x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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Nevada
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30-0298178
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company x
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Page
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PART I.
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FINANCIAL INFORMATION
|
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Item 1.
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3
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|
3
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||
4
|
||
Condensed Consolidated Statement of (Deficit) for the Three Months ended July 31, 2011 | ||
6
|
||
7
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||
Item 2.
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23
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Item 3.
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29
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Item 4.
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29
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PART II.
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OTHER INFORMATION
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Item 1.
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30
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Item 1A.
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30
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Item 2.
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31
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Item 3.
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32
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Item 4.
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32
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Item 5.
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32
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Item 6.
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32
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33
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Quarter Ended
July 31, 2011 |
Year end
April 30, 2011 |
|||||||
(unaudited) | ||||||||
ASSETS
|
||||||||
Cash and cash equivalents
|
58,024 | $ | 10,786 | |||||
RISC loan receivables, net of reserve of $34,500 and $45,015,
respectively (NOTE D)
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657,255 | 855,278 | ||||||
Motorcycles and other vehicles under operating leases net of
accumulated depreciation of $194,784 and $217,885 respectively,
and loss reserve of $9,560 and $9,650, respectively (NOTE B)
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232,025 | 231,564 | ||||||
Interest receivable
|
15,137 | 9,239 | ||||||
Purchased Portfolio (NOTE F)
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23,330 | 24,544 | ||||||
Accounts receivable
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34,869 | 66,387 | ||||||
Inventory (NOTE C)
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22,369 | 13,126 | ||||||
Property and equipment, net of accumulated depreciation and
amortization of $179,671 and $176,677, respectively (NOTE E)
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11,576 | 14,570 | ||||||
Deferred Expenses
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113,981 | 138,405 | ||||||
Good Will
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10,000 | 10,000 | ||||||
Restricted cash
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54,879 | 64,686 | ||||||
Other Assets
|
- | |||||||
Deposits
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48,967 | 48,967 | ||||||
Total assets
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$ | 1,282,413 | $ | 1,487,553 | ||||
LIABILITIES AND DEFICIT
|
||||||||
Liabilities:
|
||||||||
Accounts payable and accrued expenses
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1,190,233 | 1,133,721 | ||||||
Senior secured notes payable (NOTE F)
|
853,609 | 974,362 | ||||||
Notes payable net of beneficial conversion feature of $75,090
and $52,272, respectively (NOTE G)
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1,387,399 | 1,377,065 | ||||||
Loans payable-related parties (NOTE H)
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386,760 | 386,760 | ||||||
Other liabilities
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67,691 | 75,409 | ||||||
Derivative liabilities
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178,595 | 484,301 | ||||||
Deferred revenue
|
900 | 2,250 | ||||||
Total liabilities
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4,065,188 | 4,433,868 | ||||||
Deficit:
|
||||||||
Preferred Stock, $.001 par value; 10,000,000 shares authorized of which
35,850 shares have been designated as Series A convertible preferred
stock, with a stated value of $100 per share, 125 and 125 shares issued
and outstanding, respectively
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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, 157 and 157 shares issued
and outstanding, respectively
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1 | 1 | ||||||
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 42,000 shares issued
