SRCO 10-Q Quarterly Report July 31, 2015 | Alphaminr
SPARTA COMMERCIAL SERVICES, INC.
ALPHAMINR

SRCO 10-Q Quarter ended July 31, 2015

Balance Sheet
Cash Flow
Income Statement
SPARTA COMMERCIAL SERVICES, INC.
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10-Q 1 spartacommercial10q073115.htm 10-Q spartacommercial10q073115.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

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

For the quarterly period ended July 31, 2015
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________ to ___________.

Commission file number: 0-9483

SPARTA COMMERCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)

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

370 Lexington Ave., Suite 1806, New York, NY 10017
(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). x 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 o
Non-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 11, 2015, we had 87,340,827 shares of common stock issued and outstanding.
S PARTA COMMERCIAL SERVICES, INC.

FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 2015
TABLE OF CONTENTS
Page
PART I.
FINANCIAL INFORMATION
Item 1.
3
3
4
5
6
7
Item 2.
23
Item 3.
27
Item 4.
28
PART II.
OTHER INFORMATION
Item 1.
29
Item 1A.
29
Item 2.
29
Item 3.
30
Item 4.
30
Item 5.
30
Item 6.
30
31

PART I.  FINANCIAL INFORMATION
IT EM 1. FINANCIAL STATEMENTS

S PARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of
July 31, 2015
April 30, 2015
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents
$
52,322
$
14,034
Accounts receivable
24,584
10
Other current assets
39,667
5,706
Total Current Assets
116,573
19,750
Property and equipment, net of accumulated depreciation and amortization of $204,272 and $203,215, respectively (NOTE B)
8,990
10,047
Goodwill
10,000
10,000
Other assets
9,628
9,628
Deposits
79,776
79,776
Total Long Term Assets
108,394
109,451
Total assets from continuing operations
224,967
129,201
ASSETS FROM DISCONTINUED OPERATIONS (NOTE C)
7,101
13,955
Total assets
$
232,068
$
143,156
LIABILITIES AND DEFICIT
Liabilities:
Current Liabilities
Accounts payable and accrued expenses
$
1,496,439
$
1,382,598
Current portion notes payable net of beneficial conversion feature of $887,860 and $762,426, respectively (NOTE D)
1,737,838
1,374,786
Derivative liabilities
2,026,661
1,605,535
Total Current Liabilities
5,260,938
4,362,919
Long term portion notes payable
1,075,868
1,263,369
Loans payable-related parties (NOTE E)
385,853
385,853
Total Long Term Liabilities
1,461,721
1,649,222
Total liabilities from continuing operations
6,722,659
6,012,141
LIABILITIES FROM DISCONTINUED OPERATIONS (NOTE C)
61,431
70,117
Total liabilities
6,784,089
6,082,258
Deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized of which 35,850 shares have been
designated as Series A convertible preferred stock, with a stated value of $100 per share, 125 and
125 shares issued and outstanding at July 31, 2015 and April 30, 2015, respectively
12,500
12,500
Preferred stock B, 1,000 shares have been designated as Series B redeemable preferred stock,
$0.001 par value, with a liquidation and redemption value of $10,000 per share, 0 and 0 shares
issued and outstanding at July 31, 2015 and April 30, 2015, respectively
-
-
Preferred stock C, 200,000 shares have been designated as Series C redeemable, convertible preferred,
$0.001 par value, with a liquidation and redemption value of $10 per share, 0 and 0 shares issued and
outstanding at July 31, 2015 and April 30, 2015, respectively
-
-
Common stock, $0.001 par value; 750,000,000 shares authorized, 73,710,011 and  43,238,320 shares issued and
outstanding at July 31, 2015 and April 30, 2015, respectively
73,710
43,238
Common stock to be issued 2,275,638 and 2,356,598 shares at July 31, 2015 and April 30, 2015, respectively
2,276
2,356
Additional paid-in-capital
43,509,634
42,528,909
Accumulated deficit
(50,806,753
)
(49,178,453
)
Deficit attributable to Sparta Commercial Services, Inc.
(7,208,632
)
(6,591,450
)
Non-controlling interest
656,612
652,348
Total Deficit
(6,552,020
)
(5,939,102
)
Total Liabilities and Deficit
$
232,068
$
143,156
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
S PARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2015 AND 2014
(UNAUDITED)
Three Months Ended
July 31
2015
2014
Revenue
Information technology
$
167,223
$
132,807
Cost of goods sold
44,146
43,250
Gross profit
123,077
89,557
Operating expenses:
General and administrative
763,050
564,809
Depreciation and amortization
1,057
896
Total operating expenses
764,107
565,705
Loss from operations
(641,030
)
(476,148
)
Other (income) expense:
Other income
(7,153
)
(10,768
)
Interest expense and financing cost, net
149,312
7,131
Non-cash financing costs
40,166
79,711
Amortization of debt discount and costs
712,477
124,741
Loss (gain) from changes in fair value of derivative liabilities
75,465
(200,779
)
Total other expense
970,267
36
Loss from continuing operations
$
(1,611,297
)
$
(476,185
)
Loss from discontinued operations
(12,548
)
(94,364
)
Net Loss
$
(1,623,845
)
$
(570,548
)
Net (income) loss attributable to Noncontrolling interest
(4,264
)
11,791
Preferred dividend
(191
)
(191
)
Net loss attributed to common stockholders
$
(1,628,300
)
$
(558,948
)
Basic and diluted loss per share
$
(0.03
)
$
(0.02
)
Basic and diluted loss per share attributed to
common stockholders
$
(0.03
)
$
(0.03
)
Weighted average shares outstanding
57,229,920
21,449,770
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SPARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT
FOR THE THREE MONTHS ENDED JULY 31, 2015
(UNAUDITED)
Series A Series B Shares
Common Stock
Additional
Non-
Preferred Stock
Preferred Stock
to be issued
Common Stock
to be issued
Paid in
Accumulated controlling
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Deficit
Interest
Total
Balance April 30, 2015
125 $ 12,500 - $ - - $ - 43,238,320 $ 43,238 2,356,598 $ 2,356 $ 42,528,908 $ (49,178,453 ) $ 652,348 $ (5,939,102 )
Rounding
1 332 333
Derivative liabilities reclassification
477,540 477,540
Sale of common stock
760,456 760 19,240 20,000
Shares issued for financing cost
391,059 391 10,687 11,078
Shares issued for conversion of notes, interest and accounts payable
26,439,120 26,439 (80,960 ) (80 ) 393,693 420,052
Stock compensation
2,846,000 2,846 79,234 82,080
Employee stock & options expense
35,056 35 35
Preferred dividend (191 ) (191 )
Net loss
(1,628,109 ) 4,264 (1,623,845 )
Balance July 31, 2015
125 $ 12,500 - $ - - $ - 73,710,011 $ 73,710 2,275,638 $ 2,276 $ 43,509,634 $ (50,806,753 ) $ 656,612 $ (6,552,020 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SP ARTA COMMERCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 2015 AND 2014
(UNAUDITED)
Three Months Ended
July 31, 2015
2015
2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss
$
(1,623,845
)
$
(570,548
)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization
1,057
896
Loss (gain) from change in fair value of derivative liabilities
75,465
(200,779
)
Amortization of debt discount and costs
712,477
124,741
Equity based finance cost
-
11,014
Equity based compensation
82,115
82,791
Changes in operating assets and liabilities:
Accounts receivable
(24,574
)
(98,606
)
Prepaid expenses and other assets
(33,961
)
1,142
Accounts payable and accrued expenses
125,486
193,427
Net cash used in operating activities
(685,780
)
(455,922
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment
-
-
Net cash (used in) investing activities
-
-
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock
20,000
262,671
Net proceeds from convertible notes
946,400
191,500
Net payments on convertible notes
(320,500
)
(27,500
)
Net proceeds from other notes
80,000
-
Net cash provided by financing activities
725,900
426,671
Cash flows from discontinued operations:
Cash (used in) provided by operating activities of discontinued operations
(1,832
)
12,981
Net Cash (used in) provided by discontinued operations activities
(1,832
)
12,981
Net increase (decrease) in cash
$
38,288
$
(16,270
)
Cash and cash equivalents, beginning of period
$
14,034
$
70,456
Cash and cash equivalents, end of period
$
52,322
$
54,186
Cash paid for:
Interest
$
600
$
7,131
Income taxes
$
-
$
-
See Note I for non-cash investing and financing activities.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

S PARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
NOTE A – SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial statements is as follows.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of July 31, 2015 and for the three month periods ended July 31, 2015 and 2014 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-K.  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.  Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations.  The Company believes that the disclosures provided are adequate to make the information presented not misleading.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and explanatory notes for the year ended April 30, 2015 as disclosed in the Company’s Form 10-K for that year as filed with the Securities and Exchange Commission.  The results of operations for the three months ended July 31, 2015 are not necessarily indicative of the results to be expected for any other interim period or the full year ending April 30, 2016.

