UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





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





For
the quarterly period ended October 31, 2010





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





For the
transition period from ________ to ___________.





Commission
file number: 0-9483





SPARTA
COMMERCIAL SERVICES, INC.


(Exact
name of registrant as specified in its charter)





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





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


(Address
of principal executive offices)  (Zip Code)





(212)
239-2666


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    x   Yes
o No





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





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


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





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





As of
December 15, 2010, we had 500,163,880 shares of common stock issued and
outstanding.





SPARTA
COMMERCIAL SERVICES, INC.





FORM
10-Q


FOR
THE QUARTER ENDED OCTOBER 31, 2010





TABLE
OF CONTENTS





PagePART
      I.
                
                FINANCIAL
      INFORMATIONItem
      1.
                
                Financial
      Statements (Unaudited)
                
                3Condensed
      Consolidated Balance Sheets as of October 31, 2010 and April 30,
      2010
                
                3Condensed
      Consolidated Statements of Losses for the Three and Six Months Ended
      October 31, 2010 and 2009
                
                4Condensed
      Consolidated Statement of Stockholders’ Deficit for the Six Months ended
      October 31, 2010
                
                5Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended October 31,
      2010 and 2009
                
                6Notes
      to Unaudited Condensed Consolidated Financial Statements
                
                7Item
      2.
                
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                23Item
      3.
                
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                29Item
      4.
                
                Controls
      and Procedures
                
                29PART
      II.
                
                OTHER
      INFORMATIONItem
      1.
                
                Legal
      Proceedings
                
                30Item
      1A.
                
                Risk
      Factors
                
                30Item
      2.
                
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                35Item
      3.
                
                Defaults
      Upon Senior Securities
                
                35Item
      4.
                
                (Removed
      and Reserved)
                
                35Item
      5.
                
                Other
      Information
                
                35Item
      6.
                
                Exhibits
                
                36Signatures
                
                
                
                37


2


PART
I. FINANCIAL INFORMATION





ITEM 1.   FINANCIAL
STATEMENTS





SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





October 31,
                      
                      
                      April 30,2010
                      
                      
                      2010(Unaudited)ASSETSCash
      and cash equivalents
                      
                      $
                      37,783
                      
                      
                      $
                      11,994RISC
      loan receivables, net of reserve of $96,517 and $132,000, respectively
      (NOTE D)
                      
                      
                      1,300,495
                      
                      
                      
                      1,761,474Motorcycles
      and other vehicles under operating leases net of accumulated depreciation
      of $215,421 and $219,492  respectively, and loss reserve of
      $14,889 and $15,865, respectively (NOTE B)
                      
                      
                      264,710
                      
                      
                      
                      305,265Interest
      receivable
                      
                      
                      22,518
                      
                      
                      
                      26,772Purchased
      Portfolio (NOTE G)
                      
                      
                      28,508
                      
                      
                      
                      33,559Accounts
      receivable
                      
                      
                      105,234
                      
                      
                      
                      98,322Inventory
      (NOTE C)
                      
                      
                      17,725
                      
                      
                      
                      14,622Property
      and equipment, net of accumulated depreciation and amortization of
      $170,263 and $163,824, respectively (NOTE E)
                      
                      
                      20,984
                      
                      
                      
                      27,423Prepaid
      Expenses
                      
                      
                      159,245
                      
                      
                      
                      -Good
      will
                      
                      
                      10,000Restricted
      cash
                      
                      
                      89,469
                      
                      
                      
                      146,333Other
      Assets
                      
                      
                      3,745
                      
                      
                      
                      3,628Deposits
                      
                      
                      48,968
                      
                      
                      
                      48,967Total
      assets
                      
                      $
                      2,109,384
                      
                      
                      $
                      2,478,358LIABILITIES
      AND DEFICITLiabilities:Accounts
      payable and accrued expenses
                      
                      $
                      940,995
                      
                      
                      $
                      794,811Senior
      Secured Notes Payable (NOTE F)
                      
                      
                      1,475,053
                      
                      
                      
                      2,010,989Notes
      Payable Net of Beneficial Conversion Feature of $40,268 and 0,
      respectively (NOTE G)
                      
                      
                      1,206,866
                      
                      
                      
                      864,399Loans
      payable-related parties (NOTE H)
                      
                      
                      386,760
                      
                      
                      
                      383,760Other
      liabilities
                      
                      
                      55,636
                      
                      
                      
                      20,513Derivative
      Liabilities
                      
                      
                      452,403
                      
                      
                      
                      -Deferred
      revenue
                      
                      
                      4,950
                      
                      
                      
                      7,650Total
      liabilities
                      
                      
                      4,522,663
                      
                      
                      
                      4,082,121Deficit:Preferred
      stock, $.001 par value; 10,000,000 shares authorized of which 35,850
      shares have been designated as Series A convertible preferred stock, with
      a stated value of $100 per share, 125 and 125 shares issued and
      outstanding, respectively
                      
                      
                      12,500
                      
                      
                      
                      12,500Preferred
      Stock B, 1,000 shares have been designated as Series B redeemable
      preferred stock, $0.001 par value, with a liquidation and redemption value
      of $10,000 per share, 157 and 157 shares issued and outstanding,
      respectively
                      
                      
                      1
                      
                      
                      
                      1Preferred
      Stock C, 200,000 shares have been designated as Series C redeemable,
      convertible preferred, $0.001 par value, with a liquidation and redemption
      value of $10 per share, 42,000 and 42,000 shares issued and outstanding,
      respectively
                      
                      
                      42
                      
                      
                      
                      42Common
      stock, $.001 par value; 740,000,000 shares authorized, 433,738,484 and
      392,782,210 shares issued and outstanding, respectively
                      
                      
                      433,737
                      
                      
                      
                      392,782Common
      stock to be issued, 27,461,430, and 23,966,960
respectively
                      
                      
                      27,461
                      
                      
                      
                      23,967Additional
      paid-in-capital
                      
                      
                      32,213,874
                      
                      
                      
                      31,470,653Subscriptions
      Receivable
                      
                      
                      (2,118,309
                      )
                      
                      
                      (2,118,309
                      )Accumulated
      deficit
                      
                      
                      (33,231,036
                      )
                      
                      
                      (31,385,400
                      )Total
      deficiency in stockholders' equity
                      
                      
                      (2,661,730
                      )
                      
                      
                      (1,603,763
                      )Noncontrolling
      interest
                      
                      
                      248,451Total
      Deficit
                      
                      
                      (2,413,277
                      )
                      
                      
                      (1,603,763
                      )Total
      Liabilities and Deficit
                      
                      $
                      2,109,384
                      
                      
                      $
                      2,478,358





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


3


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF LOSSES


FOR
THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2010 AND 2009


(UNAUDITED)





Three Months Ended
                  
                  
                  Six Months EndedOctober 31,
                  
                  
                  October 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009RevenueRental
      Income, Leases
                  
                  $
                  28,257
                  
                  
                  $
                  46,241
                  
                  
                  $
                  58,009
                  
                  
                  $
                  99,310Interest
      Income, Loans
                  
                  
                  63,770
                  
                  
                  
                  115,893
                  
                  
                  
                  139,487
                  
                  
                  
                  254,758Other
                  
                  
                  72,808
                  
                  
                  
                  26,412
                  
                  
                  
                  99,486
                  
                  
                  
                  51,282164,835
                  
                  
                  
                  188,546
                  
                  
                  
                  296,982
                  
                  
                  
                  405,350Operating
      expenses:General
      and administrative
                  
                  
                  655,087
                  
                  
                  
                  840,826
                  
                  
                  
                  1,373,755
                  
                  
                  
                  1,433,023Depreciation
      and amortization
                  
                  
                  17,663
                  
                  
                  
                  115,808
                  
                  
                  
                  37,224
                  
                  
                  
                  238,500Total
      operating expenses
                  
                  
                  672,750
                  
                  
                  
                  956,634
                  
                  
                  
