UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





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





For
the quarterly period ended July 31, 2009





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





For the
transition period from ________ to ___________.





Commission
file number: 0-9483





SPARTA
COMMERCIAL SERVICES, INC.


(Exact
name of registrant as specified in its charter)




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





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


(Address
of principal executive offices)  (Zip Code)





(212)
239-2666


(Registrant’s
telephone number, including area code)





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





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





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


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





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





As of
September 17, 2009, we had 317,282,431shares of common stock issued
and outstanding.











SPARTA COMMERCIAL SERVICES, INC.





FORM
10-Q


FOR
THE QUARTER ENDED JULY 31, 2009





TABLE
OF CONTENTS





PagePART
      I.
                        FINANCIAL
      INFORMATIONItem
      1.
                        Financial
      Statements(Unaudited)
                        3Condensed
      Consolidated Balance Sheets as of July 31, 2009 and April 30,
      2009
                        3Condensed
      Consolidated Statements of Losses for the Three Months Ended July 31,
      2009 and 2008
                        4Condensed
      Consolidated Statement of Stockholders’ Deficitfor
      theThree
      Months ended July 31, 2009
                        5Condensed
      Consolidated  Statements of Cash Flows for the Three Months
      Ended July 31, 2009 and 2008
                        6Notes
      to Unaudited Consolidated Financial Statements
                        7Item
      2.
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        21Item
      3.
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        26Item
      4.
                        Controls
      and Procedures
                        26PART
      II.
                        OTHER
      INFORMATIONItem
      1
                        Legal
      Proceedings
                        28Item
      1A
                        Risk
      Factors
                        28Item
      2.
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        33Item
      3.
                        Defaults
      Upon Senior Securities
                        33Item
      4.
                        Submission
      of Matters to a Vote of Security Holders
                        33Item
      5.
                        Other
      Information
                        34Item
      6.
                        Exhibits
                        34Signatures
                        
                        35




2




PART I.  FINANCIAL
INFORMATION




ITEM
      1.
            FINANCIAL STATEMENTS




SPARTA
COMMERCIAL SERVICES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





July
      31,
              2009
              (Unaudited)
            
            
            April
      30,
              2009ASSETSCash
      and cash equivalents
            
            $
            3,713
            
            
            $
            2,790RISC
      loan receivable, current, net of reserve of $200,943 and $235,249 as
      ofJuly
      31, 2009 and April 30, 2009, respectively (NOTE D)
            
            
            2,716,084
            
            
            
            3,248,001Motorcycles
      and other vehicles under operating leases, net of
    accumulatedaccumulated
      depreciation of $238,490 and $256,485, as of July 31,2009
    andApril
      30, 2009, respectively and loss reserve of $28,040 and $32,726, as
      ofJuly
      31, 2009 and April 30, 2009, respectively (NOTE B)
            
            
            540,766
            
            
            
            621,797Interest
      receivables
            
            
            40,789
            
            
            
            49,160,Purchased
      Portfolio (NOTE F)
            
            
            54,695
            
            
            
            72,635Accounts
      receivable
            
            
            48,018
            
            
            
            17,899Inventory
      (NOTE C)
            
            
            15,116
            
            
            
            12,514Property
      and equipment, net of accumulated depreciation andamortization
      of $152,385 and $147,905, respectively (NOTE E)
            
            
            38,862
            
            
            
            43,342Prepaid
      expenses
            
            
            504,500
            
            
            
            593,529Restricted
      cash
            
            
            271,650
            
            
            
            348,863Deposits
            
            
            48,967
            
            
            
            48,967Total
      assets
            
            $
            4,283,159
            
            
            $
            5,059,497LIABILITIES
      AND STOCKHOLDERS’ DEFICITBank
      overdraft
            
            $
            19,975
            
            
            $
            57,140Accounts
      payable and accrued expenses
            
            
            1,620,137
            
            
            
            1,851,876Notes
      payable - Senior Lender (NOTE F)
            
            
            3,127,230
            
            
            
            3,694,838Notes
      payable (NOTE G)
            
            
            1,723,899
            
            
            
            5,102,458Loans
      payable related parties (NOTE H)
            
            
            378,260
            
            
            
            378,260Other
      liabilities
            
            
            -
            
            
            
            88,285Deferred
      revenue
            
            
            11,700
            
            
            
            13,050Total
      liabilities
            
            
            6,881,202
            
            
            
            11,185,907Stockholders’
      deficit:Preferred
      stock, $0.001 par value; 10,000,000 shares authorized of which
      35,850shares
      have been designated as Series A convertible preferred stock, with
      astated
      value of $100 per share, 125 and 125 shares issued and outstanding,
      asof
      July 31, 2009 and April 30, 2009, respectively
            
            $
            12,500
            
            
            $
            12,500Common
      stock, $0.001 par value; 340,000,000 shares authorized,
      308,656,684and
      170,730,064 shares issued and outstanding, as of July 31, 2009
      andApril
      30, 2009, respectively
            
            
            308,657
            
            
            
            170,730Common
      stock to be issued, 1,540,950 and 16,735,453 shares, as ofJuly
      31, 2009 and April 30, 2009, respectively
            
            
            1,541
            
            
            
            16,735Additional
      paid-in capital
            
            
            25,220,953
            
            
            
            20,820,672Accumulated
      deficit
            
            
            (28,141,694
            )
            
            
            (27,147,047
            )Total
      stockholders’ deficit
            
            
            (2,598,043
            )
            
            
            (6,126,410
            )Total
      liabilities and stockholders’ deficit
            
            $
            4,283,159
            
            
            $
            5,059,497




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




3




SPARTA COMMERCIAL SERVICES,
INC.