and outstanding, respectively
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- | - | ||||||
Common stock, $.001 par value; 740,000,000 shares authorized,
530,285,000 and 479,104,770 shares issued and outstanding, respectively
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530,285 | 479,105 | ||||||
Common stock to be issued, 70,997,000 and 73,899,200 respectively
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70,997 | 73,899 | ||||||
Preferred Stock B to be issued, 29.3 and 9.64 shares, respectively
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- | - | ||||||
Additional paid-in-capital
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33,839,649 | 33,430,502 | ||||||
Subscriptions Receivable, preferred stock, Series B
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(2,118,309 | ) | (2,118,309 | ) | ||||
Accumulated deficit
|
(35,480,272 | ) | (35,114,801 | ) | ||||
Total deficiency in stockholders' equity
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(3,145,149 | ) | (3,237,103 | ) | ||||
Noncontrolling Interest
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362,374 | 290,789 | ||||||
Total deficit
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(2,782,775 | ) | (2,946,314 | ) | ||||
Total liabilities and deficit
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$ | 1,282,413 | $ | 1,487,553 |
Three Months Ended
July 31, |
||||||||
2011
|
2010
|
|||||||
Revenue
|
||||||||
Rental Income, Leases
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$ | 28,359 | $ | 29,753 | ||||
Interest Income, Loans
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35,041 | 75,717 | ||||||
Other
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86,599 | 26,677 | ||||||
149,999 | 132,147 | |||||||
Operating expenses:
|
||||||||
General and administrative
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575,431 | 718,668 | ||||||
Depreciation and amortization
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17,023 | 19,561 | ||||||
Total operating expenses
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592,454 | 738,229 | ||||||
Loss from operations
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(442,455 | ) | (606,082 | ) | ||||
Other expense:
|
||||||||
Interest expense and financing cost, net
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148,970 | 171,471 | ||||||
(Gain) loss in changes in fair value of derivative liability
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(257,302 | ) | 534,242 | |||||
Total finance related expenses
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(108,333 | ) | 705,713 | |||||
Net loss
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$ | (334,122 | ) | $ | (1,311,795 | ) | ||
Net loss attributed to noncontrolling interest
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8,415 | 8,769 | ||||||
Preferred dividend
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(39,764 | ) | (39,758 | ) | ||||
Net loss attributed to common stockholders
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$ | (365,471 | ) | $ | (1,342,784 | ) | ||
Basic and diluted loss per share
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$ | (0.00 | ) | $ | (0.01 | ) | ||
Basic and diluted loss per share attributed to common stockholders
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$ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted average shares outstanding
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507,308,272 | 300,447,151 |
Series A Preferred Stock
|
Series B Preferred Stock
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Series C Preferred Stock
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Common Stock
|
Common Stock
to be issued |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
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Shares
|
Amount
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Shares
|
Amount
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Shares
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Amount
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Shares
|
Amount
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Subscriptions
Receivable |
Additional
Paid in
Capital |
Accumulated
Deficit |
Non-
controlling
Interest |
Total
|
||||||||||||||||||||||||||||||||||||||||||||||
Balance April 30, 2011
|
125 | 12,500 | 157 | 12,782 | - | - | 479,104,648 | 479,105 | 73,899,200 | 73,899 | (2,118,309 | ) | 33,430,502 | (35,114,801 | ) | 290,789 | (2,946,317 | ) | ||||||||||||||||||||||||||||||||||||||||||
Preferred Dividend to be issued
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39,120 | 39,120 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial conversion discount
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71,222 | 71,222 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of Stock
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19,839,340 | 19,839 | (2,902,010 | ) | (2,902 | ) | 74,318 | 91,255 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued for financing cost
|
3,179,000 | 3,179 | 38,542 | 41,721 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued for
conversion of notes
& interest
|
26,856,980 | 26,857 | 127,037 | 153,894 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation
|
1,305,340 | 1,305 | 15,445 | 16,750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee options expense
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43,464 | 43,464 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of Subsidiary's
Preferred B stock
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80,000 | 80,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss
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(365,471 | ) | (8,415 | ) | (373,886 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance July 31, 2011
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125 | 12,500 | 157 | 12,782 | - | - | 530,285,308 | 530,285 | 70,997,190 | 70,997 | (2,118,309 | ) | 33,839,649 | (35,480,272 | ) | 362,374 | (2,782,775 | ) |
Three Months Ended
July 31,
|
||||||||
2011
|
2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net Loss
|
$
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(334,122
|
)
|
$
|
(1,311,795
|
)
|
||
Adjustments to reconcile net loss to net cash used in
operating activities:
|
||||||||
|
||||||||
Depreciation and Amortization
|
17,023
|
13,298
|
||||||
Allowance for loss reserves
|
(10,515
|
)
|
15,875
|
|||||
Amortization of deferred expenses
|
24,425
|
1,350
|
||||||
Amortization of Debt Discount
|
583
|
14,098
|
||||||
Shares issued for debt and accrued interest
|
3,646
|
15,648
|
||||||
Equity based compensation
|
60,214
|
146,007
|
||||||
Stock based finance cost
|
41,721
|
-
|
||||||
Non cash (gain) loss in fair value of derivative liabilities
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(257,302
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)
|
534,242
|
|||||
(Increase) decrease in operating assets and liabilities:
|
|
|
||||||
Inventory
|
(9,243
|
)
|
7,482
|
|||||
Interest receivable
|
(5,898
|
)
|
1,726
|
|||||
Accounts receivable
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31,518
|
42,829
|
||||||
Prepaid expenses and other assets
|
-
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3,628
|
||||||
Restricted cash
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9,806
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34,825
|
||||||
Portfolio
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1,214
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(17,553
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)
|
|||||
Increase (decrease) in:
|
|
|
||||||
Accounts payable and accrued expenses
|
40,750
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155,479
|
||||||
Net cash used in operating activities
|
(386,171
|
)
|
(342,861
|
)
|
||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Net (Acquisition) liquidation of leased vehicles
|
(462
|
)
|
16,550
|
|||||
Net Liquidation of RISC contracts
|
208,539
|
220,317
|
||||||
Net cash provided by investing activities
|
208,077
|
236,866
|
||||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Sale of subsidiary stock
|
80,000
|
40,000
|
||||||
Net proceeds from sale of common stock
|
82,840
|
89,999
|
||||||
Proceeds from secured lender
|
112,766
|
-
|
||||||
Net payments to senior lender
|
(233,518
|
)
|
(279,145
|
)
|
||||
Net proceeds from convertible notes
|
198,244
|
246,948
|
||||||
Payments on convertible notes
|
(15,000
|
)
|
-
|
|||||
Net cash provided by financing activities
|
225,332
|
97,802
|
||||||
Net Increase (decrease) in cash
|
$
|
47,238
|
$
|
(8,193
|
)
|
|||
Unrestricted cash and cash equivalents, beginning of period
|
10,786
|
$
|
11,994
|
|||||
Unrestricted cash and cash equivalents , end of period
|
$
|
58,024
|
$
|
3,801
|
||||
Cash paid for:
|
||||||||
Interest
|
$
|
43,913
|
$
|
55,513
|
||||
Income taxes
|
-
|
$
|
-
|
·
|
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.
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Leasehold improvements
|
- 3 years
|
|||
Furniture and fixtures
|
- 7 years
|
|||
Website costs
|
- 3 years
|
|||
Computer Equipment
|
- 5 years
|
July 31,
2011 |
April 30,
2011 |
|||||||
Motorcycles and other vehicles
|
$ | 436,459 | $ | 459,099 | ||||
Less: accumulated depreciation
|
(194,784 | ) | (217,885 | ) | ||||
Motorcycles and other vehicles, net of accumulated depreciation
|
241,675 | 241,214 | ||||||
Less: estimated reserve for residual values
|
(9,650 | ) | (9,650 | ) | ||||
Motorcycles and other vehicles under operating leases, net
|
$ | 232,025 | $ | 231,564 |
Year ending July 31,
|
||||
2012
|
$
|
460,595
|
||
2013
|
228,653
|
|||
2014
|
2,506
|
|||
2015
|
-
|
|||
$
|
691,755
|
July 31,
2011 |
April 30,
2011 |
|||||||
Delinquency Status
|
||||||||
Current
|
$ | 622,244 | $ | 801,953 | ||||
31-60 days past due
|
38,670 | 37,854 | ||||||
61-90 days past due
|
11,135 | 22,394 | ||||||
91-120 days past due
|
6,141 | 22,773 | ||||||
678,190 | 884,974 | |||||||
Paying deficiency receivables*
|
13,565 | 15,320 | ||||||
$ | 691,755 | $ | 900,294 |
|
*
|
Paying deficiency are receivables resulting from RISC contract terminations which were terminated for less than the required termination amount and on which the customer is making payments pursuant to written or oral agreements with the Company. The Company’s policy is to write-off any deficiency receivable over 120 days old and on which the customer has not made any payments in the last 120 days.