                  1,410,980
                  
                  
                  
                  1,671,523Loss
      from operations
                  
                  
                  (507,915
                  )
                  
                  
                  (768,088
                  )
                  
                  
                  (1,113,998
                  )
                  
                  
                  (1,266,173
                  )Other
      expense:Interest
      expense and financing cost, net
                  
                  
                  94,435
                  
                  
                  
                  195,776
                  
                  
                  
                  175,258
                  
                  
                  
                  459,576Non-cash
      financing costs
                  
                  
                  90,129
                  
                  
                  
                  39,538
                  
                  
                  
                  105,777
                  
                  
                  
                  272,109Change
      in Derivative Liability
                  
                  
                  (248,137
                  )
                  
                  
                  -
                  
                  
                  
                  361,105
                  
                  
                  
                  -Total
      Finance Related Expenses
                  
                  
                  (63,574
                  )
                  
                  
                  235,314
                  
                  
                  
                  642,139
                  
                  
                  
                  731,685Net
      loss
                  
                  
                  (444,342
                  )
                  
                  
                  (1,003,402
                  )
                  
                  
                  (1,756,137
                  )
                  
                  
                  (1,997,858
                  )Net
      loss attributed to noncontrolling interest
                  
                  
                  55,839
                  
                  
                  
                  
                  
                  
                  
                  64,608Preferred
      dividend
                  
                  
                  (114,349
                  )
                  
                  
                  (19,671
                  )
                  
                  
                  (154,107
                  )
                  
                  
                  (19,862
                  )Net
      loss attributed to common stockholders
                  
                  $
                  (502,852
                  )
                  
                  $
                  (1,023,073
                  )
                  
                  $
                  (1,845,636
                  )
                  
                  $
                  (2,017,720
                  )Basic
      and diluted loss per share
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.01
                  )Basic
      and diluted loss per share attributed to common
    stockholders
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.01
                  )Weighted
      average shares outstanding
                  
                  
                  422,564,394
                  
                  
                  
                  314,765,615
                  
                  
                  
                  411,634,012
                  
                  
                  
                  246,399,212





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


4


SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT


FOR
THE SIX MONTHS ENDED OCTOBER 31, 2010





Series A Preferred
                                      Stock
                                    
                                    Series B Preferred
                                      Stock
                                    
                                    Series C Preferred
                                      Stock
                                    
                                    Common Stock
                                    
                                    Common Stock
                                      to be issued
                                    
                                    
                                    Subscription
                                    
                                    
                                    Additional
                                        Paid in
                                    
                                    
                                    Accumulated
                                    
                                    
                                    NoncontrollingShares
                                    
                                    Amount
                                    
                                    Shares
                                    
                                    
                                    Amount
                                    
                                    Shares
                                    
                                    Amount
                                    
                                    Shares
                                    
                                    Amount
                                    
                                    Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    Receivable
                                    
                                    
                                    Capital
                                    
                                    
                                    Deficit
                                    
                                    
                                    Interest
                                    
                                    TotalBalance,
      April 30, 2010
                                    
                                    
                                    125
                                    
                                    $
                                    12,500
                                    
                                    
                                    157
                                    
                                    
                                    $
                                    1
                                    
                                    
                                    42,000
                                    
                                    $
                                    42
                                    
                                    
                                    392,782,210
                                    
                                    $
                                    392,782
                                    
                                    
                                    23,966,965
                                    
                                    
                                    $
                                    23,967
                                    
                                    
                                    $
                                    (2,118,309
                                    )
                                    
                                    $
                                    31,470,654
                                    
                                    
                                    $
                                    (31,385,399
                                    )
                                    
                                    $
                                    -
                                    
                                    $
                                    (1,603,763
                                    )Beneficial
      conversion discount
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    75,000
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    75,000Reclassification
      of warrant liability
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (142,697
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (142,697
                                    )Sale
      of Stock
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    10,683,752
                                    
                                    
                                    10,683
                                    
                                    
                                    3,003,470
                                    
                                    
                                    
                                    3,003
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    162,533
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    176,219Shares
      issued for financing cost
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    2,731,000
                                    
                                    
                                    2,731
                                    
                                    
                                    1,491,000
                                    
                                    
                                    
                                    1,491
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    97,346
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    101,568Shares
      issued for conversion of notes & interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    13,739,166
                                    
                                    
                                    13,739
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    194,100
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    207,839Stock
      Compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    12,400,000
                                    
                                    
                                    12,400
                                    
                                    
                                    (1,000,000
                                    )
                                    
                                    
                                    (1,000
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    166,800
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    178,200Shares
      issued for accounts payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,402,356
                                    
                                    
                                    1,402
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (1,402
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (0
                                    )Employee
      options expense
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    37,824
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    37,824Preferred
      Stock Series B issued for dividend payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    153,716
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    153,716Subsidiary's
      preferred series A issued for cash
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    197,000
                                    
                                    
                                    197,000Subsidiary's
      preferred series B issued for cash
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    105,000
                                    
                                    
                                    105,000Subsidiary's
      common stock issued for purchase of Cyclechex, LLC
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    10,000
                                    
                                    
                                    10,000Subsidiary's
      stock to be issued
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,059
                                    
                                    
                                    1,059Net
      Loss
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (1,845,636
                                    )
                                    
                                    
                                    (64,608
                                    )
                                    
                                    (1,910,244
                                    )Balance
      October 31, 2010
                                    
                                    
                                    125
                                    
                                    $
                                    12,500
                                    
                                    
                                    178
                                    
                                    
                                    $
                                    21
                                    
                                    
                                    42,000
                                    
                                    $
                                    42
                                    
                                    
                                    433,738,484
                                    
                                    $
                                    433,737
                                    
                                    
                                    27,461,435
                                    
                                    
                                    $
                                    27,461
                                    
                                    
                                    $
                                    (2,118,309
                                    )
                                    
                                    
                                    32,213,874
                                    
                                    
                                    $
                                    (33,231,056
                                    )
                                    
                                    $
                                    248,451
                                    
                                    $
                                    (2,413,279
                                    )





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


5


SPARTA
COMMERCIAL SERVICES, INC.


CONDENCED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED OCTOBER 31, 2010 AND 2009


(UNAUDITED)





Six Months EndedOctober 312010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
                
                $
                (1,845,636
                )
                
                $
                (2,017,720
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and Amortization
                
                
                159,577
                
                
                
                233,800Allowance
      for loss reserves
                
                
                36,459
                
                
                
                (57,356
                )Amortization
      of deferred revenue
                
                
                -
                
                
                
                -Beneficial
      Conversion Discount
                
                
                34,732
                
                
                
                -Shares
      issued for Debt and finance cost
                
                
                101,568
                
                
                
                -Equity
      based compensation
                
                
                216,024
                
                
                
                273,473Stock
      based finance cost
                
                
                -
                
                
                
                143,922Non
      cash derivative liability cost
                
                
                452,403
                
                
                
                -Loss
      allocable to non-controlling interest
                
                
                (64,608
                )
                
                
                -(Increase)
      decrease in operating assets and liabilities:
                
                
                -
                
                
                
                -Inventory
                
                
                (3,103
                )
                
                
                (47,995
                )Interest
      receivable
                
                
                4,254
                
                
                
                15,333Accounts
      receivable
                
                
                (6,912
                )
                
                
                (46,972
                )Prepaid
      expenses and other assets
                
                
                (117
                )
                
                
                -Restricted
      cash
                
                
                56,864
                
                
                
                125,197Portfolio
                
                
                5,051
                
                
                
                30,177Increase
      (decrease) in:
                
                
                -
                
                
                
                -Accounts
      payable and accrued expenses
                
                
                198,565
                
                
                
                165,043Net
      cash used in operating activities
                
                
                (654,878
                )
                
                
                (1,183,098
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      liquidation of leased vehicles
                
                
                45,603
                
                
                