CONDENSED
CONSOLIDATED STATEMENTS OF LOSSES


FOR
THE THREE MONTHS ENDED JULY 31, 2009 AND 2008


(UNAUDITED)





Three
      Months EndedJuly
      31,2009
            
            
            2008Revenue:Rental
      Income, Leases
            
            $
            53,068
            
            
            $
            89,694Interest
      Income, Loans
            
            
            138,865
            
            
            
            204,044Other
            
            
            24,870
            
            
            
            101,182Total
      Revenues
            
            
            216,804
            
            
            
            394,919Operating
      expenses:General
      and administrative
            
            
            592,197
            
            
            
            1,364,152Depreciation
      and amortization
            
            
            122,692
            
            
            
            61,083Total
      operating expenses
            
            
            714,889
            
            
            
            1,425,235Loss
      from operations
            
            
            (498,085
            )
            
            
            (1,030,316
            )Other
      expense:Interest
      expense and financing cost, net
            
            
            (496,371
            )
            
            
            (678,727
            )Net
      loss
            
            
            (994,456
            )
            
            
            (1,709,042
            )Preferred
      dividend payable
            
            
            191
            
            
            
            1,261Net
      loss attributed to common stockholders
            
            $
            (994,647
            )
            
            $
            (1,710,304
            )Basic
      and diluted loss per share
            
            $
            (0.01
            )
            
            $
            (0.01
            )Basic
      and diluted loss per share attributed tocommon
      stockholders
            
            $
            (0.01
            )
            
            $
            (0.01
            )Weighted
      average shares outstanding
            
            
            178,702,244
            
            
            
            146,924,245





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




4


SPARTA COMMERCIAL SERVICES, INC.
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
 FOR
THE THREE MONTHS ENDED JULY 31, 2009
  Common
      Stock
                                                                              
                                                                              
                                                                              AdditionalPreferred
      Stock
                                                                              
                                                                              
                                                                              Common
      Stock
                                                                              
                                                                              
                                                                              to
      be issued
                                                                              
                                                                              
                                                                              Paid
      in
                                                                              
                                                                              
                                                                              Deferred
                                                                              
                                                                              
                                                                              AccumulatedShares
                                                                              
                                                                              
                                                                              Amount
                                                                              
                                                                              
                                                                              Shares
                                                                              
                                                                              
                                                                              Amount
                                                                              
                                                                              
                                                                              Shares
                                                                              
                                                                              
                                                                              Amount
                                                                              
                                                                              
                                                                              Capital
                                                                              
                                                                              
                                                                              Compensation
                                                                              
                                                                              
                                                                              Deficit
                                                                              
                                                                              
                                                                              TotalBalance,
      April 30, 2009
                                                                              
                                                                              
                                                                              125
                                                                              
                                                                              
                                                                              $
                                                                              12,500
                                                                              
                                                                              
                                                                              
                                                                              170,730,064
                                                                              
                                                                              
                                                                              $
                                                                              170,730
                                                                              
                                                                              
                                                                              
                                                                              16,735,453
                                                                              
                                                                              
                                                                              $
                                                                              16,735
                                                                              
                                                                              
                                                                              $
                                                                              20,820,672
                                                                              
                                                                              
                                                                              $
                                                                              -
                                                                              
                                                                              
                                                                              $
                                                                              (27,147,047
                                                                              )
                                                                              
                                                                              $
                                                                              (6,126,410
                                                                              )Cancellation
      of shares
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (400
                                                                              )
                                                                              
                                                                              
                                                                              (0.40
                                                                              )
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              0.4
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -Sale
      of Stock
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              1,007,049
                                                                              
                                                                              
                                                                              
                                                                              1,007
                                                                              
                                                                              
                                                                              
                                                                              48,993
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              50,000Shares
      issued forpreferred
      stock conversion
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              10,733,974
                                                                              
                                                                              
                                                                              
                                                                              10,733
                                                                              
                                                                              
                                                                              
                                                                              (10,733,980
                                                                              )
                                                                              
                                                                              
                                                                              (10,733
                                                                              )
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -Accrued
      Preferred Div.
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (191
                                                                              )
                                                                              
                                                                              
                                                                              (191
                                                                              )Shares
      issued for financing cost
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              1,458,000
                                                                              
                                                                              
                                                                              
                                                                              1,458
                                                                              
                                                                              
                                                                              
                                                                              348,000
                                                                              
                                                                              
                                                                              
                                                                              348
                                                                              
                                                                              
                                                                              
                                                                              99,754
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              101,560Shares
      issued for Accrued interest
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              200,000
                                                                              
                                                                              
                                                                              
                                                                              200
                                                                              
                                                                              
                                                                              
                                                                              (200,000
                                                                              )
                                                                              
                                                                              
                                                                              (200
                                                                              )
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -Shares
      issued for conversion of notes & int.
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              122,286,961
                                                                              
                                                                              
                                                                              
                                                                              122,289
                                                                              
                                                                              
                                                                              
                                                                              (3,615,520
                                                                              )
                                                                              
                                                                              
                                                                              (3,615
                                                                              )
                                                                              
                                                                              
                                                                              4,003,564
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              4,122,237Stock
      compensation
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              2,500,000
                                                                              
                                                                              
                                                                              
                                                                              2,500
                                                                              
                                                                              
                                                                              
                                                                              (2,000,000
                                                                              )
                                                                              
                                                                              
                                                                              (2,000
                                                                              )
                                                                              
                                                                              
                                                                              29,000
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              29,500Shares
      issued for payables
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              748,086
                                                                              
                                                                              
                                                                              
                                                                              748
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              43,799
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              44,547Employee
      Option Expense
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              43,660
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              43,660Warrant
      Compensation
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              131,511
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              131,511Net
      Loss
                                                                              
                                                                              
                                                                              --
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (994,456
                                                                              )
                                                                              
                                                                              
                                                                              (994,456
                                                                              )Balance,
      July 31, 2009
                                                                              
                                                                              
                                                                              125
                                                                              
                                                                              
                                                                              $
                                                                              12,500
                                                                              
                                                                              
                                                                              
                                                                              308,656,684
                                                                              
                                                                              
                                                                              $
                                                                              308,657
                                                                              
                                                                              
                                                                              
                                                                              1,541,002
                                                                              
                                                                              
                                                                              $
                                                                              1,541
                                                                              
                                                                              
                                                                              $
                                                                              25,220,953
                                                                              
                                                                              
                                                                              $
                                                                              -
                                                                              
                                                                              
                                                                              $
                                                                              (28,141,694
                                                                              )
                                                                              
                                                                              $
                                                                              (2,598,043
                                                                              )
  The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  5




SPARTA COMMERCIAL SERVICES,
INC.