The condensed consolidated balance sheet as of April 30, 2015 contained herein has been derived from the audited consolidated financial statements as of April 30, 2015, but do not include all disclosures required by the U.S. GAAP.
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, Specialty Reports, Inc. All significant inter-company transactions and balances have been eliminated in consolidation.

Business
Sparta Commercial Services, Inc. ("Sparta" "we," "us," or the "Company") is a Nevada corporation. We are a technology company that provides a wide range of mobile app tools, products and services. We also provide vehicle history reports and a municipal leasing program.
Our roots are in the Powersports industry and our original focus was providing consumer and municipal financing to the powersports, recreational vehicle, and automobile industries (see Discontinued Operations). Presently, through our subsidiary, Specialty Reports, Inc. (SRI), we offer Mobile App development, sales, marketing and support, and Vehicle History Reports.
Our mobile application (mobile app) offerings have broadened our base beyond vehicle dealers to a wide range of businesses including, but not limited to, restaurants, hotels, and grocery stores. We also private label our mobile app framework to enable other businesses to offer custom apps to their customers.
Our vehicle history reports include Cyclechex (Motorcycle History Reports at www.cyclechex.com ); RVchex (Recreational Vehicle History Reports at www.rvchex.com ); CarVINreport (Automobile at www.carvinreport.com ) and Truckchex (Heavy Duty Truck History Reports at www.truckchex.com ). Our Vehicle History Reports are designed for consumers, retail dealers, auction houses, insurance companies and banks/finance companies.
Sparta also administers a Municipal Leasing Program for local and/or state agencies throughout the country who are seeking a better and more economical way to finance their essential equipment needs, including police motorcycles, cruisers, buses, and EMS equipment. We are continuing to expand our roster of equipment manufacturers and the types of equipment we lease.
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.

Discontinued Operations

As discussed in NOTE C, in the second quarter of fiscal 2013, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of all of the Company’s portfolio of RISCs, and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of operations for all periods presented.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015

Revenue Recognition

Information Technology:

Revenues from mobile app products are recognized upon delivery. Revenues from History Reports are recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery. There were no deferred revenues at July 31, 2015 and April 30, 2015.

Discontinued Operations:

Revenues from RISCs and leases

The RISCs are secured by liens on the titles to the vehicles. The RISCs are accounted for as loans.  Upon purchase, the RISCs appear on our balance sheet as RISC loans receivable current and long term. When the RISC is entered into our accounting system, based on the customer's APR (interest rate), an amortization schedule for the loan on a simple interest basis is created. Interest is computed by taking the principal balance times the APR rate then divided by 365 days to get your daily interest amount. The daily interest amount is multiplied by the number of days from the last payment to get the interest income portion of the payment being applied. The balance of the payment goes to reducing the loan principal balance.
Our leases are accounted for as either operating leases or direct financing leases. At the inception of operating leases, no lease revenue is recognized and the leased motorcycles, together with the initial direct costs of originating the lease, which are capitalized, appear on the balance sheet as "motorcycles under operating leases-net". The capitalized cost of each motorcycle is depreciated over the lease term, on a straight-line basis, down to the original estimate of the projected value of the motorcycle at the end of the scheduled lease term (the "Residual"). Monthly lease payments are recognized as rental income. An acquisition fee classified as fee income on the financial statements is received and recognized in income at the inception of the lease. Direct financing leases are recorded at the gross amount of the lease receivable, and unearned income at lease inception is amortized over the lease term.
We realize gains and losses as the result of the termination of leases, both at and prior to their scheduled termination, and the disposition of the related motorcycle. The disposal of motorcycles, which reach scheduled termination of a lease, results in a gain or loss equal to the difference between proceeds received from the disposition of the motorcycle and its net book value. Net book value represents the residual value at scheduled lease termination. Lease terminations that occur prior to scheduled maturity because of the lessee's voluntary request to purchase the vehicle have resulted in net gains, equal to the excess of the price received over the motorcycle's net book value.

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

Inventories

Inventories, which are included in Discontinued Operations,  are valued at the lower of cost or market, with cost determined using the first-in, first-out method and with market defined as the lower of replacement cost or realizable value.
Website Development Costs

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

Cash Equivalents

For the purpose of the accompanying financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
Income Taxes

Deferred income taxes are provided using the asset and liability method for financial reporting purposes in accordance with the provisions of ASC 740-10, “ Accounting for Uncertainty in Income Taxes” (‘ASC 740-10”).  Under this method, deferred tax assets and liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their carrying values for financial reporting purposes and for operating loss and tax credit carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be removed or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
ASC 740-10 , “Accounting for Uncertainty in Income Taxes,” prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions.  As a result of implementing ASC 740, there has been no adjustment to the Company’s financial statements and the adoption of ASC 740 did not have a material effect on the Company’s consolidated financial statements for the year ended April 30, 2015 or the three months ended July 31, 2015.

Fair Value Measurements

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

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

·
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in active markets.
·
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurements.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques based on significant unobservable inputs, as well as management judgments or estimates that are significant to valuation.

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

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

Comprehensive Income

In accordance with ASC 220-10, “ Reporting Comprehensive Income ,” (“ASC 220-10”) establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances.  Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.  Among other disclosures, ASC 220-10 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.  At July 31, 2015 and April 30, 2015, the Company has no items of other comprehensive income.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
Segment Information

The Company adopted ASC 280-10 “ Disclosures about Segments of an Enterprise and Related Information ” (“ASC 280-10”).  ASC 280-10 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in consolidated financial reports issued to stockholders.  ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas.  Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance.  The information disclosed herein, materially represents all of the financial information related to the Company's principal operating segments.

In the second quarter of fiscal 2013, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of all of the Company’s portfolio of RISCs and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of operations for all periods presented. As these lines of business were discontinued during the fiscal year ending April 30, 2013, the Company has discontinued segment reporting.

Stock Based Compensation

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

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 years
Furniture and fixtures
7 years
Website costs
3 years
Computer 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, 2015 and 2014, the Company incurred $1,050 and $14,550 in advertising and marketing costs, respectively.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
Net Loss Per Share

The Company uses ASC 260-10, “ Earnings Per Share, ” for calculating the basic and diluted loss per share.  The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding.  Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.
Per share basic and diluted net loss attributable to common stockholders amounted to $0.03 and $0.03 for the three months ended July 31, 2015 and 2014, respectively.  At July 31, 2015 and 2014, approximately 202,900,000 and 6,033,000 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 unaudited condensed consolidated financial statements, the Company has incurred a net loss attributable to common stockholders of $1,628,300 and $558,948 during the three months ended July 31, 2015 and 2014, respectively.  The Company had a negative net worth of $6,522,020 at July 31, 2015.
Reclassifications

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

There were various updates recently issued, most of which represented technical corrections to the accounting literature or applications to specific industries and are not expected to have a material impact on the Company’s unaudited condensed consolidated financial position, results of operations or cash flows.
NOTE B – PROPERTY AND EQUIPMENT

Major classes of property and equipment at July 31, 2015 and April 30, 2015 consist of the following:

July 31 , April 30,
2015
2015
Computer equipment, software and furniture
$
213,262
$
213,262
Less: accumulated depreciation
(204,272
)
(203,215
)
Net property and equipment
$
8,990
$
10,047

Depreciation expense for property and equipment was $1,057 and $896, respectively for the three months ended July 31, 2015 and 2014.
NOTE C – DISCONTINUED OPERATIONS

In the second quarter of fiscal 2013, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of all of the Company’s portfolio of RISCs and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of operations for all periods presented. The following table presents summarized operating results for those discontinued operations.