                95,071Net  Liquidation
      of RISC contracts
                
                
                496,461
                
                
                
                959,505Net
      cash provided by investing activities
                
                
                542,064
                
                
                
                1,054,576CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      proceeds from sale of Series A preferred stock of
    subsidiary
                
                
                303,059
                
                
                
                -Net
      proceeds from sale of common stock
                
                
                176,219
                
                
                
                120,000Net
      proceeds from sale of preferred stock
                
                
                
                
                
                
                645,000Net
      Payments to senior lender
                
                
                (535,936
                )
                
                
                (945,631
                )Net
      Proceeds from convertible notes
                
                
                192,262
                
                
                
                370,800Net
      Proceeds from other notes
                
                
                3,000
                
                
                
                -Net
      cash provided by financing activities
                
                
                138,603
                
                
                
                190,169Net
      Increase (decrease) in cash
                
                $
                25,789
                
                
                $
                61,647Unrestricted
      cash and cash equivalents, beginning of period
                
                $
                11,994
                
                
                
                (54,349
                )Unrestricted
      cash and cash equivalents , end of period
                
                $
                37,783
                
                
                $
                7,298Cash
      paid for:Interest
                
                $
                115,747
                
                
                $
                205,678Income
      taxes
                
                $
                -
                
                
                $
                2,412





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


6


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES





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





Basis of
Presentation





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





On
December 10, 2008, the Company formed Sparta Funding, LLC (“Sparta Funding”), a
Delaware limited liability company, for which the Company is the sole member.
Sparta Funding was formed as a special purpose company to borrow funds, but was
never utilized. Sparta Funding was dissolved in November 2010. In May 2010, the
Company formed Specialty Reports, Inc, a Nevada Corporation (“SRI”), for the
purpose of acquiring all of the assets of Cyclechex, LLC, a Florida limited
liability company. Cyclechex, LLC’s sole business was an e-commerce business
which acquired the relevant motorcycle data and sold the data in the form of
motorcycle history reports over the internet to consumers and dealers. As part
of the transaction, the Company agreed to issue 24% of SRI common stock to the
sole owner of Cyclechex, LLC.





The
results of operations for the three and six months ended October 31, 2010 are
not necessarily indicative of the results to be expected for any other interim
period or the full year ending April 30, 2011.





Estimates





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





Revenue
Recognition





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


7


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





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





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





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





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





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





Inventories





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





Website Development
Costs





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





Cash
Equivalents





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


8


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Income
Taxes





Deferred
income taxes are provided using the asset and liability method for financial
reporting purposes in accordance with the provisions of ASC 740-10, "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are
recognized for temporary differences between the tax bases of assets and
liabilities and their carrying values for financial reporting purposes and for
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
removed or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statements of operations in the period
that includes the enactment date.





ASC
740-10, “Accounting for
Uncertainty in Income Taxes prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. ASC 740also
provides guidance on derecognition, classification, treatment of interest and
penalties, and disclosure of such positions. As a result of implementing ASC
740, there has been no adjustment to the Company’s financial statements and the
adoption of ASC 740 did not have a material effect on the Company’s consolidated
financial statements for the year ending April 30, 2010 or the three months or
six months ended October 31, 2010.





Fair Value
Measurements





The
Company adopted SFAS No. 157,Fair Value Measurements (SFAS 157) now ASC 820. ASC 820 establishes a
three-level fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets the lowest priority to
unobservable inputs to fair value measurements of certain assets and
Liabilities. The three levels of the fair value hierarchy under ASC 820 are
described below:





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


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


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





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


9


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Impairment of Long-Lived
Assets





In
accordance ASC 360-10, “Impairment or Disposal of Long-Lived
Assets”, long-lived assets, such as property, equipment, motorcycles and
other vehicles and purchased intangible assets subject to amortization are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Recoverability of
assets to be held and used is measured by comparing the carrying amount of an
asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash
flows or quoted market prices in active markets if available, an impairment
charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset.





Comprehensive
Income





In
accordance with ASC 220-10, “Reporting Comprehensive
Income,” establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, ASC
220-10 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. At October 31, 2010 and April 30, 2010, the Company has no
items of other comprehensive income.





Segment
Information





The
Company does not have separate, reportable segments under ASC 280-10, “Disclosures about Segments of an
Enterprise and Related Information”.  ASC 280-10 establishes
standards for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. ASC 280-10 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess performance. The
information disclosed herein, materially represents all of the financial
information related to the Company's principal operating segment.





Stock Based
Compensation





The
Company adopted ASC 718-10, which records compensation expense on a
straight-line basis, generally over the explicit service period of three to five
years.





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


10


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Concentrations of Credit
Risk





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





Allowance for
Losses





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





The
Company charges-off receivables when an individual account has become more than
120 days contractually delinquent. In the event of repossession, the asset
is immediately sent to auction or held for release.





Property and
Equipment





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


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





Advertising
Costs





The
Company follows a policy of charging the costs of advertising to expenses
incurred. During the six months ended October 31, 2010 and the year ended April
30, 2010, the Company incurred no advertising costs.





Net Loss Per
Share





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


11


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
A – SUMMARY OF ACCOUNTING POLICIES (continued)





Per share
basic and diluted net loss attributable to common stockholders amounted to $0.00
and $0.00 for the three months ended October 31, 2010 and 2009, respectively,
and $0.00 and $0.01 for the six months ended October 31, 2010 and 2009,
respectively. At October 31, 2010 and 2009, 163,132,698 and 55,230,357 potential
shares, respectively, were excluded from the shares used to calculate diluted
earnings per share as their inclusion would reduce net loss per
share.





Liquidity





As shown
in the accompanying consolidated financial statements, the Company has incurred
a net loss of $1,845,636 and $4,238,353 during the six months ended October 31,
2010 and the year ended April 30, 2010, respectively. The Company’s liabilities
exceed its assets by $2,413,279 as of October 31, 2010.





Reclassifications





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





Recent Accounting
Pronouncements





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





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





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


12


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
B – MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING LEASES





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





October 31,
                        
                        April 30,2010
                        
                        2010Motorcycles
      and other vehicles
                        
                        $
                        495,020
                        
                        $
                        540,623Less: accumulated
      depreciation
                        
                        
                        (215,421
                        )
                        
                        (219,492
                        )Motorcycles
      and other vehicles, net of accumulated depreciation
                        
                        
                        279,599
                        
                        
                        321,131Less: estimated reserve
      for residual values
                        
                        
                        (14,889
                        )
                        
                        (15,865
                        )Motorcycles
      and other vehicles under operating leases, net
                        
                        $
                        264,710
                        
                        $
                        305,265





Depreciation
expense for vehicles for the three and six months ended October 31, 2010 was
$14,443 and $30,785, respectively. Depreciation expense for vehicles for the
three and six months ended October 31, 2009 was $22,687and $49,870,
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 October 31, 2010, the
Company’s inventory of repossessed or returned vehicles valued at market was
$17,725, which will be resold.





NOTE D – RETAIL (RISC) LOAN
RECEIVABLES





RISC loan
receivables, which are carried at cost, were $1,335,700 and $1,893,474 at
October 31, 2010 and April 30, 2010, respectively, including deficiency
receivables of $61,312 and $34,250, respectively. The following is a schedule by
years of future principal payments related to these receivables. Certain of the
assets are pledged as collateral for the note described in Note F.





Year ending October 31,2011
                
                $
                725,7512012
                
                
                495,9532013
                
                
                175,399$
                1,397,012


13


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE E – PROPERTY AND
EQUIPMENT





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





October 31,
                  2010
                
                
                April 30,
                  2010Computer
      equipment, software and furniture
                
                $
                191,247
                
                
                $
                191,247Less:
      accumulated depreciation and amortization
                
                
                (170,263
                )
                
                
                (163,824
                )Net
      property and equipment
                
                $
                20,984
                
                
                $
                27,423





Depreciation
and amortization expense for property and equipment was $3,220 and $6,429 for
the three months and six months ended October 31, 2010, respectively, and
$17,919 for the year ended April 30, 2010. Depreciation and amortization expense
for the three and six months ended October 31, 2009 were $4,091and $10,571,
respectively.