CONDENSED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED JULY 31, 2009 AND 2008


(UNAUDITED)





Three
      Months EndedJuly
      31,2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (994,456
            )
            
            $
            (1,709,042
            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
            
            
            31,663
            
            
            
            61,083Allowance
      for loss reserve
            
            
            (38,992
            )
            
            
            (1,330
            )Amortization
      of deferred revenue
            
            
            (1,350
            )
            
            
            (3,850
            )Amortization
      of beneficial conversion features
            
            
            -
            
            
            
            318,182Equity
      based compensation
            
            
            204,671
            
            
            
            770,364Stock
      based financing cost
            
            
            101,560
            
            
            
            -Changes
      in operating assets and liabilities:(Increase)
      decrease in:Interest
      receivable
            
            
            (10,149
            )
            
            
            (6,256
            )Prepaid
      expenses and other assets
            
            
            (41,442
            )
            
            
            (26,927
            )Restricted
      cash
            
            
            77,214
            
            
            
            (9,598
            )Increase
      (decrease) in:Accounts
      payable and accrued expenses
            
            
            257,138
            
            
            
            (119,086
            )Net
      cash provided by (used) in operating activities
            
            
            (414,143
            )
            
            
            (726,458
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      Proceeds from  (Payments for) motorcycles and other
      vehicles
            
            
            103,713
            
            
            
            242,511Net
      Purchases from (payments for) of RISC contracts
            
            
            566,223
            
            
            
            (393,354
            )Net
      cash provided by (used in) investing activities
            
            
            669,935
            
            
            
            (150,843
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Sale
      of common stock
            
            
            50,000
            
            
            
            -Proceeds
      from (payments to) notes from senior lender
            
            
            (566,105
            )
            
            
            107,147Net
      Proceeds from (payments on) convertible notes
            
            
            -
            
            
            
            842,500Net
      Proceeds from (payments on) other notes
            
            
            298,399
            
            
            
            (84,000
            )Net
      Loan proceeds from other related parties
            
            
            -
            
            
            
            7,500Net
      cash provided by  (used in )financing activities
            
            
            (217,706
            )
            
            
            873,147Net Increase (decrease) in cash
            
            
            38,086
            
            
            
            (4,154
            )Cash
      and cash equivalents, beginning of period
            
            $
            (54,349
            )
            
            $
            68,642Cash
      and cash equivalents, end of period
            
            $
            (16,261
            )
            
            $
            64,488Cash
      paid for:Interest
            
            $
            118,077
            
            
            $
            103,142Income
      taxes
            
            $
            -
            
            
            $
            993Non-Cash
      Transactions:Common
      stock issued in exchange for previously incurred debt and other
      liabilities
            
            $
            4,170,400
            
            
            
            700,000





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




6





SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES





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





Basis of
Presentation





The
accompanying unaudited condensed consolidated financial statements as of July
31, 2009 and for the three month periods ended July 31, 2009 and 2008 have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission, including Form 10-Q and Regulation S-K and Form 10-QSB
and Regulation S-B. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments), which are, in the
opinion of management, necessary to fairly present the operating results for the
respective periods. Certain information and footnote disclosures normally
present in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations. The Company believes that the
disclosures provided are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
audited financial statements and explanatory notes for the year ended April 30,
2009 as disclosed in the Company’s 10-K for that year as filed with the SEC, as
it may be amended.





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 from DZ
Bank (see Part II, Item 1A).





The
results of the three months ended July 31, 2009 are not necessarily indicative
of the results to be expected for the full year ending April 30,
2010.





Estimates





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





Revenue
Recognition





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




7




SPARTA COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(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.





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





Inventories





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





Website Development
Costs





The
Company recognizes website development costs in accordance with Emerging Issue
Task Force ("EITF") No.
00-02, "Accounting for Website
Development Costs." As such, the Company expenses all costs incurred that
relate to the planning and post implementation phases of development of its
website. Direct costs incurred in the development phase are capitalized and
recognized over the estimated useful life. Costs associated with repair or
maintenance for the website are included in cost of net revenues in the current
period expenses.





Cash
Equivalents





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




8




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(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 Statements of Financial
Standards No. 109, "Accounting
for Income Taxes". Under this method, deferred tax assets and liabilities
are recognized for temporary differences between the tax bases of assets and
liabilities and their carrying values for financial reporting purposes and for
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
removed or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statements of operations in the period
that includes the enactment date.





In June
2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, treatment of interest and penalties, and
disclosure of such positions. As a result of implementing FIN 48, there has been
no adjustment to the Company’s financial statements and the adoption of FIN 48
did not have a material effect on the Company’s consolidated financial
statements for the year ending April 30, 2009 or the three months ended July 31,
2009.





Fair Value
Measurements




Effective
May 1, 2009, the Company adopted SFAS No. 157,Fair Value Measurements
(SFAS 157). SFAS 157 establishes a three-level fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value.
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 SFAS 157 are described below:





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




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




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





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




9




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





Impairment of Long-Lived
Assets





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





Comprehensive
Income





Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. At July 31, 2009 and April 30, 2009, the Company has no
items of other comprehensive income.





Segment
Information





The
Company does not have separate, reportable segments under Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected
information for those segments to be presented in interim financial reports
issued to stockholders. SFAS 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The information disclosed herein, materially
represents all of the financial information related to the Company's principal
operating segment.





Stock Based
Compensation





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





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




10




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





Concentrations of Credit
Risk





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





Allowance for
Losses





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





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





Property and
Equipment





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




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





Advertising
Costs





The
Company follows a policy of charging the costs of advertising to expenses
incurred. During the three months ended July 31, 2009, the Company incurred no
advertising costs.





Net Loss Per
Share





The
Company uses SFAS No. 128, “Earnings Per Share” for
calculating the basic and diluted loss per share. The Company computes basic
loss per share by dividing net loss and net loss attributable to common
shareholders by the weighted average number of common shares outstanding. Common
equivalent shares are excluded from the computation of net loss per share if
their effect is anti-dilutive.