Three Months Ended
July 31,
July 31,
2015
2014
Revenues
$
18,416
$
11,866
Net (loss)
$
(12,548
)
$
(94,364
)
As the Company sold all of its portfolio of RISCs, and a portion of its portfolio of leases with the remaining leases in final run-off mode, therefore no portfolio performance measures were calculated for the three months ended July 31, 2015 and 2014.
ASSETS INCLUDED IN DISCONTINUED OPERATIONS
MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING LEASES

Motorcycles and other vehicles under operating leases at July 31, 2015 and April 30, 2015:
July 31,
April 30,
2015
2015
Motorcycles and other vehicles
$
13,261
$
22,086
Less: accumulated depreciation
(12,014
)
(13,455
)
Motorcycles and other vehicles, net of accumulated depreciation
1,247
8,631
Less: estimated reserve for residual values
(1,247
)
(2,437
)
Motorcycles and other vehicles under operating leases, net
$
-
$
6,194
At April 30, 2015, motorcycles and other vehicles are being depreciated to their estimated residual values over the lives of their lease contracts. Depreciation expense for vehicles for the three months ended July 31, 2015 was $3,695 and for the year ended April 30, 2015 it was $28,376. All of the assets are pledged as collateral for the note described in SECURED NOTES PAYABLE in this Note C.  These remaining leases are in a run-off mode.
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, 2015 and at April 30, 2015, the Company had written off to zero its inventory of repossessed vehicles that are held for resale.
RETAIL (RISC) LOAN RECEIVABLES

All of the Company’s RISC performing loan receivables were sold in August 2013.  As of July 31, 2015 and April 30, 2015, the Company had RISC loans, net of reserves, of $7,100 and $7,761 (representing Company refinancing of two loans which had previously been sold), respectively.
As the Company sold all of its portfolio of RISCs, and a portion of its portfolio of leases with the remaining leases in final run-off mode, therefore no portfolio performance measures were calculated for the three months ended July 31, 2015 and 2014.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
LIABILITIES INCLUDED IN DISCONTINUED OPERATIONS

SECURED NOTES PAYABLE

July 31,
April 30,
2015
2015
Secured, subordinated  individual lender (a)
$
49,351
$
58,037
Secured, subordinated individual lender (b)
12,080
12,080
Total
$
61,431
$
70,117

(a)
The Company had financed certain of its leases and RISCs through two third parties. 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, 2015 is 15.29% per annum.
(b)
On October 31, 2008, the Company purchased certain loans secured by a portfolio of secured motorcycle leases (“Purchased Portfolio”) for a total purchase price of $100,000.  The Company paid $80,000 at closing, $10,000 in April 2009 and agreed to pay the remaining $10,000 upon receipt of additional Purchase Portfolio documentation. As of April 30, 2015, no such documents have been received. Proceeds from the Purchased Portfolio started accruing to the Company beginning November 1, 2008. To finance the purchase, the Company issued a $150,000 Senior Secured Note dated October 31, 2008 (“Senior Secured Note”) in exchange for $100,000 from the 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 holder. 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 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 holder. The Company was obligated to pay any remainder of the Senior Secured Note by November 1, 2009 which was extended to August 14, 2015, and has granted the note holder a security interest in the Purchased Portfolio. On January 31, 2014, the holder converted $50,000 of the outstanding balance of the Note into 60,606 shares of the Company’s restricted common stock.
At July 31, 2015, the notes payable mature as follows:

Year ended July 31,
Amount
2016
$
61,431
2017
-
Total Due
$
61,431
NOTE D – NOTES PAYABLE
July 31,
April 30,
Notes Payable
2015
2015
Notes convertible at holder’s option (a)
$
2,522,566
$
2,707,080
Notes convertible at Company’s option (b)
156,000
15,000
Notes with interest only convertible at Company’s option (c)
285,000
285,000
Non-convertible notes payable (d)
738,000
393,500
Subtotal
3,701,566
3,400,580
Less, Debt discount
(887,860
)
(762,426
)
Total notes payable
2,813,706
2,638,154
Less current portion
1,737,838
1,374,786
Long term portion
$
1,075,868
$
1,263,369
(a) Notes convertible at holder’s option consists of:
(i)                            a $865,868, 8% note originally due April 30, 2014, but subsequently amended to such time as the lawsuit filed by the Company (see: PART II, ITEM 1 LEGAL PROCEEDINGS) is fully adjudicated, convertible at the holder’s option at $0.495 per share. The Company had recorded a $663,403 beneficial conversion discount for this note, which was fully amortized during fiscal 2013;
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
(ii) (a) a $7,500 balance of a $40,000 note due December 23, 2015. The Company has recorded a beneficial conversion discount of $28,996 for the note. The discount is being fully amortized over the term of the note.   The note is convertible at the note holder’s option at a variable conversion prices such that during the period during which the note is outstanding, the note convertible at 58% multiplied by the average of the three lowest closing bid prices for the common stock during the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company had reserved up to 1,970,442 shares of its common stock for conversion pursuant to the terms of the notes.  In the event the note is not paid when due, the interest rate is increased to eighteen percent until the note is paid in full;
(iii)                          (a) a $25,000, 12% convertible debenture due May 27, 2014 (the “Debenture”). The Debenture is convertible at $0.59 per share. The Company issued the holder 5,000 shares of its restricted common stock as inducement for the loan, and (b) a $50,000, 12% debenture, due March 20, 2015, convertible at the holder’s option at $0.59 per share), the Company issued the holder 10,000 shares of its restricted common stock as inducement for the loan. In fiscal 2014, the Company has recorded a $50,000 beneficial conversion discount for this note. The discount is being fully amortized over the term of the note; If the Company has not redeemed the outstanding principal and accrued interest of both Debentures in cash by their Maturity Dates and the original Debenture between the Holder and the Company dated September 19, 2007 is no longer outstanding, then for every 30 day period past the Maturity Date of which the principal balance an any accrued interest of this Debenture remain outstanding, the Company shall issue the Holder the greater of (i) 1,333 shares of the Company’s restricted common stock or (ii) the number of shares of the Company’s restricted common stock equal to $2,000 determined on the basis of the volume weighted average closing price “VWACP” of the Company’s common stock for the five consecutive trading days immediately prior to the 19th of each month (for a day to be included in the calculation, there must have been at least 100 shares traded on that day). As long as the Company remains current on the payment of the shares under Paragraph 12 of the Debentures, the Debentures shall be considered past due but not in default.
(iv)                          seven notes aggregating $118,250, all due August 15, 2015 with interest ranging from 15% to 20%, with accrued interest compounding monthly at 8%. On one $25,000 note, which had been past due, the Company is paying 667 monthly penalty shares until the note is paid in full. All of the notes are convertible at the holder’s option at $0.25 per share. In fiscal 2012, the Company has recorded a $5,340 beneficial conversion discount for these notes. The discount is being fully amortized over the term of the notes;
(v)                           three notes aggregating $106,250, all due August 15, 2015 with interest ranging from 20% to 25% with accrued interest compounding monthly at 8%, all of the notes are convertible at the holder’s option at $0.25 per share.  In fiscal 2012, the Company has recorded a $6,120 beneficial conversion discount for these notes. The discount is being fully amortized over the term of the notes;
(vi)                          (a) $49,490 outstanding on a $59,000, 5% convertible note due December 16, 2015. This is the final tranche of a $165,000 note. The conversion price is the lesser of $1.20 or 70% of the average of the three lowest closing prices during the 20 trading days immediately previous to the day the conversion notice is delivered to the Company (In the case that conversion shares are not deliverable by DWAC an additional 5% discount will apply; and if the shares are chilled for deposit into the DTC system and only eligible for Xclearing deposit an additional 7.5% discount shall apply).  Unless otherwise agreed in writing by both parties, at no time will the lender convert any amount of this note into common stock that would result in the lender owning more than 4.99% of the common stock outstanding. The Company has recorded a $29,333 beneficial conversion discount for the note. The discount is being fully amortized over the initial term of the note, and (b) a $27,500 5% convertible note due February 25, 2017. This is the initial tranche of a $165,000 note. The conversion price is 70% of the average of the three lowest closing prices during the 20 trading days immediately previous to the day the conversion notice is delivered to the Company (In the case that conversion shares are not deliverable by DWAC an additional 5% discount will apply; and if the shares are chilled for deposit into the DTC system and only eligible for Xclearing deposit an additional 7.5% discount shall apply). Unless otherwise agreed in writing by both parties, at no time will the lender convert any amount of this note into common stock that would result in the lender owning more than 4.99% of the common stock outstanding. The Company has recorded a $21,079 beneficial conversion discount for the note. The discount is being fully amortized over the initial term of the note. The Company has reserved up to 2,400,000 shares of its common stock for conversion pursuant to the terms of the notes.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
(vii)                        (a) a $27,500, 5% convertible note due January 28, 2015, (b) a $27,500, 5% convertible note due April 29, 2015 and (c) a $27,500 convertible note due January 28, 2016. This lender has committed to lend up to $165,000. The lender may lend additional consideration to the Company in such amounts and at such dates as lender may choose in its sole discretion.  The principal sum due to lender shall be prorated based on the consideration actually paid by lender (plus an approximate 10% original issue discount that is prorated based on the consideration actually paid by the lender as well as any other interest or fees) such that the Company is only required to repay the amount funded and the Company is not required to repay any unfunded portion of this note.  The maturity date of each note is one year from the effective date of each payment and is the date upon which the principal sum of this note, as well as any unpaid interest and other fees, shall be due and payable.  The conversion price for the notes is the lesser of $0.60 or 70% of the lowest closing price during the 20 trading days immediately before the day the conversion notice is delivered to the Company. (In the case that conversion shares are not deliverable by DWAC, the principal amount of the note shall be increased by $10,000, and the conversion price shall be redefined to equal the lesser of (a) $0.60 or (b) 50% of the lowest closing price during the 20 trading days immediately previous to the day the conversion notice is delivered to the Company).  Unless otherwise agreed in writing by both parties, at no time will the lender convert any amount of this note into common stock that would result in the lender owning more than 4.99% of the common stock outstanding. In fiscal 2014, the Company has recorded a $59,437 beneficial conversion discount for the notes. The discounts are being fully amortized over the terms of the notes; (d) $490 outstanding balance on a $13,900, 10% convertible note due June 1, 2014. The Conversion Price for this note is the lesser of $0.50 or 70% of the lowest closing prices during the 20 trading days immediately before the day the conversion notice is delivered to the Company. The Company has reserved up to 8,750,000 shares of its common stock for conversion pursuant to the terms of the notes
(viii)                        (a)  a $35,928 balance of a $55,000 8% convertible note due January 26, 2016, (b) a $57,200 8% convertible note due January 26, 2016, (c) a $57,200 8% convertible note due May 6, 2016, and (d) a $27,500 8% convertible note due July 8, 2016.  The notes are convertible at a 40% discount from the lowest closing price for the twenty trading days prior to conversion. The Company has recorded a $100,699 beneficial conversion discount for the notes. The discounts are being fully amortized over the initial term of the notes. The Company had reserved up to 9,821,428 shares of its common stock for conversion pursuant to the terms of the notes.  In the event the notes are not paid when due, the interest rate is increased to fifteen percent until the notes are paid in full;
(ix)                           (a) a 50,000, 8% note due April 30, 2016; and (b) a $49,633 balance of a $100,000, 8% note due April 16, 2016. The Company has recorded a beneficial conversion discount of $155,000 for the notes. The discounts are being fully amortized over the term of the notes.   The notes are convertible at the note holder’s option at a variable conversion prices such that during the period during which the notes are outstanding, with all notes convertible at 58% multiplied by the average of the three lowest trading prices for the common stock during the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company has reserved up to 17,290,000 shares of its common stock for conversion pursuant to the terms of the notes.  In the event the notes are not paid when due, the interest rate is increased to twenty-two percent until the notes are paid in full;
(x)                            a $44,770, 5% note due April 15, 2016. In fiscal 2014, the Company has recorded a beneficial conversion discount of $35,816 for the note. The discount is being fully amortized over the term of the note.   The note is convertible at the note holder’s option at the rate of 1.5 shares of common stock for each dollar converted.  In the event the note is not paid when due, the interest rate is increased to eighteen percent until the note is paid in full; and
(xi)                           a $55,000, 12% note due June 22, 2016. The Company has recorded a beneficial conversion discount of $48,015 for the note. The discount is being fully amortized over the term of the note.   The note is convertible at the note holder’s option at  a variable conversion of 58% multiplied by the average of the three lowest trades in the twenty trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company had reserved up to 2,000,000 shares of its common stock for conversion pursuant to the terms of the note.
(xii)                          (a) $53,000 outstanding under a $220,000, 10% note due July 27, 2016 and (b) $55,000 outstanding under the same note due July 27, 2016. The Company has recorded a beneficial conversion discount of $105,364 for the notes. The discount is being fully amortized over the term of the notes. The notes are convertible at the note holder’s option at  a variable conversion of 58% multiplied by the lowest trading price in the five trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company had reserved up to 7,000,000 shares of its common stock for conversion pursuant to the terms of the notes.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
(xiii)                         (a) a $55,125, 8% convertible note due December 9, 2015. The Company has recorded a beneficial conversion discount of $55,000 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at a variable conversion of 60% multiplied by the average of the three lowest closing prices in the fifteen trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); and (b) a $52,500, 8% convertible note due December 9, 2015.  The Company has recorded a beneficial conversion discount of $52,500 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at a variable conversion of 60% multiplied by the average of the three lowest closing prices in the fifteen trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”).The Company had reserved up to 7,094,000 shares of its common stock for conversion pursuant to the terms of the note.
(xiv)                        a $50,000, 10% convertible note due December 15, 2015.  The Company has recorded a beneficial conversion discount of $39,400 for the note. The discount is being fully amortized over the term of the notes.   The note is convertible at the note holder’s option at a variable conversion prices such that during the period during which the note is outstanding at 58% multiplied by the average of the three lowest closing bid prices for the common stock during the five trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”).