|
Three Months
Ended |
Year
Ended |
|||||||
Balance at beginning of year
|
$ | 45,015 | $ | 132,000 | ||||
Provision for credit losses
|
(10,515 | ) | 9,179 | |||||
Charge-offs
|
- | (96,164 | ) | |||||
Recoveries*
|
- | - | ||||||
Balance at end of period
|
$ | 34,500 | $ | 45,015 | ||||
* Recoveries are credited to deficiency receivables
|
Three Months
Ended |
Year
Ended |
|||||||
Gross balance of repossessions in inventory
|
$ | 26,741 | $ | 14,138 | ||||
Allowance for losses on repossessed inventory
|
(4,372 | ) | (1,012 | ) | ||||
Net repossessed inventory
|
$ | 22,369 | $ | 13,126 |
July 31,
2011
|
April 30,
2011
|
|||||||
Computer equipment, software and furniture
|
$ | 191,247 | $ | 191,247 | ||||
Less: accumulated depreciation and amortization
|
(179,671 | ) | (176,677 | ) | ||||
Net property and equipment
|
$ | 11,576 | $ | 14,570 |
(a)
|
The Company finances certain of its leases through a third party. The repayment terms are generally one year to five years and the notes are secured by the underlying assets. The weighted average interest rate at July 31, 2011 is 10.48%.
|
(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. Proceeds from the Purchased Portfolio started accruing to the Company beginning November 1, 2008.
|
(c)
|
In July 2011, the Company borrowed $100,842 from an investor and collateralized the loan with certain unpledged leases.
|
12 Months Ended
July 31, |
Amount
|
|||
2012
|
$ | 494,949 | ||
2013
|
243,784 | |||
2014
|
114,876 | |||
2015
|
- | |||
$ | 853,609 |
Notes Payable
|
July 31,
2011
|
April 30,
2011
|
||||||
Convertible notes (a)
|
$
|
873,090
|
$
|
839,938
|
||||
Notes payable (b)
|
60,000
|
60,000
|
||||||
Bridge loans (c)
|
206,000
|
206,000
|
||||||
Collateralized note (d)
|
220,000
|
220,000
|
||||||
Convertible note (e)
|
103,399
|
103,399
|
||||||
Sub Total
|
1,462,489
|
1,429,337
|
||||||
Less Beneficial Conversion Discount
|
(75,090
|
)
|
(52,272
|
)
|
||||
Total
|
$
|
1,387,399
|
$
|
1,377,066
|
(a)
|
As of July 31, 2011, the Company had outstanding convertible unsecured notes with an aggregate principal amount of $873,090, which accrue interest at rates ranging from 8% to 15% per annum. The majority of the notes are convertible into shares of common stock, at the Company’s option, ranging from $0.006 to $0.021 per share.
|
(b)
|
During the nine months ended July 31, 2010, the Company sold to seven accredited investors a total of $95,000 two month loans bearing interest at 12% and issued a total of 850,000 shares of common stock valued at $22,500 as inducements for the loans. All of the loans have been extended to September 30, 2011. The Company has issued an additional 1,600,000 shares of common stock for such extensions. In December 2010, two of the note holders converted a total of $35,000 principal amount of notes into 7 shares of the Series B preferred stock of the Company’s subsidiary, Specialty Reports, Inc., and converted the interest on the notes into 104,450 shares of the Company’s common stock.