11




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)





Per share
basic and diluted net loss attributable to common stockholders amounted to $0.01
and $0.01 for the quarters ended July 31, 2009 and 2008, respectively. At July
31, 2009 and 2008, 35,672,510 and 30,302,766 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 $994,456 and $4,921,846 during the three months ended July 31,
2009 and the year ended April 30, 2009, respectively. The Company’s liabilities
exceed its assets by $2,598,044 as of July 31, 2009.





Reclassifications





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





Recent Accounting
Pronouncements




In May of
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”This statement identifies literature established
by the FASB as the source for accounting principles to be applied by entities
which prepare financial statements presented in conformity with generally
accepted accounting principles (GAAP) in the United States. This statement is
effective 60 days following approval by the SEC of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”This statement
will require no changes in the Company’s financial reporting
practices.
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS
165”). This Statement is intended to establish general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. This disclosure
should alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. SFAS 165 is effective for interim and annual periods ending after
June 15, 2009. We adopted SFAS No. 165 in the first quarter of fiscal 2010 and
it did not result in significant changes to reporting of subsequent events
either through recognition or disclosure.
  In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162" ("SFAS 168"). SFAS 168 establishes
the FASB Accounting Standards Codification ("ASC") as the source of
authoritative accounting principles recognized by the FASB. Following this
statement, the FASB will issue new standards in the form of Accounting Standards
Updates ("ASUs"). SFAS 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009 and therefore is
effective in the second quarter of fiscal 2010. The issuance of SFAS 168 will
not change GAAP and therefore the adoption of SFAS 168 will only affect the
specific references to GAAP literature in the notes to the consolidated
financial statements.




12




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)




NOTE
B - MOTORCYCLES UNDER OPERATING LEASE





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





July
      31,
            
            
            April
      30,2009
            
            
            2009Motorcycles
      and other vehicles
            
            $
            807,296
            
            
            $
            911,008Less:
      accumulated depreciation
            
            
            (238,490
            )
            
            
            (256,485
            )Motorcycles
      and other vehicles, net of accumulated depreciation
            
            
            568,806
            
            
            
            654,523Less:
      estimated reserve for residual values
            
            
            (28,040
            )
            
            
            (32,726
            )Motorcycles
      and other vehicles under operating leases, net
            
            $
            540,766
            
            
            $
            621,797





Depreciation
expense was $27,183 and $173,337 for the quarter ended July 31, 2009 and the
year ended April 30, 2009, respectively. Depreciation expense for the quarter
ended July 31, 2008 was $56,603.




13




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
C - INVENTORY





Inventory
is comprised of repossessed vehicles and vehicles which have been returned at
the end of their lease. Inventory is carried at the lower of depreciated cost or
market, applied on a specific identification basis. At July 31, 2009 the Company
had repossessed vehicles valued at market of $15,116. At April 30, 2009, the
Company had repossessed vehicles of value $12,514.




NOTE
D - RETAIL (RISC) LOAN RECEIVABLES





RISC loan
receivables, which are carried at cost, were $2,917,027 and $3,483,250 at July
31, 2009 and April 30, 2009, respectively, including deficiency receivables of
$46,409 and $122,554, respectively. The following is a schedule by years of
future principal payments related to these receivables. Certain of the assets
are pledged as collateral for the note described in Note F.





Year
      ending July 31,2010
            
            $
            881,2152011
            
            
            932,2952012
            
            
            768,7462013
            
            
            333,8752014
            
            
            896$
            2,917,027





NOTE E - PROPERTY AND EQUIPMENT





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




July
      31,
              2009
            
            
            April
      30,
              2009Computer
      equipment, software and furniture
            
            $
            191,247
            
            
            $
            191,247Less:
      accumulated depreciation and amortization
            
            
            (152,385
            )
            
            
            (147,905
            )Net
      property and equipment
            
            $
            38,862
            
            
            $
            43,342





Depreciation
expense was $4,480 and $17,919 for the quarter ended July 31, 2009 and the
year ended April 30, 2009, respectively. Depreciation expense for
the quarter ended July 31, 2008 was $4,480.




NOTE F - NOTES PAYABLE - SENIOR
LENDER





(a)
            The
      Company finances certain of its leases through a third party. The
      repayment terms are generally one year to five years and the notes are
      secured by the underlying assets. The weighted average interest rate at
      July 31, 2009 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
      and agreed to pay the remaining $20,000 upon receipt of additional
      Purchase Portfolio documentation.  Proceeds from the Purchased
      Portfolio start accruing to the Company beginning November 1,
      2008.




14




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
F - NOTES PAYABLE - SENIOR LENDER (continued)





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





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





As of
July 31, 2009, the Company carries the Purchased Portfolio at $54,695
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 $105,012, which is net of note reductions and is net of
$12,500 in deferred financing costs that will be amortized over the estimated
term of the Senior Secured Note.





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




12
      months ended July 31,
            
            Amount2010
            
            $
            1,112,2672011
            
            
            942,0192012
            
            
            767,4742013
            
            
            305,3182014
            
            
            152Total
            
            $
            3,127,230




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




NOTE
G – NOTES PAYABLE





Notes
      Payable
            
            July
      31,
              2009
            
            
            April
      30,
              2009Convertible
      notes (a)
            
            $
            689,500
            
            
            $
            4,055,560Notes
      payable (b)
            
            
            535,000
            
            
            
            547,500Bridge
      loans (c)
            
            
            176,000
            
            
            
            176,000Collateralized
      note (d)
            
            
            220,000
            
            
            
            220,000Convertible
      note (e)
            
            
            103,399
            
            
            
            103,399Total
            
            $
            1,723,899
            
            
            $
            5,102,458




15




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
G – NOTES PAYABLE (continued)





(a)
            As
      of July 31, 2009, the Company had outstanding convertible unsecured and
      convertible demand notes with an original aggregate principal amount of
      $649,500, which accrue interest ranging from 6% to 10% per
      annum.  All of the notes are current. The majority of the notes
      are convertible into shares of common stock, at the Company’s option,
      ranging from $0.013 to $0.08 per share.  The Company had
      outstanding notes that are convertible, at the holder’s option, of
      $223,399 with a conversion prices ranging from $0.02 to $0.06 per share.
      The holders of these later notes have agreed to contingently convert their
      notes plus accrued interest into shares of the Company’s common stock upon
      theCompany’s
      ability to meet all conditions precedent to begin drawing down on the DZ
      Bank’s credit facility.  The balance of the notes are
      convertible at the Company’s
option.