(xv)                         (a) a $27,500, 8% convertible note due February 2, 2016. The Company has recorded a beneficial conversion discount of $27,500 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at a variable conversion of 60% multiplied by lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); (b) $22,500, 8% convertible note due March 16, 2016. The Company has recorded a beneficial conversion discount of $22,500 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); (c) $27,250,8% convertible note due March 16, 2016. The Company has recorded a beneficial conversion discount of $27,500 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); (d) a $27,250, 8% convertible note due March 16, 2016. The Company has recorded a beneficial conversion discount of $15,000 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); and (e) another $27,250, 8% convertible note due March 16, 2016. The Company has recorded a beneficial conversion discount of $15,000 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company has reserved up to 8,900,000 shares of its common stock for conversion pursuant to the terms of the notes.
(xvi)                        (a) a $27,500, 8% convertible note due February 2, 2016. The Company has recorded a beneficial conversion discount of $27,500 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at a variable conversion of 60% multiplied by lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); (b)  $22,500, 8% convertible note due March 16, 2016. The Company has recorded a beneficial conversion discount of $22,500 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); (c) $27,250,8% convertible note due March 16, 2016. The Company has recorded a beneficial conversion discount of $27,500 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); (e) $93,645 outstanding on a $100,000, 8% convertible note due June 2, 2016. The Company has recorded a beneficial conversion discount of $100,000 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”); and (f) a $50,000, 8% convertible note due June 2, 2016. The Company has recorded a beneficial conversion discount of $50,000 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by the lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company had reserved up to 18,205,111 shares of its common stock for conversion pursuant to the terms of the note.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
(xvii)                       (a) a $33,000, 8% note due November 25, 2015; (b) a $38,000, 8% note due January 17, 2016; (c) a $33,000, 8% note due February 16, 2016; and (d) a $38,000, 8% note due April 20, 2016. The Company has recorded a beneficial conversion discount of $102,828 for the notes. The discounts are being fully amortized over the term of the notes.   The notes are convertible at the note holder’s option at a variable conversion prices such that during the period during which the notes are outstanding, with all notes convertible at 58% multiplied by the average of the three lowest closing bid prices for the common stock during the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company has reserved up to 10,900,000 shares of its common stock for conversion pursuant to the terms of the notes.  In the event the notes are not paid when due, the interest rate is increased to twenty-two percent until the notes are paid in full;
(xviii)                      a $30,000, 8% note due April 14, 2016. The Company has recorded a beneficial conversion discount of $27,500 for the note. The discount is being fully amortized over the term of the notes. The notes are convertible at the note holder’s option at  a variable conversion of 60% multiplied by lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company has reserved up to 4,999,000 shares of its common stock for conversion pursuant to the terms of the notes.  In the event the notes are not paid when due, the interest rate is increased to twenty-two percent until the notes are paid in full.
(xix)                         a  $25,000, 8% note due April 22, 2016. The Company has recorded a beneficial conversion discount of $19,723 for the note. The discount is being fully amortized over the term of the note. The note is convertible at the note holder’s option at  a variable conversion of 60% multiplied by lowest closing price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company has reserved up to 1,529,000 shares of its common stock for conversion pursuant to the terms of the notes.  In the event the note is not paid when due, the interest rate is increased to twenty-two percent until the note paid in full.
(xx)                          (a) a $25,000, 10% note due July 19, 2016 and (b) a $31,900 note due July 28, 2016. The Company has recorded a beneficial conversion discount of $55,549 for the notes. The discounts are being fully amortized over the term of the notes. The notes are convertible at the note holder’s option at  a variable conversion of 58% multiplied by lowest closing price in the twenty trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). The Company has reserved up to 1,079,404 shares of its common stock for conversion pursuant to the terms of the notes.
(b) Notes convertible at the Company’s option consist of:
(i)                            (a) a $15,000, note due April 22, 2016, (b) a $25,000, note due June 28, 2016, (c) a $10,000 note due June 25, 2016, (d) a $5,000 note due July 20, 2016, (e) a $6,000 note due July 22, 2016 and (f) a $15,000 note due July 30, 2016. The notes bear 10% interest and are convertible at the Company’s option, at a price of thirty ($0.30) cents per share only if, prior to any conversion, the closing price of the Company’s common stock has equaled or exceeded thirty ($0.30) cents per share for ten (10) consecutive trading days. The Company agreed to issue the Noteholders a total of 190,000 shares of its restricted common stock as an inducement for the loan. If the notes are not paid in full on or before maturity, the Company shall issue the noteholders 1,000 shares of its restricted common stock for each month, or portion thereof, that the notes remains unpaid. Additionally, three one year, 10% notes aggregating $80,000 maturing in July 2016, issued by Specialty Reports, Inc., convertible at SRI’s option into SRI common stock at $3.00 per share.
(ii)                               $59,000 in one year 10% notes issued by our subsidiary, Specialty Reports, Inc., convertible at the option of the issuer into the issuer’s common stock at the conversion price of $3.00 per share.
(iii)                              a $21,000, 10% note due October 31, 2015, convertible at the Company’s option into shares of the Company’s common stock at $0.02 per share.
(c) Notes with interest only convertible at Company’s option consist of:
(i)                            a 22% note in the amount of $10,000 due May 31, 2015 with interest convertible at the Company’s option at $1.50 per share;
(ii)                           a $25,000 note due May 1, 2011, which was extended to October 31, 2013. The Company is paying the note holder 3,333 shares per month until the note is paid or renegotiated. So long as the Company pays the monthly shares this note is not in default. Interest is payable on the $10,000 note at the Company’s option and on the $25,000 note at the holder’s option in cash or in shares at the rate of $1.50 per share;
(iii)                          a $210,000, 12.462% note due April 30, 2014, but subsequently amended to such time as the lawsuit filed by the Company (see: PART II, ITEM 1 LEGAL PROCEEDINGS) is fully adjudicated. Interest is payable quarterly with a minimum or $600 in cash with the balance payable in cash or stock at the Company’s options calculated as the volume weighted average price of the Company’s common stock for the ten day trading period immediately preceding the last day of each three month period;
(iv)                          a $25,000 10% note due February 2, 2016, the Company issued the note holder 110,000 shares of its common stock in connection with this loan Pursuant to the terms of this note, the Company is required to issue to the note holder 5,000 shares of its common stock for each month or portion thereof that the note remains unpaid. Interest is payable on all this note at the Company’s option in cash or in shares at the rate of $0.15 per share; and
(v)                           a $15,000 5% note due May 31, 2015, the Company issued the note holder 5,000 shares of its common stock in connection with this loan. The Company is in discussions with this lender to extend the due date of the note.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
(d) Non-convertible notes consist of:
(i)                            a $25,000 note due May 31, 2015 that bears no interest. Pursuant to the terms of this note, the Company is required to issue to the note holder 1,000 shares of its common stock for each month or portion thereof that the note remains unpaid. The Company is in discussions with this lender to extend the due date of the note;
(ii)                           a $75,000, 20% note due September 18, 2015. The Company has reserved 2,519,597 shares of the Company’s restricted common stock as collateral for the loan. The Company issued this noteholder 106,700 shares of restricted common stock as inducement for the loan and 417,891 shares of common stock to extend the maturity date of the note from March 18, 2015 to September 18, 2015 . The Company is in discussions with this lender to extend the due date of the note;
(iii)                          a $30,000, 8% note due December 31, 2014. The Company agreed to issue 10,000 shares of restricted common stock as an inducement for the loan and pay the holder 1,000 shares per month for each month or fraction thereof the note remains unpaid. The Company is in discussions with this lender to extend the due date of the note;
(iv)                          a $100,000, 8% note due July 31, 2016. This note is collateralized by a security deposit in the amount of $76,610 held by the Company’s landlord; a $30,000, 10% note due April 20, 2016, and a $50,000, 10% note due April 22, 2016; a $50,000 , 10% note due April 29, 2016; a $50,000, 10% note due May 4, 2016, the Company issued this noteholder 125,000 shares of restricted common stock as an inducement for the loan, a $50,000, 10% note due May 17, 2016, the Company issued this noteholder 125,000 shares of restricted common stock as an inducement for the loan, a $25,000, 10% note due May 28, 2016, the Company issued this noteholder 62,500 shares of restricted common stock as an inducement for the loan,  a $50,000, 10% note due June 23, 2016, the Company issued this noteholder 125,000 shares of restricted common stock as an inducement for the loan, a $22,500, 10% note due July 7, 2016, the Company issued this noteholder 56,250 shares of restricted common stock as an inducement for the loan, a $20,000, 10% note due July 13, 2016, the Company issued this noteholder 56,250 shares of restricted common stock as an inducement for the loan, and a $25,000, 10% note due July 30, 2016, the Company issued this noteholder 62,500 shares of restricted common stock as an inducement for the loan,
(v)                           a $50,000, 20% note due September 18, 2015. The Company has reserved 1,672,241 shares of the Company’s restricted common stock as collateral for the loan. The Company issued this Noteholder 272,331 shares of restricted common stock as inducement for the loan;
(vi)                          a $33,500, 10% note due April 30, 2016. The Company agreed to pay the holder 1,000 shares per month for each month or fraction thereof the note remains unpaid;
(vii)                         a $32,000, 10% note due May 8, 2016. The Company agreed to issue 64,000 shares of restricted common stock as an inducement for the loan and pay the holder 1,000 shares per month for each month or fraction thereof the note remains unpaid, and
(viii)                        a $20,000, 10% note due May 8, 2016. The Company agreed to issue 50,000 shares of restricted common stock as an inducement for the loan and pay the holder 1,000 shares per month for each month or fraction thereof the note remains unpaid.
Amortization of Beneficial Conversion Feature and costs for the three months ended July 31, 2015 and 2014 was $712,477 and $124,741, respectively.
The Company's derivative financial instruments consist of embedded derivatives related to the outstanding short term Convertible Notes Payable. These embedded derivatives include certain conversion features indexed to the Company's common stock. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related items at their fair values as of the inception date of the Convertible Notes Payable and at fair value as of each subsequent balance sheet date. In addition, under the provisions of Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity's Own Equity ("ASC 815-40"), as a result of entering into the Convertible Notes Payable, the Company is required to classify all other non-employee stock options and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.
The change in fair value of the derivative liabilities of warrants outstanding at July 31, 2015 was calculated with the following average assumptions, using a Black-Scholes option pricing model are as follows:
Significant Assumptions:
Risk free interest rate
Ranging from
0.101%  to 0.752
%
Expected stock price volatility
248 %
Expected dividend payout
0
Expected options life in years
Ranging from
0.34 years to 2.24
years
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
The change in fair value of the derivative liabilities of convertible notes outstanding at July 31, 2015 was calculated with the following average assumptions, using a Black-Scholes option pricing model are as follows:
Significant Assumptions:
Risk free interest rate
Ranging from
0.060% to 0.33
%
Expected stock price volatility
248 %
Expected dividend payout
0
Expected options life in years
Ranging from
0.31 years to 0.95
years
The value of the derivative liability at April 30, 2015 was re-assessed as of July 31, 2015 resulting in a loss from changes in fair value of derivative liabilities to the condensed consolidated statement of operations of $75,465 for the three months ended July 31, 2015.
July 31,
2015
Opening balance
$
1,605,535
Derivative liability reclassified to additional paid in capital
(477,540
)
Derivative financial liability arising on the issue of convertible notes
823,171
Loss from changes in fair value of derivative liabilities
75,465
Closing balance
$
2,026,661
NOTE E – LOANS PAYABLE TO RELATED PARTIES