NOTE
F – NOTES PAYABLE TO SENIOR LENDER





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





(b)
            On
      October 31, 2008, the Company purchased certain loans secured by a
      portfolio of secured motorcycle leases (“Purchased Portfolio”) for a total
      purchase price of $100,000.  The Company paid $80,000 at
      closing, $10,000 in April 2009 and agreed to pay the remaining $10,000
      upon receipt of complete Purchase Portfolio documentation. As of October
      31, 2010, the complete documentation has not been received. To finance the
      purchase, the Company issued a $150,000 Senior Secured Note dated October
      31, 2008 (“Senior Secured Note”) in exchange for $100,000 from the Senior
      Secured Note holder.  Terms of the Senior Secured Note require
      the Company to make semi-monthly payments in amounts equal to all net
      proceeds from Purchased Portfolio lease payments and motorcycle asset
      sales received until the Company has paid $150,000 to the Senior Secured
      Note holder.  The Company was obligated to pay any remainder of
      the Senior Secured Note by November 1, 2009 and has granted the Senior
      Secured Note holder a security interest in the Purchased Portfolio. The
      Company and the Senior Secured Note holder are in discussion as to
      extension of the Senior Secured Note.  Once the Company has paid
      $150,000 to the Senior Secured Note holder from Purchased Portfolio
      proceeds, the Company is obligated to pay fifty percent of all net
      proceeds from Purchased Portfolio lease payments and motorcycle asset
      sales until the Company and the Senior Secured Note holder mutually agree
      the Purchase Portfolio has no remaining
  proceeds.





As of
October 31, 2010, the Company carries the Purchased Portfolio at $28,508
representing its $100,000 cost, which is less than its estimated market value,
less collections through the period. The Company carries the liability for the
Senior Secured Note at $93,641.


14


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





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





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





12 Months EndedOctober 31,
                  
                  Amount2011
                  
                  $
                  826,8122012
                  
                  
                  491,3112013
                  
                  
                  156,929$
                  1,475,053





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





NOTE
G – NOTES PAYABLE





Notes Payable
                
                October 31,
                  2010
                
                
                April 30,
                  2010Convertible
      notes (a)
                
                $
                622,735
                
                
                $
                280,000Notes
      payable (b)
                
                
                95,000
                
                
                
                100,000Bridge
      loans (c)
                
                
                206,000
                
                
                
                161,000Collateralized
      note (d)
                
                
                220,000
                
                
                
                220,000Convertible
      note (e)
                
                
                103,399
                
                
                
                103,399Total
                
                $
                1,247,134
                
                
                $
                864,399





(a)
            As
      of October 31, 2010, the Company had outstanding convertible unsecured
      notes with an original aggregate principal amount of $622,735, which
      accrue interest at rates ranging from 8% to 15% per annum.  The
      majority of the notes are convertible into shares of common stock, at the
      Company’s option, ranging from $0.012 to $0.021 per share.  Two
      of the notes, each in the amount  of $25,000, are convertible at
      the note holder’s option at a variable conversion price such that during
      the period during which the notes are outstanding, with one note
      convertible at 58% multiplied by the average of the lowest three lowest
      closing bid prices for the common stock during the ten trading day period
      ending one trading day prior to the submission date of the conversion
      notice by the note holder to the Company (the “Discount Conversion Rate”),
      and the other note convertible at the lower of (i) $0.02 per share or (ii)
      the Discount Conversion Rate; provided, however, that, the conversion rate
      is subject to adjustment upon a merger, consolidation or other similar
      event, and, if the Company issues or sells any shares of common stock for
      no consideration or for a consideration per share that is less than the
      conversion price of the note, or issues or grants convertible securities
      (including warrants, rights, and options but not including employee stock
      option plans), with an conversion price that is less than the conversion
      price of the note, then the conversion price of the note will immediately
      be reduced to the consideration per share received in such stock issuance
      or the conversion price of the convertible securities
      issuance.  The Company has reserved up to 21,203,449 shares of
      its common stock for conversion pursuant to the terms of the two
      notes.  In the event the notes are not paid when due, the
      interest rate is increased to twenty-two percent until the note is paid in
      full. Another note in the amount of $10,000  is convertible at
      $0.012 per share at the holder’s
option.


15


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
G – NOTES PAYABLE (continued)





During
the six months ended October 31, 2010, the Company sold to an accredited
investor five one year, unsecured notes in the aggregate amount of
$375,000.  The notes bare 8% simple interest, payable in cash or
shares, at the Company’s option, with principal and accrued interest payable at
maturity. At the Company’s option, the notes are convertible into shares of
common stock ranging from $0.012 to $0.018 per share. Additionally during this
period, this investor converted $75,000 of notes payable into common stock and
sold a $25,000 note to a third party. All of these notes are
current.





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





(b)
            As
      of April 30, 2010, the Company had outstanding unsecured notes with an
      original principal amount of $100,000, which accrue interest ranging from
      6% to 15% per annum, all of which were past due. In July 2010, $80,000 of
      these notes were purchased by a third party who exchanged the notes with
      the Company for new convertible notes all of which are current (see a
      above).  The remaining $20,000 note is current but is accruing
      interest at a default rate of 15% and is also accruing penalty shares at
      the rate of 20,000 shares per month and this note has been reclassified as
      a Bridge loan (see c). During the six months ended October 31, 2010, the
      Company sold to seven accredited investors a total of $95,000 two month
      loans bearing interest at 12% and issued a total of 850,000 shares of
      restricted common stock valued at $22,500 as inducements for the
      loans.  Three of the loans have been extended from various dates
      between December 12, 2010 and May 1, 2011. The Company will issue an
      additional 850,000 shares of restricted common stock for such extensions.
      The Company is in discussions with the remaining note holders to extend
      their notes or convert them to common
stock.




16


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
G – NOTES PAYABLE (continued)


(c)
              During
      the year ended April 30, 2007, the Company sold to five accredited
      investor’s bridge notes in the aggregate amount of $275,000. The bridge
      notes were originally scheduled to expire on various dates through
      November 30, 2006, together with simple interest at the rate of 10%. The
      notes provided that 100,000 shares of the Company's unregistered common
      stock are to be issued as “Equity Kicker” for each $100,000 of notes
      purchased, or any prorated portion thereof. The Company had the right to
      extend the maturity date of notes for 30 to 45 days, in which event the
      lenders were entitled for “additional equity” equal to 60% of the “Equity
      Kicker” shares. In the event of default on repayment by the Company, the
      notes provided for a 50% increase in the “Equity Kicker” and the
      “Additional Equity” for each month, as penalty, that such default has not
      been cured, and for a 20% interest rate during the default
      period.  The repayments, in the event of default, of the notes
      are to be collateralized by certain security interest.  The
      maturity dates of the notes were subsequently extended to various dates
      between December 5, 2006 to September 30, 2009, with simple interest rate
      of 10%, and Additional Equity in the aggregate amount of
      165,000 unregistered shares of common stock to be issued. Thereafter, the
      Company was in default on repayment of these notes.  During the
      year ended April 30, 2009, $99,000 of these loans was repaid and during
      2010, $15,000 of these notes and accrued interest thereon was converted
      into approximately 463,000 shares of the Company’s common stock. The
      holders of the remaining notes have agreed to contingently convert those
      notes plus accrued interest into approximately 8,000,000 shares of the
      Company’s common stock upon the Company’s ability to meet all conditions
      precedent to begin drawing down on a senior credit facility. In July 2010,
      the Company sold to an accredited investor a one week 10%, $25,000 note
      and issued 25,000 shares of its restricted common stock as inducement for
      the note.  The note is convertible at the holder’s option into
      shares of common stock at $0.005 per share. In the event the note is not
      paid when due, the interest rate is increased to twenty percent until the
      note is paid in full and the Company is required to issue 50,000 shares of
      common stock per month until the note is paid in full. During the quarter
      ending July 31, 2010 one $20,000 note (which was classified as Notes
      Payable (see b above)), has been  reclassified as a Bridge Loan,
      was due August 8, 2009 and is accruing interest at a default rate of 15%
      and is also accruing penalty shares at the rate of 20,000 shares per
      month.  This note has been extended to December 30,
      2010.