|
(c)
|
During the year ended April 30, 2007, the Company sold to five accredited investors bridge notes in the aggregate amount of $275,000. The bridge notes were originally scheduled to expire on various dates through November 30, 2006, together with simple interest at the rate of 10%. The notes provided that 100,000 shares of the Company's unregistered common stock are to be issued as “Equity Kicker” for each $100,000 of notes purchased, or any prorated portion thereof. The Company had the right to extend the maturity date of notes for 30 to 45 days, in which event the lenders were entitled to “additional equity” equal to 60% of the “Equity Kicker” shares. In the event of default on repayment, the notes provided for
a 50% increase in the “Equity Kicker” and the “Additional Equity” for each month that such default has not been cured and for a 20% interest rate during the default period. The repayments, in the event of default, of the notes are to be collateralized by certain security interest. The maturity dates of the notes were subsequently extended to various dates between December 5, 2006 to September 30, 2009, with simple interest rate of 10%, and Additional Equity in the aggregate amount of 165,000 unregistered shares of common stock to be issued. Thereafter, the Company was in default on repayment of these notes. During the year ended April 30, 2009, $99,000 of these loans was repaid and during the fiscal year ended April 30, 2010, $15,000 of these notes and accrued interest thereon was converted into approximately 463,000 shares of the
Company’s common stock. The holders of the remaining notes agreed to contingently convert those notes plus accrued interest into approximately 8,000,000 shares of the Company’s common stock upon the Company’s ability to meet all conditions precedent to begin drawing down on a senior credit facility. In July 2010, the Company sold to an accredited investor a one week 10%, $25,000 note and issued 25,000 shares of common stock as inducement for the note. The note is convertible at the holder’s option into shares of common stock at $0.005 per share. In the event the note is not paid when due, the interest rate is increased to 20% until paid in full and the Company is required to issue 50,000 shares of common stock per month
until the note is paid in full. During the quarter ending July 31, 2010, one $20,000 note (which was classified as Notes Payable (see b above) has been reclassified as a Bridge Loan) was due August 8, 2009 and is accruing interest at a default rate of 15% and is also accruing penalty shares at the rate of 20,000 shares per month. All of these notes have been extended to May 1, 2011.
|
(d)
|
During the year ended April 30, 2009, the Company sold a secured note in the amount of $220,000. The note bore 12.46% simple interest. The note matured on January 29, 2010 and has been extended to September 1, 2011 and is secured by a second lien on a pool of motorcycles. In July 2010, the note holder agreed to convert the note and all accrued interest thereon into approximately 12,000,000 shares of the Company’s common stock upon the Company demonstrating that it can meet all conditions precedent to begin drawing down on a senior credit facility. As of July 31, 2011, the balance outstanding was $220,000 since the Company has not met the conditions to precedent to convert the note to common shares.
|
(e)
|
On September 19, 2007, the Company sold to one accredited investor for the purchase price of $150,000 securities consisting of a $150,000 convertible debenture due December 19, 2007, 100,000 shares of unregistered common stock, and 400,000 common stock purchase warrants. The debentures bear interest at the rate of 12% per year compounded monthly and are convertible into shares of the Company's common stock at $0.0504 per share. The warrants may be exercised on a cashless basis and are exercisable until September 19, 2007 at $0.05 per share. In the event the debentures are not timely repaid, the Company is to issue 100,000 shares of unregistered common stock for each thirty day period the debentures remain outstanding. The Company has accrued interest and penalties as per the terms of the note
agreement. In May 2008, the Company repaid $1,474 of principal and $3,526 in accrued interest. Additionally, from April 26, 2008 through April 30, 2009, a third party to the note paid, on behalf of the Company, $41,728 of principal and $15,272 in accrued interest on the note, and the note holder converted $3,399 of principal and $6,601 in accrued interest into 200,000 shares of our common stock. This note has been extended to May 1, 2011.