As of July 31, 2015 and April 30, 2015, aggregated loans payable, without demand and with no interest, to officers and directors were $385,853 and $385,853, respectively.
NOTE F – EQUITY TRANSACTIONS

The Company is authorized to issue 10,000,000 shares of preferred stock with $0.001 par value per share, of which 35,850 shares have been designated as Series A convertible preferred stock with a $100 stated value per share, 1,000 shares have been designated as Series B Preferred Stock with a $10,000 per share liquidation value, and 200,000 shares have been designated as Series C Preferred Stock with a $10 per share liquidation value, and 750,000,000 shares of common stock with $0.001 par value per share.  The Company had 125 shares of Series A preferred stock issued and outstanding as of July 31, 2015 and April 30, 2015.  The Company had nil shares of Series B preferred stock issued and outstanding as of July 31, 2015 and April 30, 2015.  The Company had nil shares of Series C preferred stock issued and outstanding as of July 31, 2015 and April 30, 2015.  The Company has 73,710,011 and 43,238,320 shares of common stock issued and outstanding as of July 31, 2015 and April 30, 2015, respectively.
Preferred Stock, Series A

During the quarter ended July 31, 2015, there were no transactions in Series A Preferred, however, at July 31, 2015, there were $7,753 of accrued dividends payable on the Series A Preferred, compared to the accrual of $7,562 at April 30, 2015.  At the Company’s option, these dividends may be paid in shares of the Company’s Common Stock.

Preferred Stock, Series B

There were no shares of Series B Preferred Stock issued and outstanding at July 31, 2015 and at April 30, 2015.

Preferred Stock Series C

There were no shares of Series C Preferred Stock issued and outstanding at July 31, 2015 and at April 30, 2015.

Common Stock

During the three months ended July 31, 2015, the Company expensed $82,115 for non-cash charges related to stock and option compensation expense.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
During the three months ended July 31, 2015, the Company:
●
issued 2,043,180 shares of common stock which had been classified as to be issued at April 30, 2015 ,
●
sold 760,456 shares of restricted common stock to an accredited investor for $20,000,
●
is sued 24,395,940 shares of common stock upon the conversion of $420,052 principal amount of convertible notes,
●
accrued 1,962,220 shares as shares to be issued for the conversion of $29,806 of accrued interest, which shares were issued subsequent to July 31, 2015,
●
issued 391,059 shares of common stock valued at $11,078 pursuant to terms of various notes,
●
issued 2,846,000 shares of common stock valued at $82,080 pursuant to consulting agreements,
●
issued 35,056 shares of common stock to three employees pursuant to vesting provisions of prior stock awards.
NOTE G – NONCONTROLLING INTEREST

For the three months ended July 31, 2015, the non-controlling interest is summarized as follows:
Amount
Balance at April 30, 2015
$
652,348
Noncontrolling interest’s share of net income
4,264
Balance at July 31, 2015
$
656,612
NOTE H – FAIR VALUE MEASUREMENTS

The Company follows the guidance established pursuant to ASC 820 which established a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

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

The table below summarizes the fair values of financial liabilities as of July 31, 2015:
Fair Value Measurement Using
Fair Value at
July 31,
2015
Level 1
Level 2
Level 3
Derivative liabilities
$
2,026,661
-
-
$
2,026,661
The following is a description of the valuation methodologies used for these items:
Derivative liabilities — these instruments consist of certain variable conversion features related to notes payable obligations and certain outstanding warrants. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.

The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with ASC Topic 825.
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015
Changes in Derivative liabilities during the three months ended July 31, 2015 were:
Increased
Increase
April 30,
During
in Fair
July 31,
2015
Period
Reclassified
Value
2015
Derivative liabilities
$
1,605,535
$
823,201
$
(477,540
)
$
75,465
$
2,026,661
Total
$
1,605,535
$
823,201
$
(477,540
)
$
75,465
$
2,026,661
NOTE I – NON-CASH FINANCING AND INVESTING INFORMATION

During the three months ended July 31, 2015, the Company:
·
Issued 391,059 shares of common stock valued at $11,078 pursuant to the terms of the notes
·
Issued 340,000 shares of common stock in settlement of $14,450 in accounts payable
·
Issued 24,055,940 shares of common stock upon conversion of $ 405,602 of interest and notes and accounts payable
·
Issued 35,056 shares of common stock to three employees pursuant to vesting schedules of prior stock awards
·
Issued 2,846,000 shares of common stock valued at $82,080 to two consultants.
NOTE J – SUBSEQUENT EVENTS
During August and September 2015, the Company:
·
Issued 1,962,216 shares of common stock which had been listed as to be issued at July 31, 2015
·
Issued 10,378,746 shares of common stock upon the conversion of $82,548 convertible debt and accrued interest thereon
·
Issued 214,914 shares of common stock valued at $4,295 pursuant to the terms of notes payable
·
Issued 1,075,000 shares of common stock valued at $9,046 to a consultant
·
Borrowed $40,000 pursuant to a 6% note due August 24, 2016.   The note is convertible at the note holder’s option at a variable conversion prices such that during the period during which the note is outstanding, the note convertible at 58% multiplied by the average of the three lowest closing bid prices for the common stock during the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”).
·
Borrowed $41,000 and $50,000 pursuant to two 8% notes due August 24, 2016.   The notes are convertible at the note holder’s option at a variable conversion prices such that during the period during which the note is outstanding, the note convertible at 58% multiplied by the lowest prices for the common stock during the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”).
·
Borrowed $33,000 pursuant to a 5% note due August 26, 2016.   The note is convertible at the note holder’s option at a variable conversion prices such that during the period during which the note is outstanding, the note convertible at 70% multiplied by the lowest prices for the common stock during the twenty trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”).
SPARTA COMMERCIAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2015

NOTE K– GOING CONCERN MATTERS

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred recurring losses and generated negative cash flows operating activities since inception.  At July 31, 2015, the Company had an accumulated deficit of $50,806,753 and working capital deficit (total current liabilities exceeded total current assets) of $6,522,020.  The Company’s cash balance and revenues generated are not currently sufficient and cannot be projected to cover operating expenses for the next twelve months from the filing date of this report.  These factors among others raise substantial doubt about the Company’s ability 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 unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

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

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.
As at July 31, 2015, we were not a party to any material pending legal proceeding except as stated below.  From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
On December 18, 2012, the Company filed suit in the United States District Court for the Southern District Court of New York against a former credit provider. The suit sought damages arising out of the credit provider’s termination of the Company’s credit line in 2009. The defendant counterclaimed for recovery of legal fees under an indemnification clause contained in one of the loan documents. The matter proceeded to trial in May 2015, and the Court thereafter issued a decision finding in favor of the defendant on the Company’s claims. The defendant now seeks recovery of approximately $2 million in legal fees, relying on the contractual indemnity clause. The Company believes that it has good and valid defenses to the claim, including that the indemnification clause only applies to third party claims; however, there can be no assurance that the Court will agree with the Company’s arguments. The defendant’s motion is currently scheduled to be heard in September 2015. The Company is currently considering an appeal of the Court's decision on the Company's claims. As of September 21, 2015 there is no further change in the status of the matter.
I TEM 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, 2015 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

Discontinued Operations

As discussed in NOTE C to the consolidated financial statements, in August 2012, the Company’s Board of Directors approved management’s recommendation to discontinue the Company’s consumer lease and loan lines of business and the sale of all of the Company’s portfolio of RISCs, and a portion of its portfolio of leases. The sale was consummated in that quarter. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for all periods presented.