(b)
            As
      of July 31, 2009, the Company had outstanding unsecured notes with an
      original principal amount of $535,500, which accrues interest ranging from
      6% to 12% per annum of which $100,000 was past due with the remaining
      notes maturing by September 2009. In August 2009, $17,500 of the notes
      plus accrued interest were converted into shares of the Company’s common
      stock.  The holder of an additional $25,000 in notes has agreed
      to convert his note and the accrued interest thereon into shares of the
      Company’s common stock.  Note holders with outstanding balances
      totaling $235,000, which are current, have agreed to contingently convert
      their notes plus accrued interest into shares of the Company’s common
      stock upon theCompany’s
      ability to meet all conditions precedent to begin drawing down on the DZ
      Bank’s credit facility.





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





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




16




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
G – NOTES PAYABLE (continued)





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





NOTE
H - LOANS PAYABLE TO RELATED PARTIES





At July
31, 2009 and April 30, 2009, included in accounts receivable, are $169 and $169,
respectively, due from American Motorcycle Leasing Corp., a company controlled
by a director and formerly controlled by the Company's Chief Executive Officer,
for the purchase of motorcycles.





NOTE I
- FAIR VALUE MEASUREMENTS





The
following table sets forth certain liabilities as of July 31, 2009 which are
measured at fair value on a recurring basis by level within the fair value
hierarchy. As required by SFAS No. 157, these are classified based on
the lowest level of input that is significant to the fair value measurement, (in
thousands):





(in
      thousands)
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3RISC
      Loan receivables
            
            $
            –
            
            
            $
            2,716,084
            
            
            $
            –Senior
      secured notes payable
            
            
            –
            
            
            
            –
            
            
            $
            3,127,230Loans
      payable-related party
            
            
            –
            
            
            
            –
            
            
            $
            378,260Notes
      payable
            
            
            –
            
            
            
            –
            
            
            $
            1,723,899




NOTE
J - EQUITY TRANSACTIONS





The
Company is authorized to issue 10,000,000 shares of preferred stock with $0.001
par value per share, of which 35,850 shares have been designated as Series A
convertible preferred stock with a $100 stated value per share, and 1,000 shares
have been designated as Series B Preferred Stock with a $10,000 stated value per
share, and 340,000,000 shares of common stock with $0.001 par value per share.
The Company had 125 and 125 shares of Series A preferred stock issued and
outstanding as of July 31, 2009 and April 30, 2009, respectively.  No
shares of Series B Preferred stock had been issued as of July 31, 2009. The
Company has 308,656,684 and 170,730,064 shares of common stock issued and
outstanding as of July 31, 2009 and April 30, 2009, respectively.




17


SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
J - EQUITY TRANSACTIONS (continued)





Preferred Stock Series
A





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





Preferred Stock Series
B





On July
24, 2009, the Company designated 1,000 shares as Series B Preferred
Stock.  The Series B shares, with respect to dividend rights and
rights upon liquidation, winding-up or dissolution, rank senior to the Company’s
common stock and any other class or series of preferred stock, and junior to all
of the Company’s existing and future indebtedness.  The Series B
shares accrue dividends at an annual rate of 10%.  Accrued dividends
are payable upon redemption of the Series B shares.  The Company’s
common stock may not be redeemed while Series B shares are
outstanding.  The Series B certificate of designations provides that,
without the approval of a majority of the Series B shares, the Company cannot
authorize or create any class of stock ranking as to distribution of assets upon
a liquidation senior to or otherwise pari passu with the Series B shares,
liquidate, dissolve or wind-up the Company’s business and affairs, or effect
certain fundamental corporate transactions, or otherwise alter or change
adversely the powers, preferences or rights given to the Series B
shares.  The Series B shares have a liquidation preference per share
equal to the original price per share thereof plus all accrued dividends thereon
upon liquidation, including upon consummation of certain fundamental corporate
transactions, dissolution, or winding up of the Company’s
company.  The Series B shares are redeemable at the Company’s option
on or after the fifth anniversary of the date of its issuance.





On July
29, 2009, the Company entered into a Preferred Stock Purchase Agreement with
Optimus Capital Partners, LLC, an unaffiliated investment fund.  Under
the agreement, Optimus is committed to purchase up to $5,000,000 of the
Company’s Series B Preferred Stock for a one year period.  From time
to time, the Company may send a notice requiring Optimus to purchase shares of
the Company’s Series B Preferred Stock, subject to satisfaction of certain
closing conditions.  Optimus will not be obligated to purchase the
Series B Preferred Stock (i) in the event the closing price of the Company’s
common stock during the nine trading days following delivery of a purchase
notice falls below 75% of the closing price on the trading day prior to the date
such notice is delivered to Optimus, or (ii) to the extent such purchase would
result in Optimus and its affiliates beneficially owning more than 9.99% of the
Company’s common stock.





The
Company agreed to file after each drawn down, and to seek and maintain
effectiveness of, a registration statement covering the shares underlying the
issued warrants. On the earlier of the first draw down or 6 months from the date
of the agreement, the Company are to pay a non-refundable commitment fee of
$250,000.00 to Optimus. Pursuant to a concurrent transaction between Optimus may
borrow up to 33,990,000 shares of the Company’s common stock from several of the
Company’s non-affiliated stockholders.  On July 31, 2009, pursuant to
the agreement, the Company requested Optimus to purchase 90 shares of the
Company’s Series B Preferred Stock valued at $900,000 and issued 13,500,000 five
year warrants to purchase 13,500,000 shares of common stock at $0.09 per
share.  On August 14, 2009, the Company sold to Optimus 90 shares of
Series B Preferred stock for gross proceeds of $900,000.




18




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE
J - EQUITY TRANSACTIONS (continued)





On the
date of delivery of each purchase notice under the agreement, the Company will
also issue to Optimus five-year warrants to purchase the Company’s common stock
at an exercise price equal to the closing price of the Company’s common stock on
the trading day prior to the delivery date of the notice. The number of shares
issuable upon exercise of the warrant will be equal in value to 135% of the
purchase price of the Series B Preferred Stock to be issued in respect of the
related notice.  Each warrant will be exercisable on the earlier of
(i) the date on which a registration statement registering for resale the shares
of common stock issuable upon exercise of such warrant becomes effective and
(ii) the date that is six months after the issuance date of such
warrant.