|
●
|
issued 12,439,343 shares of common stock which had been classified as to be issued at April 30, 2011,
|
●
|
sold 16,937,333 shares of common stock to five accredited investors for $91,266, of which 9,537,333 shares remained to be issued at July 31, 2011,
|
●
|
issued 26,856,980 shares of common stock upon the conversion of $150,675 principal amount of convertible notes and accrued interest thereon,
|
●
|
issued 3,179,000 shares of common stock valued at $41,721 pursuant to terms of various notes,
|
●
|
issued 1,305,340 shares of common stock valued at $16,750 pursuant to consulting agreements, and
|
●
|
the Company’s majority owned subsidiary, Specialty Reports, Inc., sold 16 shares of its Series B Preferred stock to five accredited investors for $80,000. The Series B Preferred stock does not pay a dividend. Each share has a liquidating value of $5,000 and is redeemable by Specialty Reports at any time after one year. Each share is convertible at the holder’s option at any time into either 2,222 shares of Specialty Reports, Inc common stock, or 200,000 shares of Sparta Commercial Services common stock.
|
Amount
|
||||
Balance at April 30, 2011
|
$
|
290,789
|
||
Issuance of Series B Preferred Stock
|
80,000
|
|||
Noncontrolling interest’s share of losses
|
(8,415
|
)
|
||
Balance at July 31, 2011
|
$
|
362,374
|
Fair Value Measurement Using
|
||||||||||||||||
Fair Value at
July 31,
2011
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Derivative liabilities
|
$ | 178,595 | - | - | $ | 178,595 |
·
|
sold 2,520,000 shares of common stock for $12,600 to a qualified investor,
|
·
|
borrowed $25,000 from a qualified investor pursuant to a 21 day 10%, note and agreed to issue the investor 800,000 shares of common stock as an inducement. Pursuant to the terms of the note, the Company is required to issue the investor 800,000 shares of common stock for each month or portion thereof the note is past due, and
|
·
|
borrowed $50,000 for one year at 8%, convertible at the company’s option into common stock at $0.00576 per share.
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
●
|
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.
|
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
|
SPARTA COMMERCIAL SERVICES, INC.
|
|
Date: September 19, 2011
|
By: /s/ Anthony L. Havens
|
Anthony L. Havens
|
|
Chief Executive Officer
|
|
Date: September 19, 2011
|
By: /s/ Anthony W. Adler
|
Anthony W. Adler
|
|
Principal Financial Officer
|
1.
|
I have reviewed this report on Form 10-Q for the quarterly period ended July 31, 2011 of Sparta Commercial Services, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Anthony L. Havens
|
|
Anthony L. Havens
|
|
Chief Executive Officer
|
1.
|
I have reviewed this report on Form 10-Q for the quarterly period ended July 31, 2011 of Sparta Commercial Services, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Anthony W. Adler
|
|
Anthony W. Adler
|
|
Principal Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Anthony L. Havens
|
|
Anthony L. Havens
|
|
Chief Executive Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Anthony W. Adler
|
|
Anthony W. Adler
|
|
Principal Financial Officer
|
Document And Entity Information
|
3 Months Ended | |
---|---|---|
Jul. 31, 2011
|
Sep. 14, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | SPARTA COMMERCIAL SERVICES, INC. | Â |
Document Type | 10-Q | Â |
Current Fiscal Year End Date | --04-30 | Â |
Entity Common Stock, Shares Outstanding | Â | 543,429,634 |
Amendment Flag | false | Â |
Entity Central Index Key | 0000318299 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Well-known Seasoned Issuer | No | Â |
Document Period End Date | Jul. 31, 2011 | |
Document Fiscal Year Focus | 2012 | Â |
Document Fiscal Period Focus | Q1 | Â |
"+ text.join( "
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'+ "\n"+' | '+ "\n"+' '+ "\n"+'
'+ "\n"+' | '+ "\n"+' '+ "\n"+'
NOTE F - PURCHASED PORTFOLIO AND SECURED SENIOR NOTE
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||||||||||||||||||||||||||
Purchased Portfolio And Secured Senior Note [Text Block] |
NOTE
F – PURCHASED PORTFOLIO AND SECURED SENIOR NOTE
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 note
holder. Terms of the Senior Secured Note require
the Company to make semi-monthly payments in amounts equal to
all net proceeds from Purchased Portfolio lease payments and
motorcycle asset sales received until the Company has paid
$150,000 to the note holder.