The operating results related to these lines of business have been included in discontinued operations in the Company’s consolidated statements of loss for all periods presented. The following table presents summarized operating results for those discontinued operations.

Quarter Ended
July 31,
July 31,
2015
2014
Revenues
$
18,416
$
11,866
Net (loss)
$
(12,548
)
$
(94,364
)
RESULTS OF CONTINUING OPERATIONS

Comparison of the Three Months Ended July 31, 2015 to the Three Months Ended July 31, 2014

For the three months ended July 31, 2015 and 2014, we have generated limited sales revenues, have incurred significant expenses, and have sustained significant losses.
Revenues

Revenues totaled $167,223 during the three months ended July 31, 2015 as compared to $132,087 during the three months ended July 31, 2014.  Revenues increased by $35,136 or 26.6% was primarily due to increases in mobile app revenues partially offset by a decrease in sales of history reports.
Costs and Expenses
Cost of goods sold increased by 2.7% from $43,250 to $44,146 and resulted in an increase in our gross profit margin to 74% in the current quarter from 67% in the quarter ended July 31, 2014. General and administrative expenses were $763,050 during the three months ended July 31, 2015, compared to $564,809 during the three months ended July 31, 2014. The $198,241 or 35.1% increase was primarily due to increases in employee compensation and health insurance because of an increase in sales staff and a reduced allocation of overhead to Discontinued Operations.
Loss from continuing operations
We incurred a loss from continuing operations of $1,611,297 for our three months ended July 31, 2015 as compared to a loss from continuing operations of $476,185 for the corresponding interim period in 2014, a $1,135,112 or 238.38% increase.  The increase in our loss from continuing operations for our three month interim period ended July 31, 2015 was attributable primarily to a $198,241 or 35.1% increase in general and administrative expenses due to increase in employee compensation and health insurance, a $587,736 or 471.17% increase in amortization of debt discount, a $276,244 or 137.59% increase in loss in changes in fair value of derivatives liabilities, a $39,545 or 49.61% increase in non-cash financing costs, and a $142,181 or 1,993.87% increase in interest expense and financing costs.

Loss from discontinued operations
Our loss from discontinued operations for the quarter ended July 31, 2015 was $12,548, as compared to loss from discontinued operations of $94,364 for the three months ended July 31, 2014, a $81,816 or 86.70% decrease due to winding down of the discontinued operations and hence decreased expenses.

Our net loss attributable to common stockholders

We incurred non-cash preferred dividend expense of $191 and $191, respectively for our three month periods ended July 31, 2015 and 2014.
Our net loss attributable to common stockholders increased to $1,628,300 for our three month period ended July 31, 2015 as compared to $558,948 for the corresponding period in 2014.  The $1,069,352 (191.31%) increase in net loss attributable to common stockholders for our three month period ended July 31, 2015 was due primarily to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES OF CONTINUING OPERATIONS

As of July 31, 2015, we had a negative net worth of $6,522,020.  We generated a deficit in cash flow from operating activities of $685,780 for the three months ended July 31, 2015.  This deficit is primarily attributable to our net loss of $1,623,845, partially offset by, other non-cash charges including amortization of debt discount and costs of $712,477, loss from changes in the fair value of derivative liabilities of $75,465, equity based compensation of $82,115, and changes in operating assets and liabilities.  Accounts payable and accrued expenses increased by $125,486 receivables increased $24,574, and prepaid expenses and other assets increased by $33,961.
We met our cash requirements during the three month period through net proceeds from the sale of common in the amount of $20,000 and net proceeds from convertible notes and other notes of $1,026,400.  We repaid $320,500 in convertible notes.  Additionally, we have received limited revenues from our discontinued leasing and financing activities, and have received fees from our municipal lease program, as well as from our continuing operations. 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, 2015, we had 15 full time employees.  If we are able to fully implement our business plan, we anticipate our employment base may increase by at least 50% during the next twelve months.  As we continue to expand, we will incur additional cost for personnel.  This projected increase in personnel is dependent upon our obtaining sources of financing originating loans and leases and generating revenues there from.  There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees.
We continue seeking additional financing, which may be in the form of senior debt, subordinated debt or equity. There is no guarantee that we will be successful in raising the funds required to support our operations.  We estimate that we will need approximately $1,800,000 in addition to our normal operating cash flow to conduct operations at the current staffing level during the next twelve months. There can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common or preferred stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. However, if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition, and we will have to adjust our planned operations and development on a more limited scale.

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

The independent auditors report on our April 30, 2015 and 2014 consolidated 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 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 institutional investors for debt or equity investments in our Company; short term interim debt financing: and private placements of debt and equity securities with accredited investors.

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

INFLATION

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

OFF-BALANCE SHEET ARRANGEMENTS

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

TRENDS, RISKS AND UNCERTAINTIES

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

Our annual operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside our control, including: the demand for our products and services; seasonal trends in purchasing; 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.

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

Information Technology:

Revenues from mobile app products are recognized upon delivery. Revenues from History Reports are recognized upon delivery / download. Prepayments received from customers before delivery (if any) are recognized as deferred revenue and recognized upon delivery.  There were no deferred revenues at July 31, 2015 and April 30, 2015.

Discontinued Operations:

Revenues from RISCs and leases

The RISCs are secured by liens on the titles to the vehicles. The RISCs are accounted for as loans.  Upon purchase, the RISCs appear on our balance sheet as RISC loans receivable current and long term. When the RISC is entered into our accounting system, based on the customer's APR (interest rate), an amortization schedule for the loan on a simple interest basis is created. Interest is computed by taking the principal balance times the APR rate then divided by 365 days to get your daily interest amount. The daily interest amount is multiplied by the number of days from the last payment to get the interest income portion of the payment being applied. The balance of the payment goes to reducing the loan principal balance.
Our leases are accounted for as either operating leases or direct financing leases. At the inception of operating leases, no lease revenue is recognized and the leased motorcycles, together with the initial direct costs of originating the lease, which are capitalized, appear on the balance sheet as "motorcycles under operating leases-net". The capitalized cost of each motorcycle is depreciated over the lease term, on a straight-line basis, down to the original estimate of the projected value of the motorcycle at the end of the scheduled lease term (the "Residual"). Monthly lease payments are recognized as rental income. An acquisition fee classified as fee income on the financial statements is received and recognized in income at the inception of the lease. Direct financing leases are recorded at the gross amount of the lease receivable, and unearned income at lease inception is amortized over the lease term.
We realize gains and losses as the result of the termination of leases, both at and prior to their scheduled termination, and the disposition of the related motorcycle. The disposal of motorcycles, which reach scheduled termination of a lease, results in a gain or loss equal to the difference between proceeds received from the disposition of the motorcycle and its net book value. Net book value represents the residual value at scheduled lease termination. Lease terminations that occur prior to scheduled maturity because of the lessee's voluntary request to purchase the vehicle have resulted in net gains, equal to the excess of the price received over the motorcycle's net book value.

Early lease terminations also occur because of (i) a default by the lessee, (ii) the physical loss of the motorcycle, or (iii) the exercise of the lessee's early termination. In those instances, we receive the proceeds from either the resale or release of the repossessed motorcycle, or the payment by the lessee's insurer. We record a gain or loss for the difference between the proceeds received and the net book value of the motorcycle. We charge fees to manufacturers and other customers related to creating a private label version of our financing program including web access, processing credit applications, consumer contracts and other related documents and processes. Fees received are amortized and booked as income over the length of the contract.
Stock-Based Compensation
The Company adopted ASC 718-10, which records compensation expense on a straight-line basis, generally over the explicit service period of three to five years.
ASC 718-10 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. The Company is using the Black-Scholes option-pricing model as its method of valuation for share-based awards. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.
Allowance for Losses

Included in our Discontinued Operations, the Company maintains 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 PRONOUNCEMENT

See Note A to the unaudited 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.
ITE M 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

IT EM 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, and in light of the material weaknesses found in our internal controls, 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 not effective.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  In our assessment of the effectiveness of internal control over financial reporting, we determined that control deficiencies existed that constituted material weaknesses, as described below:
●
lack of documented policies and procedures;
●
we have no audit committee;
●
there is a risk of management override given that our officers have a high degree of involvement in our day-to-day operations.
●
there is no effective separation of duties, which includes monitoring controls, between the members of management.