(d)
            During
      the year ended April 30, 2009, the Company sold a secured note in the
      amount of $220,000. The note bore 12.46% simple interest. The note matured
      on January 29, 2010 and has been extended to September 1, 2011 and is
      secured by a second lien on a pool of motorcycles. In July 2010, the note
      holder agreed to convert the note and all accrued interest thereon into
      approximately 12,000,000 shares of the Company’s common stock upon the
      Company demonstrating that it can meet all conditions precedent to begin
      drawing down on a senior credit
facility.





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





NOTE
H – LOANS PAYABLE TO RELATED PARTIES





As of
October 31, 2010, aggregated loans payable, without demand and with no interest,
to officers and directors were $386,760. At October 31, 2010 and April 30, 2010,
included in accounts receivable are $169 and $169, respectively, due from
American Motorcycle Leasing Corp., a company controlled by a director and
formerly controlled by the Company's Chief Executive Officer.


17


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE I – EQUITY
TRANSACTIONS





The
Company is authorized to issue 10,000,000 shares of preferred stock with $0.001
par value per share, of which 35,850 shares have been designated as Series A
convertible preferred stock with a $100 stated value per share, 1,000 shares
have been designated as Series B Preferred Stock with a $10,000 stated value per
share, and 200,000 shares were designated as Series C Preferred Stock with a $10
per share liquidation value, and 740,000,000 shares of common stock with $0.001
par value per share. The Company had 125 and 125 shares of Series A preferred
stock issued and outstanding as of October 31, 2010 and April 30, 2010,
respectively.  The Company had 157 and 157 shares of Series B
preferred stock issued and outstanding as of October 31, 2010 and April 30,
2010, respectively.  The Company had 42,000 and 42,000 shares of
Series C preferred stock issued and outstanding as of July 31, 2010 and April
30, 2010, respectively.  The Company has 433,738,484 and 392,782,210
shares of common stock issued and outstanding as of October 31, 2010 and April
30, 2010, respectively.





Preferred Stock Series
A





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





Preferred Stock Series
B





No shares
of Preferred Stock Series B were issued during the quarter ended October 31,
2010. However, a $114,164 preferred stock dividend, payable in Preferred Stock
Series B, was declared during the quarter.





Preferred Stock Series
C





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





Common
Stock





During
the six months ended October 31, 2010 and the six months ended October 31, 2009,
the Company expensed $220,665 and $145,284, respectively, for non-cash charges
related to stock and option compensation expense.





During
the six months ended October 31, 2010 the Company:





·
            issued
      13,739,166 shares of its common stock upon the conversion of $191,473 of
      notes and interest payable,


·
            issued
      7,735,419  shares of common stock which had been accrued in the
      prior fiscal year,


·
            Sold
      and issued 1,815,000 shares of common stock for $25,000 and issued three
      year warrants to purchase 1,815,000 shares of common stock at $0.07 per
      share,


·
            Sold
      and issued 1,133,333 shares of common stock for
  $17,000,


·
            The
      Company issued, pursuant to notes and penalty provisions of notes,
      4,022,000 shares of unregistered common stock, valued at $95,568.
      1,291,000 of the shares were classified as shares to be issued at October
      31, 2010,


·
            The
      Company issued to members of its Advisory Council and pursuant to three
      consulting agreements a total of 12,400,000 shares of its common stock
      valued at $178,200, 1,000,000 ($18,000) of the shares had been accrued in
      the prior year.


·
            Pursuant
      to prior agreements with two creditors, the Company issued 1,402,356
      shares of common stock.·
            Sold
      6,930,000 shares of its unregistered common stock for $69,300 which shares
      were classified as to be issued at October 31,
  2010.


18


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
I - EQUITY TRANSACTIONS (continued)





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


·
            formed
      a new subsidiary, Specialty Reports, Inc., a Nevada corporation, and in
      May 2010 a 24% equity interest in Specialty Reports was issued in
      consideration of substantially all of the assets of Cyclechex, LLC, a
      Florida limited liability company.


·
            The
      Company’s majority owned subsidiary, Specialty Reports, Inc., sold 39.4
      shares of its Series A Preferred stock to twelve accredited investors for
      $197,000.  The Series A Preferred stock does not pay a dividend.
      Each share has a liquidating value of $5,000 and is redeemable by
      Specialty Reports at any time after one year. Each share is convertible at
      the holder’s option at any time into either 2,632 shares of Specialty
      Reports, Inc common stock, or 277,778 shares of Sparta Commercial Services
      common stock, and, Specialty Reports, Inc. sold 21 shares of its Series B
      Preferred stock to five accredited investors for
      $105,000.   The Series B Preferred stock does not pay a
      dividend. Each share has a liquidating value of $5,000 and is redeemable
      by Specialty Reports at any time after one year. Each share is convertible
      at the holder’s option at any time into either 2,222 shares of Specialty
      Reports, Inc common stock, or 200,000 shares of Sparta Commercial Services
      common stock.





NOTE
J – NONCONTROLLING INTEREST





In May
2010, the Company formed Specialty Reports, Inc, a Nevada Corporation (“SRI”),
for the purpose of acquiring all of the assets of Cyclechex, LLC, a Florida
limited liability company. Cyclechex, LLC’s sole business was an e-commerce
business which acquired the relevant motorcycle data and sold the data in the
form of Cyclechex Motorcycle History Reports© over the
internet to consumers and dealers. As part of the transaction, the Company
issued 24% of SRI common stock, valued at $10,000, to the sole owner of
Cyclechex, LLC.





During
the six months ended October 31, 2010, SRI sold 39.4 shares of its Series A
Preferred stock to twelve accredited investors for $197,000.  The
Series A Preferred stock does not pay a dividend. Each share has a liquidating
value of $5,000 and is redeemable by Specialty Reports at any time after one
year. Each share is convertible at the holder’s option at any time into either
2,632 shares of Specialty Reports, Inc common stock, or 277,778 shares of Sparta
Commercial Services common stock, and, SRI sold 21 shares of its Series B
Preferred stock to five accredited investors for $105,000.   The
Series B Preferred stock does not pay a dividend. Each share has a liquidating
value of $5,000 and is redeemable by SRI at any time after one year. Each share
is convertible at the holder’s option at any time into either 2,222 shares of
SRI common stock, or 200,000 shares of Sparta Commercial Services common
stock.


19


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
J – NONCONTROLLING INTEREST (continued)





For the
six months ended October 31, 2010, the noncontrolling interest is summarized as
follows:





AmountBalance
      at May 1, 2010
                    
                    $
                    -Issuance
      of Series A Preferred Stock
                    
                    
                    197,000Issuance
      of Series B Preferred Stock
                    
                    
                    105,000Issuance
      of SRI Common stock for purchase of Cyclechex, LLC
                    
                    
                    10,000Preferred
      and common shares to be issued
                    
                    
                    1,059Noncontrolling
      interest’s share of losses
                    
                    
                    (64,608
                    )Balance
      at October 31, 2010
                    
                    $
                    248,451





NOTE
K – FAIR VALUE MEASURMENTS





The
Company follows the guidance established pursuant to ASC 820 which established a
framework for measuring fair value and expands disclosure about fair value
measurements. ASC 820 defines fair value as the amount that would be received
for an asset or paid to transfer a liability (i.e., an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820 also
establishes a fair value hierarchy that requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 describes the following three levels of inputs that may be
used:





Level 1:
Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for identical assets and liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.