Common
Stock





During
the quarter ended July 31, 2009 and the quarter ended July 31, 2008, the Company
expensed $43,660 and $67,249, respectively, for non-cash charges related to
stock and option compensation expense.





During
the quarter ended July 31, 2009:





·
            the
      Company sold 1,007,049 shares of its common stock for $50,000, the shares
      were classified as to be issued as of July 31, 2009 and issued three year
      warrants to purchase 1,007,049 shares of its common stock exercisable at
      $0.15 per share;


·
            the
      Company issued, pursuant to penalty provisions of notes, 1,458,000 shares
      of unregistered common stock, valued at $101,560 ;the Company issued,
      pursuant to the terms of a note, 200,000 shares of its common stock in
      payment of $6,600 in accrued interest and $3,400 for principal reduction
      of the note;


·
            the
      Company issued 122,286,961 shares of unregistered common stock, (of which
      3,615,520 had been classified as shares to be issued as of April 30,
      2009) valued at $4,122,237, upon conversion of $3,708,058 in convertible
      notes  and accrued interest resulting in an increase in
      additional-paid-in capital of
$4,003,564;


·
            the
      Company issued, pursuant to a consulting agreement, 2,500,000 shares of
      its common stock valued at $29,500 (2,000,000 of these shares has been
      carried as shares to be issued as of April 30, 2009);
  and


·
            the
      Company issued 748,086 shares of common stock under its 2009 Consultant
      Stock Plan in satisfaction of accounts payable of
  $44,547.





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





On May 1,
2009, the Company adopted its 2009 Consultant Stock Plan.  The plan
provides for the issuance of up to 10,000,000 shares of the Company’s common
stock, pursuant to stock awards, to eligible consultants.  The plan is
effective for ten years from its adoption.




19




SPARTA
COMMERCIAL SERVICES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JULY
31, 2009


(UNAUDITED)





NOTE K - SUBSEQUENT
EVENTS





In
accordance with SFAS No. 165, the Company has evaluated subsequent events
through the date of this filing.




In August
2009, the Company issued 100,000 shares of common stock pursuant to a 10% bridge
note issued in December 2008.





In August
2009, the Company issued 660,000 shares of common stock pursuant to penalty
provisions of certain of the Company’s outstanding notes.





In August
and September 2009, $237,500 of the Company’s notes and accrued interest thereon
were converted into 7,365,753 shares of common stock.





In
September 2009, pursuant to a March 2009 consulting agreement, the Company
issued 500,000 shares of its common stock.





NOTE L - GOING CONCERN
MATTERS





The
accompanying unaudited consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
accompanying financial statements during the period October 1, 2001 (date of
inception) through July 31, 2009, the Company incurred loss of $28,141,694. Of
these losses, $994,456 was incurred in the quarter ending July 31, 2009 and
$1,709,042 in the quarter ending July 31, 2008. These factors among others may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.





The
Company’s existence is dependent upon management’s ability to 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 pursing
additional equity financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful in
its effort to secure additional equity financing.




20




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





General





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





“Forward-Looking”
Information





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





RESULTS
OF OPERATIONS





Comparison
of the Three Months Ended July 31, 2009 to the Three Months Ended July 31,
2008





For the
three months ended July 31, 2009 and 2008, we have generated limited sales
revenues, have incurred significant, but declining expenses, and have sustained
significant, but declining losses. We believe we will continue to earn revenues
from operations during the remainder of our fiscal year ending April 30,
2010.





Revenues





Revenues
totaled $216,804 during the three months ended July 31, 2009 as compared to
$394,919 during the three months ended July 31, 2008. Current period revenue was
comprised primarily of $138,865 in interest income from RISC Loans, $53,068 in
lease revenue, and $24,870 in other income. For the three months ended July 31,
2008, revenues were comprised primarily of $89,694 in lease revenue, $204,044 in
interest income from RISC loans, $85,690 in recovery of prior year’s expenses,
$5,415 in other income, and $10,077 in gain on sale of vehicles.





Costs
and Expenses





General
and administrative expenses were $592,197 during the three months ended July 31,
2009, compared to $1,364,152 during the three months ended July 31, 2008, a
decrease of $771,955 or 56.6%. Expenses incurred during the current three month
period consisted primarily of the following expenses: compensation and related
costs of $308,531; legal and accounting fees of $58,764; consulting fees of
$38,866; rent and utilities of $88,467; and general office expenses of $97,569.
Expenses incurred during the comparative three month period in 2008 consisted
primarily of the following expenses: compensation and related costs, $403,037;
accounting, audit and professional fees, $46,187; consulting fees, $64,800; rent
and utilities, $93,893; general office expenses, $124,475; and loss reserve,
$22,919.





During
the three months ended July 31, 2009, we incurred the following non-cash, equity
based compensation charges: consulting, $30,000; employee stock and option
compensation, $43,660 and financing costs, $232,571. During the three months
ended July 31, 2008, we incurred the following non-cash, equity based
compensation charges: consulting, $520,000; employee stock and option
compensation, $67,249; beneficial conversion cost of $318,182 and financing
costs, $183,115.




21




Net Loss





We
incurred a net loss before preferred dividends of $994,456 for our three months
ended July 31, 2009 as compared to $1,709,042 for the corresponding three month
period in 2008. The $714,587 or 41.8% decrease in our net loss before preferred
dividends for our three month interim period ended July 31, 2009 was
attributable primarily to a $771,955 or 56.6% decrease in general and
administrative expenses, and a $182,356 or a 26.87% decrease in interest expense
and financing costs all partially off-set by a $178,116 or 45% decrease in
revenues.





Our net
loss attributable to common stockholders increased to $994,647 for our three
month period ended July 31, 2009 as compared to $1,710,304 for the corresponding
three month period in 2008.