Management is currently evaluating what steps can be taken in order to address these material weaknesses.
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.
PART II.  OTHER INFORMATION

IT EM 1.  LEGAL PROCEEDINGS

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.
As at July 31, 2015, we were not a party to any material pending legal proceeding except as stated below.  From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
On December 18, 2012, the Company filed suit in the United States District Court for the Southern District Court of New York against a former credit provider. The suit sought damages arising out of the credit provider’s termination of the Company’s credit line in 2009. The defendant counterclaimed for recovery of legal fees under an indemnification clause contained in one of the loan documents. The matter proceeded to trial in May 2015, and the Court thereafter issued a decision finding in favor of the defendant on the Company’s claims. The defendant now seeks recovery of approximately $2 million in legal fees, relying on the contractual indemnity clause. The Company believes that it has good and valid defenses to the claim, including that the indemnification clause only applies to third party claims; however, there can be no assurance that the Court will agree with the Company’s arguments. The defendant’s motion is currently scheduled to be heard in September 2015. The Company is currently considering an appeal of the Court's decision on the Company's claims. As of September 21, 2015 there is no further change in the status of the matter.
ITE M 1A.  RISK FACTORS

We are subject to certain risks and uncertainties in our business operations including those which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not presently known or which are currently deemed immaterial may also impair our business operations.  A description of factors that could materially affect our business, financial condition or operating results were included in Item 1A “Risk Factors” of our Form 10-K for the year ended April 30, 2015, filed August 13, 2015, and is incorporated herein by reference.
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Each of the issuance and sale of securities described below was deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. No advertising or general solicitation was employed in offering the securities. Each purchaser is a sophisticated investor (as described in Rule 506(b) (2) (ii) of Regulation D) or an accredited investor (as defined in Rule 501 of Regulation D), and each received adequate information about the Company or had access to such information, through employment or other relationships, to such information.  The Company applied proceeds from financing activities described below to working capital.

During the quarter ended July 31, 2015, the Company:
·
Sold 760,456 shares of restricted common stock to an accredited investor for $20,000.
·
Issued 391,059 shares of restricted common stock valued at $11,078 to two six-note holders pursuant to the terms of their notes.
·
Issued 2,846,000 shares of restricted common stock valued at $82,080 to two consultants.
·
Issued 2,024,371 shares restricted common stock that had been classified as to be issued at April 30, 2015.
·
Issued 340,000 shares of common stock in partial settlement of $14,500 of accounts payable.
·
Issued 22,049,916 shares of common stock to ten note holders upon conversion of $374,152 of notes payable.
·
Issued 35,056 shares of common stock to three employees pursuant to vesting terms of prior stock grant awards.
·
Borrowed a $33,000, 8% note due February 21, 2016 and a $38,000 8% note due April 17, 2016. Both notes are convertible at the note holder’s option at a variable conversion prices such that during the period during which the notes are outstanding, with all notes convertible at 58% multiplied by the average of the three lowest closing bid prices for the common stock during the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). In the event the notes are not paid when due, the interest rate is increased to twenty-two percent until the note is paid in full.
·
Borrowed a $55,000, 8% note due April 30, 2016 and a $100,000 8% note due April 30, 2016. Both notes are convertible at the note holder’s option at a variable conversion prices such that during the period during which the notes are outstanding, with all notes convertible at 58% multiplied by the average of the three lowest trading price for the common stock during the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). In the event the notes are not paid when due, the interest rate is increased to twenty-four percent until the note is paid in full.
·
Borrowed a $55,000 8% convertible note due May 27, 2016, and a $58,000 8% convertible note due July 8, 2016 of which $27,500 was due to be paid July 29, 2015.  The notes are convertible at a 40% discount from the lowest closing price for the twenty trading days prior to conversion. In the event the notes are not paid when due, the interest rate is increased to fifteen percent until the notes are paid in full.
·
Borrowed a $31,900 10% convertible note due July 28, 2016 and a $25,000 10% convertible note due July 18, 2016 The notes are convertible at a 42% discount from the lowest closing price for the twenty trading days prior to conversion. In the event the notes are not paid when due, the interest rate is increased to fifteen percent until the notes are paid in full.
·
Borrowed $27,500, (the initial tranche of a $165,000 5% convertible note) due June 15, 2016. The lender may lend additional consideration to the Company in such amounts and at such dates as lender may choose in its sole discretion.  The principal sum due to lender shall be prorated based on the consideration actually paid by lender (plus an approximate 10% original issue discount that is prorated based on the consideration actually paid by the lender as well as any other interest or fees) such that the Company is only required to repay the amount funded and the Company is not required to repay any unfunded portion of this note.  The maturity date of each note is one year from the effective date of each payment and is the date upon which the principal sum of this note, as well as any unpaid interest and other fees, shall be due and payable.  The conversion price for the notes is the lesser of $0.60 or 70% of the lowest closing price during the 20 trading days immediately before the day the conversion notice is delivered to the Company.
·
Borrowed two $22,500, 8% convertible notes due July 19, 2016. The notes are convertible at the note holder’s option at a variable conversion of 60% multiplied by lowest closing bid price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). In the event the notes are not paid when due, the interest rate is increased to twenty-four percent until the notes are paid in full.
·
Borrowed a $50,000, 8% convertible note and a $100,000, 8% convertible note both due June 2, 2016. The notes are convertible at the note holder’s option at a variable conversion of 60% multiplied by lowest closing bid price in the ten trading day period ending one trading day prior to the submission date of the conversion notice by the note holder to the Company (the “Discount Conversion Rate”). In the event the notes are not paid when due, the interest rate is increased to twenty-four percent until the notes are paid in full.
·
Borrowed from four accredited investors, four one-year notes at 10% interest as follows: $25,000 due June 29, 2016, $10,000 due June 29, 2016, $5,000 due July 20, 2016, and $21,000 due July 22, 2016. As inducement for the notes, the Company agreed to issue such number of shares of the Company’s common stock that equaled two-and-one-half times the amount of the note. The notes are convertible at $0.30 per share at the Company’s option if, and only if the closing price of Company’s common stock meets or exceeds $0.30 per share for ten consecutive trading days prior to any conversion.
·
Borrowed from three accredited investors, nine one-year notes at 10% interest as follows: $50,000 due May 5, 2016, $32,000 due May 13, 2016, $50,000 due May 18, 2016, $20,000 due May 28, 2016, $25,000 due May 29, 2016, $50,000 due June 24, 2016, $22,500 due July 8, 2016, $20,000 due July 14, 2016, and $25,000 Due July 31, 2016. As inducement for the notes, the Company agreed to issue such number of shares of the Company’s common stock that equaled two-and-one-half times the amount of the note.
IT EM 3.  DEFAULTS UPON SENIOR SECURITIES
None.

IT EM 4.  MINE SAFETY DISCLOSURES

None.

IT EM 5.  OTHER INFORMATION

Not applicable.
I TEM 6.  EXHIBITS

The following exhibits are filed with this report:

Exhibit No.
Description
11
Statement re: computation of per share earnings is hereby incorporated by reference to “Financial Statements” of Part I - Financial Information, Item 1 - Financial Statements, contained in this Form 10-Q.
31.1*
31.2*
32.1*
32.2*
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
XBRL Taxonomy Extension Label Linkbase
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase
*Filed herewith
SI GNATURES

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

SPARTA COMMERCIAL SERVICES, INC.
Date:  September 21, 2015
By:  /s/ Anthony L. Havens
Anthony L. Havens
Chief Executive Officer
Date:  September 21, 2015
By:  /s/ Anthony W. Adler
Anthony W. Adler
Principal Financial Officer
31
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