Level 2:
Observable prices that are based on inputs not quoted on active markets but
corroborated by market data.





Level 3:
Unobservable inputs when there is little or no market data available, thereby
requiring an entity to develop its own assumptions. The fair value hierarchy
gives the lowest priority to Level 3 inputs.





The table
below summarizes the fair values of our financial liabilities as of October 31,
2010:





Fair Value atOctober 31,
                            
                            
                            Fair Value Measurement Using2010
                            
                            
                            Level 1
                            
                            
                            Level 2
                            
                            
                            Level 3Derivative
      liability
                            
                            $
                            452,403
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            452,403$
                            452,403
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            452,403


20


SPARTA COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTE
K – FAIR VALUE MEASURMENTS (continued)





The table
below sets forth a summary of changes in the fair value of the Company’s Level 3
financial liabilities (derivative liabilities) for the six months ended October
31, 2010:





2010Balance
      at April 30, 2010
                
                $
                -Additions
      to derivative instruments
                
                
                170,820Change
      in fair value of warrant liability
                
                
                281,583Balance
      at October 31, 2010
                
                $
                452,403





The
following is a description of the valuation methodologies used for these
items:





Derivative liability— these
instruments consist of certain variable conversion features related to notes
payable obligations and certain outstanding warrants. These instruments were
valued using pricing models which incorporate the Company’s stock price,
volatility, U.S. risk free rate, dividend rate and estimated life.





The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented in the balance sheets at fair value in accordance with
ASC Topic 825.





NOTE L– SUBSEQUENT EVENTS





In
November 2010 and December 2010, the Company sold to two accredited investors
12,750,000 shares of its restricted common stock for $127,500





In
November 2010, the Company issued an aggregate of  1,792,235 shares
upon conversion of outstanding notes.





In
November 2010, the Company issued an aggregate of 296,000 shares pursuant to
penalty provisions of outstanding debt instruments.





In
November 2010, the Company issued 384,763 shares which had been accrued in the
prior fiscal year.





In
November 2010, the Company issued 1,000,000 shares pursuant to a consulting
agreement.





In
November 2010, the Company sold to one investor a $40,000 note convertible at
the holder’s option at a variable conversion price such that during the period
during which the notes are outstanding, the note is convertible at the greater
of (i) $0.0001or ( ii) 58% multiplied by the average of the lowest three lowest
closing bid prices for the common stock during the ten trading day period ending
one trading day prior to the submission date of the conversion notice by the
note holder to the Company; provided, however, that, the conversion rate is
subject to adjustment upon a merger, consolidation or other similar event, and,
if the Company issues or sells any shares of common stock for no consideration
or for a consideration per share that is less than the conversion price of the
note, or issues or grants convertible securities (including warrants, rights,
and options but not including employee stock option plans), with an conversion
price that is less than the conversion price of the note, then the conversion
price of the note will immediately be reduced to the consideration per share
received in such stock issuance or the conversion price of the convertible
securities issuance. The Company has reserved up to 21,739,130 shares of its
common stock for conversion pursuant to the terms of the note.  In the
event the note is not paid when due, the interest rate is increased to
twenty-two percent until the note is paid in full.





In
November 2010, the Company sold to two accredited investors two $25,000 one year
10% convertible notes. The unpaid principal of the notes are convertible at the
holder’s option at a price of $0.0163 per share. The notes have a default
interest rate of 20%. Additionally, the notes are subject to a minimum monthly
repayment schedule escalation from $500 in December 2010 to $5,750 in November
2011.


21


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2010


(UNAUDITED)





NOTEM – GOING CONCERN
MATTERS





The
accompanying unaudited condensed financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
accompanying financial statements during the period October 1, 2001 (date of
inception) through October 31, 2010, the Company incurred loss of $33,231,036.
Of these losses, $1,845,636 was incurred in the six months ending October 31,
2010 and $2,017,720  in the six months ending October 31, 2009. These
factors among others may indicate that the Company will be unable to continue as
a going concern for a reasonable period of time.





The
Company’s existence is dependent upon management’s ability to develop profitable
operations. Management is devoting substantially all of its efforts to
developing its business and raising capital and there can be no assurance that
the Company’s efforts will be successful. However, there can be no assurance can
be given that management’s actions will result in profitable operations or the
resolution of its liquidity problems. The accompanying statements do not include
any adjustments that might result should the Company be unable to continue as a
going concern.





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


22


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





General





The
following discussion of our financial condition and results of operations should
be read in conjunction with (1) our interim unaudited financial statements and
their explanatory notes included as part of this quarterly report, and (2) our
annual audited financial statements and explanatory notes for the year ended
April 30, 2010 as disclosed in our annual report on Form 10-K for that year as
filed with the SEC.





“Forward-Looking”
Information





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





RESULTS
OF OPERATIONS





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





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





Revenues





Revenues
totaled $164,835 during the three months ended October 31, 2010 as compared to
$188,546 during the three months ended October 31, 2009. Current period revenue
was comprised of $28,257 in lease revenue, $63,770 in interest income from RISC
loans, and $72,808 in other income. Prior period revenue was comprised of
$46,241 in lease revenue, $115,893 in interest income from RISC loans, and
$26,412 in other income.





Costs
and Expenses





General
and administrative expenses were $655,087 during the three months ended October
31, 2010, compared to $840,826 during the three months ended October 31, 2009, a
decrease of $185,739 or 22%. Expenses incurred during the current three month
period consisted primarily of the following expenses: Compensation and related
costs, $275,898; Accounting, audit and professional fees, $61,145; Consulting
fees, $45,274; Rent, utilities and telecommunication expenses $98,970; Travel
and entertainment, $7,898; and stock and option based compensation, $74,658.
Expenses incurred during the comparative three month period in 2009 consisted
primarily of the following expenses: Compensation and related costs, $332,749;
Accounting, audit and professional fees, $230,280; Consulting fees, $27,959;
Rent, utilities and telecommunications expenses, $112,374; Travel and
entertainment, $12,518; and stock and option based compensation, $71,624. 
For the three months ended October 31, 2010, we incurred a non-cash gain of
$248,137 related to fair value of derivative liabilities. For the three months
ended October 31, 2009, we incurred no derivative charges or gains.





Net
Loss





We
incurred a net loss before preferred dividends of $444,342 for our three months
ended October 31, 2010 as compared to $1,003,402 for the corresponding interim
period in 2009, a $559,060 or 55.7% decrease. The decrease in our net loss
before preferred dividends for our three month interim period ended October 31,
2010 was attributable primarily to a $248,137 reduction in derivative liability
from the first quarter. There was no derivative liability charge during the
prior fiscal year. Additionally there was a $101,341 or 51.8% decrease in
interest expense and financing costs partially off-set by a $50,591 or 128%
increase in non-cash financing costs.  We also incurred non-cash preferred
dividend expense of $114,349 for our three month period ended October 31, 2010,
with an expense of $19,671 in the corresponding interim period of 2009. The
increase in preferred dividend expense was attributable to the issuance of
series B Preferred stock during the 2009 quarter and under accrual in prior
quarters..


23





Our net
loss attributable to common stockholders decreased to $502,852 for our three
month period ended October 31, 2010 as compared to $1,023,072 for the
corresponding period in 2009. The $520,221 or 50.8% decrease in net loss
attributable to common stockholders for our three month period ended October 31,
2010 was due primarily to the $94,678 or  481% increase in preferred
dividends and the decrease in derivative liability described
above..





Comparison
of the Six Months Ended October 31, 2010 to the Six Months Ended October 31,
2009





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





Revenues





Revenues
totaled $296,982 during the six months ended October 31, 2010 as compared to
$405,350 during the six months ended October 31, 2009. Current period revenue
was comprised of $58,009 in lease revenue, $139,487 in interest income from RISC
Loans and $99,486 in other income. Prior period revenue was comprised of $99,310
in lease revenue, $254,758 in interest income from RISC Loans and $51,282 in
other income.