LIQUIDITY
AND CAPITAL RESOURCES





As of
July 31, 2009, the Company had a negative net worth of $2,598,043. The Company
generated a deficit cash flow from operations of $414,143 for the three months
ended July 31, 2009. Cash flows provided by investing activities for the three
months ended July 31, 2009 was $669,935, primarily due to the pay offs of RISC
Loans in the amount of $566,223 and net pay-offs of leases of
$103,713.





Cash
flows used in investing activities for the three months ended July 31, 2008 was
$150,843 primarily due to pay-offs of motorcycles and vehicles of $242,511 and
purchases of RISC Loans in the amount of $393,354.





Cash used
in financing activities during the three month period ended July 31,
2009, was $217,706 primarily due to the sale of $50,000 of common
stock, the net sale of notes payable in the amount of $298,399, and the net pay
down of bank debt in the amount of $566,105.





We do not
anticipate incurring significant research and development expenditures, and we
do not anticipate the sale or acquisition of any significant property, plant or
equipment, during the next twelve months.  At July 31, 2009 we had 11
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.





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




22




On July
29, 2009, we entered into a Preferred Stock Purchase Agreement with Optimus
Capital Partners, LLC, pursuant to which Optimus, upon the terms and subject to
the conditions of the agreement, is committed to purchase up to $5,000,000 of
our Series B Preferred Stock. From time to time until July 28, 2010, we may
require Optimus to purchase shares of our Series B Preferred Stock, subject to
satisfaction of certain closing conditions.  On August 12, 2009, we
closed the initial tranche sale to Optimus in the amount of
$900,000.





We
believe that the proceeds from the sale of preferred stock to Optimus, as
described above, when combined with the conversion of notes outstanding at April
30, 2009 as described above, will satisfy the minimum thresholds to utilize the
DZBank credit facility.





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





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





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





GOING
CONCERN ISSUES





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





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





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





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




23




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.





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





The
present officers and directors own approximately 50% of the outstanding shares
of common stock, without giving effect to shares underlying convertible
securities, and therefore are in a position to elect all of our Directors and
otherwise control the Company, including, without limitation, authorizing the
sale of equity or debt securities of Sparta, the appointment of officers, and
the determination of officers’ salaries. Shareholders have no cumulative voting
rights.




24




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





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





CRITICAL
ACCOUNTING POLICIES





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





Revenue
Recognition





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





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





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




25




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





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





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





Stock-Based
Compensation





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




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.





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.




26




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





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




27




PART II. OTHER INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS





Not
applicable.





ITEM
      1A.
            RISK
      FACTORS





Risks
Related to Our Financial Results





We
have an operating history of losses.





Through
our fiscal quarter ended July 31, 2009, we have generated cumulative sales
revenues of $3,514,075, have incurred significant expenses, and have sustained
significant losses. Our net loss for the quarter ended July 31, 2009 was
$994,456 (after $353,908 in non-cash charges).  As of July 31, 2009,
we had a deficit net worth of $2,598,043.





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





In July
2005, we entered into a secured senior credit facility with New World Lease
Funding for a revolving line of credit. New World received a security interest
in substantially all of our assets with seniority over the rights of the holders
of our preferred stock and our common stock. Until the security interests are
released, those assets will not be available to us to secure future
indebtedness. Presently, the New World line is inactive. As of July 31,, 2009,
we owed an aggregate of $3,022,218 (which is secured by $3,439,424 of consumer
retail Installment Sales Contracts and Leases and $271,650 of restricted cash)
to New World. In granting the credit line, New World also required that we meet
certain financial criteria in order to pay dividends on any of our preferred
shares and common shares. We may not be able to repay our outstanding
indebtedness under the credit line.





In
December 2008, our wholly owned subsidiary, Sparta Funding, LLC, entered into an
agreement for a secured credit facility with DZBank.  The DZBank
facility requires, among other things, that we have a minimum tangible net worth
of $2,000,000 before Sparta Funding can access credit for the purchase of
consumer retail installment sales contracts from our authorized and private
label dealers and the purchase of vehicles for lease to customers of our
authorized and private label dealers. In addition to the tangible net worth we
must obtain commitments for $3,000,000 of additional capital (in the form of
subordinated debt or other committed capital satisfactory to DZ Bank) to access
the DZBank facility.  We are engaged in discussions with potential
investors regarding such commitments, but as July 31, 2009, with the exception
of an agreement with Optimus Capital Partners, LLC, no definitive agreements
have been reached for such commitments, nor are have we reached any agreement on
potential terms of any such commitments.  Unless and until we receive
such commitments or DZBank waives such requirement, we will not be able to
access the DZBank facility.  If Sparta Funding is able to access the
DZBank facility, all of the consumer retail and installment sales contracts,
consumer leases and the underlying vehicles obtained through the use of the
DZBank facility will be pledged as security therefore.  If Sparta
Funding is unable to repay its outstanding indebtedness under the DZBank
facility, DZBank could foreclose on all of those pledged assets. If Sparta
Funding is unable to access the DZBank facility or does not have sufficient cash
flow to repay the DZBank facility, we will not be able to implement our business
plan, which would have a material adverse affect on our future
viability.  On July 29, 2009, we entered into a Preferred Stock
Purchase Agreement with Optimus Capital Partners, LLC, an unaffiliated
investment fund.  Under the agreement, Optimus is committed to
purchase up to $5,000,000 of our Series B Preferred Stock for a one year
period.  From time to time, we may send a notice requiring Optimus to
purchase shares of our Series B Preferred Stock, subject to satisfaction of
certain closing conditions.  Optimus will not be obligated to purchase
the Series B Preferred Stock (i) in the event the closing price of our common
stock during the nine trading days following delivery of a purchase notice falls
below 75% of the closing price on the trading day prior to the date such notice
is delivered to Optimus, or (ii) to the extent such purchase would result in
Optimus and its affiliates beneficially owning more than 9.99% of our common
stock.




28




On the
date of delivery of each purchase notice under the agreement, we will also issue
to Optimus five-year warrants to purchase our common stock at an exercise price
equal to the closing price of our common stock on the trading day prior to the
delivery date of the notice.  The number of shares issuable upon
exercise of the warrant will be equal in value to 135% of the purchase price of
the Series B Preferred Stock to be issued in respect of the related
notice.  Each warrant will be exercisable on the earlier of (i) the
date on which a registration statement registering for resale the shares of
common stock issuable upon exercise of such warrant becomes effective and (ii)
the date that is six months after the issuance date of such
warrant.





