.





In
February and March 2009, in transactions deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, the
Company sold to four accredited investors, four month unsecured notes in the
aggregate amount of $145,000. The notes bear 8% simple interest, payable in cash
or shares, at the Company’s option, with principal and accrued interest payable
at maturity. Should the Company opt to convert the note at maturity; the notes
will be convertible into shares of common stock at prices ranging from $0.02 to
$0.048 per share. The notes will mature on various dates through July 6,
2009.





ITEM
3.  DEFAULTS UPON SENIOR SECURITIES





None.





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





Not
applicable.





ITEM
5.  OTHER INFORMATION





On
December 10, 2008, we formed Sparta Funding LLC, a Delaware limited liability
company, for which we are the sole member.





On
December 19, 2008, Sparta Funding LLC entered into a one year, extendable
revolving secured credit agreement with Autobahn Funding Company LLC as Lender
and DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”) as
Administrative Agent and Liquidity Agent in the amount of $25,000,000 for the
purpose of financing retail installment sales contracts and leases secured by
new and used powersports vehicles (motorcycles over 600cc, select scooters and
ATVs). Additionally, a portion of this facility can be used to finance municipal
and commercial fleet leases.  Prior to the initial drawdown from the
facility the registrant is required to meet certain financial covenants. As of
January 31, 2009, we have not met those covenants.


26


ITEM
6.   EXHIBITS





The
following exhibits are filed with this report:





Exhibit Number
            
            Description of ExhibitExhibit
      10.1*
            
            Revolving
      Credit Agreement dated December 19, 2008Exhibit
      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.


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SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.


SPARTA
      COMMERCIAL SERVICES, INC.Date:
      March 23, 2009
              By:
              /s/
      Anthony L. HavensAnthony
      L. HavensChief
      Executive Officer




Date:
      March 23, 2009
            By:
            /s/
      Anthony W. AdlerAnthony
      W. AdlerPrincipal
      Financial Officer




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