Costs
and Expenses





General
and administrative expenses were $1,373,755 during the six months ended October
31, 2010, compared to $1,433,023 during the six months ended October 31, 2009, a
decrease of $59,268, or 4.1%. Expenses incurred during the current six month
period consisted primarily of the following expenses: Compensation and related
costs, $573,396; Accounting, audit and professional fees, $150,657; Consulting
fees, $77,459; Rent, utilities and telecommunication expenses $187,239; Travel
and entertainment, $22,033; and stock and option based compensation, $220,665.
Expenses incurred during the comparative six month period in 2009 consisted
primarily of the following expenses: Compensation and related costs, $641,280;
Accounting, audit and professional fees, $289,044; Consulting fees, $66,825;
Rent, utilities and telecommunication expenses $200,841; Travel and
entertainment, $19,220; and stock and option based compensation,
$145,284.





For the
six months ended October 31, 2010, we incurred a non-cash charge of $105,777
related to shares of common stock and warrants issued for financing cost. For
the six months ended October 31, 2009, we incurred a non-cash charge of $272,109
of which  related to shares of common stock and warrants issued for
financing cost. For the six months ended October 31, 2010, we incurred a
non-cash charge of $361,105 related to fair value of derivative liabilities. For
the six months ended October 31, 2009, we incurred no such charges.





Net
Loss





We
incurred a net loss before preferred dividends of $1,756,137 for our six months
ended October 31, 2010 as compared to $1,997,858 for the corresponding interim
period in 2009. The $241,721 or 12.1% decrease in our net loss before preferred
dividends for our six month interim period ended October 31, 2010 was
attributable to a $108,368, 26.7%, decrease in revenue, a $59,268, 4.1% decrease
in general and administrative expenses, a $201,276, 84.4% increase in
depreciation and amortization, a $284,318, 61.8% decrease in interest expense
and financing cost, a $166,332, 61.1% decrease in non-cash financing costs and a
$361,105 derivative liability charge. There were no derivative liability charges
in the prior year.





We also
incurred non-cash preferred dividend expense of $154,107 for our six month
period ended October 31, 2010 as compared with a non-cash expense of $19,862 in
the corresponding interim period of 2009. The increase in preferred dividend
expense was attributable to the issuance of Series B Preferred Stock and under
accrual in prior six month period.





Our net
loss attributable to common stockholders decreased to $1,845,636 for our six
month period ended October 31, 2010 as compared to $2,017,720, for the
corresponding period in 2009. The $172,084 decrease in net loss attributable to
common stockholders for our six month period ended October 31, 2010 was due to
the decrease in net loss and the increase in preferred dividends.





24





LIQUIDITY
AND CAPITAL RESOURCES





As of
October 31, 2010, we had a deficit net worth of $2,413,277. We generated a
deficit in cash flow from operations of $654,878 for the six months ended
October 31, 2010. This deficit is primarily attributable to our net loss from
operations of $1,845,636, partially offset by depreciation and amortization of
$159,577, other non-cash charges totaling $841,186 and to changes in the
balances of current assets and liabilities. Accounts payable and accrued
expenses decreased by $198,565, other receivables and inventory increased $5,788
and portfolio assets declined by $5,051.





Cash
flows provided by investing activities for the six months ended October 31, 2010
was $542,064, primarily due to the net proceeds of RISC contracts of $496,461
and payments from motorcycle and vehicle leases of $45,603.





We met
our cash requirements during the six month period through net proceeds of notes
and convertible notes of  proceeds of notes payable $192,262, the net
proceeds from the sale of common and preferred equity in the amount of $176,219,
and the net proceeds from the sale of common and preferred equity of a
subsidiary in the amount of $303,059. We made net payments on senior secured
debt financing of $535,936. Additionally, we have received limited revenues from
leasing and financing motorcycles and other vehicles, fees from our municipal
lease program, and from our Preferred Provider Program.





We do not
anticipate incurring significant research and development expenditures, and we
do not anticipate the sale or acquisition of any significant property, plant or
equipment, during the next twelve months.  At October 31, 2010 we had 10
full time employees. If we fully implement our business plan, we anticipate our
employment base may increase by approximately 100% during the next twelve
months. As we continue to expand, we will incur additional cost for personnel.
This projected increase in personnel is dependent upon our generating revenues
and obtaining sources of financing. There is no guarantee that we will be
successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees.





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





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





We
estimate that we will need approximately $2,000,000 in addition to our normal
operating cash flow to conduct operations during the next twelve months. In
September 2010 we entered into an initial $5 million motorcycle lease purchase
facility with a subsidiary of a major fund. We are presently in negotiations
with this fund to initiate a automobile lease purchase facility. Additionally,
we have received a draft retail installment sales contract purchase agreement
from a subsidiary of a bank for automobile contracts.  Based on the above,
on capital received from equity financing to date, we believe that we have a
reasonable chance to raise sufficient capital resources to meet projected cash
flow deficits through the next twelve months.  There can be no assurance
that additional private or public financing, including debt or equity financing,
will be available as needed, or, if available, on terms favorable to us. Any
additional equity financing may be dilutive to stockholders and such additional
equity securities may have rights, preferences or privileges that are senior to
those of our existing common or preferred stock. Furthermore, debt financing, if
available, will require payment of interest and may involve restrictive
covenants that could impose limitations on our operating flexibility. However,
if we are not successful in generating sufficient liquidity from operations or
in raising sufficient capital resources, on terms acceptable to us, this could
have a material adverse effect on our business, results of operations, liquidity
and financial condition, and we will have to adjust our planned operations and
development on a more limited scale.





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


25





GOING
CONCERN ISSUES





The
independent auditors report on our April 30, 2010 and 2009 financial statements
included in the Company’s Annual Report states that the Company’s historical
losses and the lack of revenues raise substantial doubts about the Company’s
ability to continue as a going concern, due to the losses incurred and its lack
of significant operations. If we are unable to develop our business, we have to
discontinue operations or cease to exist, which would be detrimental to the
value of the Company’s common stock. We can make no assurances that our business
operations will develop and provide us with significant cash to continue
operations.





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





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





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





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





INFLATION





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





OFF-BALANCE
SHEET ARRANGEMENTS





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





TRENDS,
RISKS AND UNCERTAINTIES





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





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





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.


26





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 16% of the outstanding shares
of common stock, without giving effect to shares underlying convertible
securities, and therefore are in a position to elect all of our Directors and
otherwise control the Company, including, without limitation, authorizing the
sale of equity or debt securities of Sparta, the appointment of officers, and
the determination of officers’ salaries. Shareholders have no cumulative voting
rights.





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





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





CRITICAL
ACCOUNTING POLICIES





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





Revenue
Recognition





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





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


27





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





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





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





Stock-Based
Compensation





The
Company adopted ASC 718-10, which records compensation expense on a
straight-line basis, generally over the explicit service period of three to five
years.





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





Allowance
for Losses





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





The
Company charges-off receivables when an individual account has become more than
120 days contractually delinquent. In the event of repossession, the asset
is immediately sent to auction or held for release.





RECENT
ACCOUNTING PRONOUNCEMENTS





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


28


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.


29


PART
II. OTHER INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS





Not
applicable.





ITEM
      1A.
            RISK
      FACTORS





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





We
have an operating history of losses.





Through
our fiscal year ended April 30, 2010, we have generated cumulative sales
revenues of $4,010,634, have incurred significant expenses, and have sustained
significant losses. Our net loss for the year ended April 30, 2010 was
$4,141,179 (after $1,558,078 in non-cash charges).  As of April 30, 2010,
we had a deficit net worth of $1,603,763. Through our second quarter ended
October 31, 2010, we have generated cumulative sales revenues of $4,307,616,
have incurred significant expenses, and have sustained significant losses. Our
net loss for the six months ended October 31, 2010 was $1,845,636 (after
$620,989 in non-cash charges and dividends).  As of October 31, 2010, we
had a deficit net worth of $2,413,277.