The
Company is obligated to pay any remainder of the Senior
Secured Note by November 1, 2009 and has granted the note
holder a security interest in the Purchased
Portfolio. The due date of the note has been
extended to May 1, 2011. Once the Company has paid $150,000
to the lender from Purchased Portfolio proceeds, the Company
is obligated to pay fifty percent of all net proceeds from
Purchased Portfolio lease payments and motorcycle asset sales
until the Company and the lender mutually agree the Purchase
Portfolio has no remaining proceeds.
As
of July 31, 2011, the Company carries the Purchased Portfolio
at $23,330 representing its $100,000 cost, which is less than
its estimated market value, less collections through the
period. On January 31, 2011, the note holder
converted $50,000 principal amount of the note into 4,545,455
shares of the Company’s common stock which shares were
classified as to be issued at July 31, 2011. The
Company carries the liability for the Senior Secured Note at
$39,189, which is net of note reductions.
At
July 31, 2011, these notes payable to the three creditors
mature as follows:
Notes
payable to Senior Secured lender at April 30, 2011 were
$934,355.
|
NOTE K - FAIR VALUE MEASUREMENTS
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Text Block] |
NOTE
K – 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 our financial
liabilities as of July 31, 2011:
The
following is a description of the valuation methodologies
used for these items:
Derivative
liability — these instruments consist of certain
variable conversion features related to notes payable
obligations and certain outstanding warrants. These
instruments were valued using pricing models which
incorporate the Company’s stock price, volatility, U.S.
risk free rate, dividend rate and estimated life.
The
Company did not identify any other non-recurring assets and
liabilities that are required to be presented in the balance
sheets at fair value in accordance with ASC Topic 825.
|
NOTE B - MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING LEASES
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Assets Disclosure [Text Block] |
NOTE
B – MOTORCYCLES AND OTHER VEHICLES UNDER OPERATING
LEASES
Motorcycles
and other vehicles under operating leases at July 31, 2011
and April 30, 2011 consist of the following:
Depreciation
expense for vehicles for the three months ended July 31, 2011
and for the fiscal year ended April 30, 2011 was $14,028 and
$60,216, respectively. Depreciation expense for
vehicles for the three ended July 31, 2010 was
$16,342.
|
NOTE H - LOANS PAYABLE TO RELATED PARTIES
|
3 Months Ended |
---|---|
Jul. 31, 2011
|
|
Related Party Transactions Disclosure [Text Block] |
NOTE
H – LOANS PAYABLE TO RELATED PARTIES
As
of July 31, 2011, aggregated loans payable, without demand
and with no interest, to officers and directors were
$386,760. At July 31, 2011 and April 30, 2011,
included in accounts receivable, are $10,190 and $10,190,
respectively, due from American Motorcycle Leasing Corp., a
company controlled by a director and formerly controlled by
the Company's Chief Executive Officer.
|
NOTE M - GOING CONCERN MATTERS
|
3 Months Ended |
---|---|
Jul. 31, 2011
|
|
Liquidity Going Concern Disclosure [Text Block] |
NOTE M
–
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, financial statements during
the period July 1, 2001 (date of inception) through July
31, 2011, the Company incurred loss of
$35,480,272. Of these losses, $365,471 was
incurred in the three months ending July 31,
2011. These factors among others may indicate
that the Company will be unable to continue as a going
concern for a reasonable period of time.
The
Company’s existence is dependent upon
management’s ability to develop profitable
operations. Management is devoting substantially
all of its efforts to developing its business and raising
capital and there can be no assurance that the
Company’s efforts will be
successful. However, there can be no assurance can
be given that management’s actions will result in
profitable operations or the resolution of its liquidity
problems. The accompanying statements do not
include any adjustments that might result should the Company
be unable to continue as a going concern.