The
Series B shares, with respect to dividend rights and rights upon liquidation,
winding-up or dissolution, rank senior to our common stock and any other class
or series of preferred stock, and junior to all of our existing and future
indebtedness.  The Series B shares accrue dividends at an annual rate
of 10%.  Accrued dividends are payable upon redemption of the Series B
shares.  Our common stock may not be redeemed while Series B shares
are outstanding.  The Series B certificate of designations provides
that, without the approval of a majority of the Series B shares, we cannot
authorize or create any class of stock ranking as to distribution of assets upon
a liquidation senior to or otherwise pari passu with the Series B shares,
liquidate, dissolve or wind-up our business and affairs, or effect certain
fundamental corporate transactions, or otherwise alter or change adversely the
powers, preferences or rights given to the Series B shares.  The
Series B shares have a liquidation preference per share equal to the original
price per share thereof plus all accrued dividends thereon upon liquidation,
including upon consummation of certain fundamental corporate transactions,
dissolution, or winding up of our company.  The Series B shares are
redeemable at our option on or after the fifth anniversary of the date of its
issuance.





On August
12, 2009, we sold to Optimus 90 shares of Series B Preferred stock for gross
proceeds of $900,000 (net proceeds of $645,000 after deducting a 5% commitment
fee for the $5,000,000 Preferred Stock Purchase Agreement and a $5,000 tranche
closing fee).





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





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





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




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.




29




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





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





Risks
Related to Our Business





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





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





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





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




30




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





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





Failure
to perfect a security interest could harm our business.





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





Risks
associated with leasing.





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





Adverse
changes in used vehicle prices may harm our business.





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





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





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




31




We
face significant competition in the industry.





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





Our
business is subject to various government regulations.





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





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





Our
directors, executive officers and principal stockholders beneficially own
approximately 22.6% of our common stock as of  July 31,
2009.  Accordingly, these persons and their respective affiliates have
the ability to exert substantial control over the election of our Board of
Directors and the outcome of issues submitted to our stockholders, including
approval of mergers, sales of assets or other corporate transactions. In
addition, such control could preclude any unsolicited acquisition of the Company
and could affect the price of our common stock.





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





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




32




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





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





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.





During
the three months ended July 31, 2009, the Company sold to six accredited
investors four month unsecured notes and warrants in the aggregate amount of
$180,000.  The warrants are for a term of three years and entitle the
holder to purchase a total of 5,001,613 shares of our common stock at $0.15 per
share.  The notes bore 8% simple interest, payable in cash or shares,
at the Company’s option, with principal and accrued interest payable at
maturity. At the Company’s option, the notes were convertible into shares of
common stock ranging from $0.02 to $0.048 per share.  The notes were
to mature on various dates through November 8, 2009.  $90,000 of these
notes plus accrued interest thereon were converted into 2,205,594 shares of
common stock in July 2009.





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





During
the three months ended July 31, 2009, the Company sold to one accredited
investor unsecured 8% demand notes in the aggregate amount of $134,000. At the
Company’s option, the notes are convertible into shares of common stock ranging
from $0.035 to $0.048 per share.





During
the three months ended July 31, 2009, the Company sold to one accredited
investor unsecured 10% note in the amount of $20,000 due August 6, 2009. As an
inducement for the loan, the Company agreed to issue 100,000 shares of common
stock.  In the event of default, the interest rate is to increase to
15% and the number of shares issuable to the lender is to increase by 20,000 per
month until the default is cured.





During
the quarter ended July 31, 2009, the Company sold 1,007,049 shares of its common
stock and issued three year warrants to purchase 1,007,049 shares of its common
stock at $0.15 per share for $50,000. As of July 31, 2009, the shares had not
been issued.





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES





Not
applicable.





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





On August
14, 2009, the Company filed a Schedule 14C with the Securities and Exchange
Commission, and at the same time notified the Company’s shareholders via an
Information Statement, that in April, 2009, the holders of a majority of votes
represented by the issued and outstanding shares of the Company common stock, at
that time, by means of a written consent in lieu of a special meeting of the
stockholders, voted in favor of amending the Company’s Articles of Incorporation
to increase the authorized number of shares of the common stock from 340,000,000
to 750,000,000.  This increase in authorized shares of common stock
will become effective on such date as the Company files a related Certificate of
Amendment to Articles of Incorporation with the Secretary of State of
Nevada.




33





ITEM
      5.
            OTHER
      INFORMATION





On July
29, 2009, the Company entered into a Preferred Stock Purchase Agreement with
Optimus Capital Partners, LLC pursuant to which Optimus is committed to purchase
up to $5,000,000 of the Company’s Series B Preferred Stock for a one year
period.  On July 31, 2009, pursuant to the agreement, the Company
requested Optimus to purchase 90 shares of our Series B Preferred Stock and
issued 13,500,000 five year warrants to purchase 13,500,000 shares of common
stock at $0.09 per share.  On July 14, 2009, the Company sold to
Optimus 90 shares of Series B Preferred stock for gross proceeds of
$900,000.




ITEM
      6.
            EXHIBITS




The
following exhibits are filed with this report:





Exhibit
      Number
            
            Description
      of ExhibitExhibit
      11
            
            Statement
      re: computation of per share earnings is hereby incorporated by reference
      to “Financial Statements” of Part I - Financial Information, Item 1 -
      Financial Statements, contained in this Form 10-Q.Exhibit
      31.1*
            
            Certification
      of Chief Executive Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)Exhibit
      31.2*
            
            Certification
      of Principal Financial Officer pursuant to Securities Exchange Act Rule
      13a-14(a)/15d-14(a)Exhibit 32.1*
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350Exhibit
      32.2*
            
            Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section
      1350*
      Filed herewith




34




SIGNATURES





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





SPARTA
      COMMERCIAL SERVICES, INC.Date:
      September 21, 2009
            By:
            /s/ Anthony L. HavensAnthony
      L. HavensChief
      Executive OfficerDate:
      September 21, 2009
            By:
            /s/ Anthony W. AdlerAnthony
      W. AdlerPrincipal
      Financial Officer





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