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





In July
2005, we entered into a secured senior credit facility with New World Lease
Funding for a revolving line of credit.  New World received a security
interest in substantially all of our assets with seniority over the rights of
the holders of our preferred stock and our common stock.  Until the
security interests are released, those assets will not be available to us to
secure future indebtedness.  Presently, New World is not extending new
loans and is in liquidation.  However, we are not in default of our
agreement with them. As of October 31, 2010, we owed New World an aggregate of
$1,381,412 (which is secured by $1,676,611 of consumer Retail Installment Sales
Contracts and Leases and $89,470 of restricted cash) to New World.  In
granting the credit line, New World also required that we meet certain financial
criteria in order to pay dividends on any of our preferred shares and common
shares.  We may not be able to repay our outstanding indebtedness under the
credit line.





We
have an agreement for a master lease funding agreement.





In
September 2010, we entered into a two year $5 million master lease funding
agreement. Under this agreement we originate and underwrite motorcycle leases
pursuant to the credit criteria of the lender and sell the leases to the lender
for a fee. This type of agreement is known as a pass-through. The company is
liable for ten percent of the lender’s losses on the leases sold to it up to
$500,000. There can be no assurances that we can underwrite a sufficient number
of leases to fully utilize the initial amount of the agreement, and if we do
there can be no assurance that this lender will increase the amount of the
agreement.





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





In order
to expand our business, we need raise additional senior debt as well as capital
to support the portion of the future leases and retail installment sales
contracts which are not financed by the senior lender.  We generally refer
to this portion as the “equity requirement” and the “sub-debt
requirement”.  Presently, we have very limited operating capital to fund
the equity requirements for new financing transactions or to execute our
business plan.  In order to accomplish our business objectives, we expect
that we will require substantial additional financing within a relatively short
period.  The lack of capital has made it difficult to offer the full line
of financing products contemplated by our business plan.  Without a senior
bank line of credit, it will be extremely difficult to maintain and grow our
business.  We will have to raise approximately $2 million over the next
twelve months to support our business plan.  As our business grows, we will
need to seek additional financing to fund growth.  To the extent that our
revenues do not provide sufficient cash flow to cover such equity requirements
and any reserves required under any additional credit facility, we may have to
obtain additional financing to fund such requirements as may exist at that
time.  There can be no assurance that we will have sufficient capital or be
able to secure additional credit facilities when needed.  The failure to
obtain additional funds, when required, on satisfactory terms and conditions,
would have a material and adverse effect on our business, operating results and
financial condition, and ultimately could result in the cessation of our
business.


30




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





Our
auditor’s opinion expresses doubt about our ability to continue as a “going
concern”.





The
independent auditor’s report on our April 30, 2010 financial statements state
that our historical losses raise substantial doubts about our ability to
continue as a going concern.  We cannot assure you that we will be able to
generate revenues or maintain any line of business that might prove to be
profitable.  Our ability to continue as a going concern is subject to our
ability to generate a profit or obtain necessary funding from outside sources,
including obtaining additional funding from the sale of our securities,
increasing sales or obtaining credit lines or loans from various financial
institutions where possible.  If we are unable to develop our business, we
may have to discontinue operations or cease to exist, which would be detrimental
to the value of our common stock.  We can make no assurances that our
business operations will develop and provide us with significant cash to
continue operations.





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





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





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





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





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





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


31





Failure
to perfect a security interest could harm our business.





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





Risks
associated with leasing.





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





Adverse
changes in used vehicle prices may harm our business.





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





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





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





We
face significant competition in the industry.





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


32





Our
business is subject to various government regulations.





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




We
do not intend to pay dividends on our common stock.





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




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




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





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





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





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





Our
directors, executive officers and principal stockholders beneficially own
approximately 16% of our common stock as of October 31, 2010.  Accordingly,
these persons and their respective affiliates have the ability to exert
substantial control over the election of our Board of Directors and the outcome
of issues submitted to our stockholders, including approval of mergers, sales of
assets or other corporate transactions.  In addition, such control could
preclude any unsolicited acquisition of our company and could affect the price
of our common stock.


33





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





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


34


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





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





In the
three months ending October 31, 2010, the Company sold to an accredited investor
five one year, unsecured notes in the aggregate amount of $205,000.  The
notes bare 8% simple interest, payable in cash or shares, at the Company’s
option, with principal and accrued interest payable at maturity. At the
Company’s option, the notes are convertible into shares of common stock ranging
from $0.012 to $0.018 per share.





In the
three months ending October 31, 2010, the Company sold to seven accredited
investors two month, unsecured notes in the aggregate amount of $95,000. 
The notes bare 12% simple interest, payable in cash or shares, at the Company’s
option, with principal and accrued interest payable at maturity. In addition,
the Company issued at total of 850,000 shares of common stock valued at $22,500
as inducements for the loans.





In the
three months ending October 31, 2010, the Company sold to three accredited
investors 8,063,333 shares of common stock for $86,300 of which 6,930,000 shares
were classified as to be issued at October 31, 2010.


During
the quarter ended October 31, 2010, four note holders converted $175,473 of
notes into 12,445,921 shares of common stock.





During
the quarter ended October 31, 2010, the Company issued, pursuant to two
consulting agreements an aggregate of 3,000,000 shares of its common stock
valued at $54,000.





During
the quarter ended October 31, 2010, the Company issued, pursuant to a prior
conversion agreement, 685,000 additional shares of common stock.





In the
three months October 31, 2010, the Company’s majority owned subsidiary,
Specialty Reports, Inc., sold 31.4 shares of its Series A Preferred stock to ten
accredited investors for $157,000 and 21 shares of its Series B Preferred stock
to five accredited investors for $105,000.  The Series A Preferred stock
does not pay a dividend. Each share has a liquidating value of $5,000 and is
redeemable by Specialty Reports at any time after one year. Each share is
convertible at the holder’s option at any time into either 2,632 shares of
Specialty Reports common stock, or 277,778 shares of Sparta Commercial Services
common stock.  The Series B Preferred stock does not pay a dividend. Each
share has a liquidating value of $5,000 and is redeemable by Specialty Reports
at any time after one year. Each share is convertible at the holder’s option at
any time into either 2,222 shares of Specialty Reports common stock, or 200,000
shares of Sparta Commercial Services common stock.





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES





Not
applicable.





ITEM
      4.
            (REMOVED
      AND RESERVED)





Not
applicable.





ITEM
      5.
            OTHER
      INFORMATION





None


35





ITEM
6.   EXHIBITS





The
following exhibits are filed with this report:





Exhibit
      No.
                  
                  Description10.1
                  
                  Motorcycle
      Lease Warehousing Master Lease Funding Agreement dated September 28, 2010
      between registrant and Vion Operations LLC (incorporated by reference to
      Exhibit 10 of Form 8-K filed on September 29, 2010)10.2
                  
                  Motorcycle
      Lease Warehousing Master Services Agreement dated September 28, 2010
      between registrant and Vion Operations LLC (incorporated by reference to
      Exhibit 10.2 of Form 8-K filed on September 29, 2010)11
                  
                  Statement
      re: computation of per share earnings is hereby incorporated by reference
      to “Financial Statements” of Part I - Financial Information, Item 1 -
      Financial Statements, contained in this Form 10-Q.31.1*
                  
                  Certification
      of Chief Executive Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)31.2*
                  
                  Certification
      of Principal Financial Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)32.1*
                  
                  Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    135032.2*
                  
                  Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section
      1350





* Filed
herewith


36


SIGNATURES





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





SPARTA
      COMMERCIAL SERVICES, INC.Date:  December
      20, 2010
              By:
              /s/ Anthony L. HavensAnthony
      L. HavensChief
      Executive OfficerDate:  December
      20, 2010
              By:
              /s/ Anthony W. AdlerAnthony
      W. AdlerPrincipal
      Financial Officer


37