In
order to improve the Company’s liquidity, the
Company’s management is actively pursuing additional
equity financing through discussions with investment bankers
and private investors. There can be no assurance
the Company will be successful in its effort to secure
additional equity financing.
|
NOTE I - EQUITY TRANSACTIONS
|
3 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||
Stockholders' Equity Note Disclosure [Text Block] |
NOTE I
– EQUITY
TRANSACTIONS
The
Company is authorized to issue 10,000,000 shares of preferred
stock with $0.001 par value per share, of which 35,850 shares
have been designated as Series A convertible preferred stock
with a $100 stated value per share, 1,000 shares have been
designated as Series B Preferred Stock with a $10,000 per
share liquidation value per share, and 200,000 shares have
been designated as Series C Preferred Stock with a $10 per
share liquidation value, and 740,000,000 shares of common
stock with $0.001 par value per share. The Company
had 125 and 125 shares of Series A preferred stock issued and
outstanding as of July 31, 2011 and April 30, 2011,
respectively. The Company had 157 and 157 shares
of Series B preferred stock issued and outstanding as of July
31, 2011 and April 30, 2011, respectively. The
Company had no and no shares of Series C preferred stock
issued and outstanding as of July 31, 2011 and April 30,
2011, respectively. The Company has 530,285,000
and 479,104,770 shares of common stock issued and outstanding
as of July 31, 2011 and April 30, 2011, respectively.
Preferred
Stock, Series A
During
the quarter ended July 31, 2011, there were no transactions
in Series A Preferred, however, at July 31, 2011, there were
$4,718 of accrued dividends payable on the Series A
Preferred, compared to the accrual of $4,527 at April 30,
2011. At the Company’s option, these
dividends may be paid in shares of the Company’s Common
Stock.
Preferred
Stock, Series B
During
the quarter ended July 31, 2011, there were no transactions
in Series B Preferred Stock, however, at July 31, 2011, there
were $39,573 of dividends accrued and re-classed as 3.96
shares of Series B Preferred Stock payable. There were 25.3
shares of Series B Preferred payable at April 30, 2011
representing a total of $253,416 in accrued dividends.
Preferred
Stock Series C
There
were no shares of Series C Preferred Stock outstanding at
July 31, 2011 or at April 31, 2011.
Common
Stock
During
the three months ended July 31, 2011, the Company expensed
$60,214 for non-cash charges related to stock and option
compensation expense.
During
the three months ended July 31, 2011, the Company:
|
NOTE G - NOTES PAYABLE
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Text Block] |
NOTE
G – NOTES PAYABLE
During
the three months ended July 31, 2011, the Company sold to an
accredited investor a $45,000 note which is convertible at
the note holder’s option at a variable conversion price
such that during the period during which the notes are
outstanding, with one note convertible at 58% multiplied by
the average of the three lowest closing bid prices for the
common stock during the ten trading day period ending one
trading day prior to the submission date of the conversion
notice by the note holder to the Company (the “Discount
Conversion Rate”), and the other note convertible at
the lower of (i) $0.02 per share or (ii) the Discount
Conversion Rate; provided, however, that, the conversion rate
is subject to adjustment upon a merger, consolidation or
other similar event, and, if the Company issues or sells any
shares of common stock for no consideration or for a
consideration per share that is less than the conversion
price of the note, or issues or grants convertible securities
(including warrants, rights, and options but not including
employee stock option plans), with an conversion price that
is less than the conversion price of the note, then the
conversion price of the note will immediately be reduced to
the consideration per share received in such stock issuance
or the conversion price of the convertible securities
issuance. The Company has reserved up to 32,327,586 shares of
its common stock for conversion pursuant to the terms of the
note. In the event the note is not paid when due,
the interest rate is increased to twenty-two percent until
the note is paid in full. Also, during the three months ended
July 31, 2011, this investor converted $72,000 principal
amount of notes and accrued interest there on into 13,572,935
shares of the Company’s common stock.
During
the three months ended July 31, 2011, the Company sold to an
accredited investor four, one-year, unsecured notes in the
aggregate amount of $155,745. The notes bare 8%
simple interest, payable in cash or shares, at the
Company’s option, with principal and accrued interest
payable at maturity. At the Company’s option, the notes
are convertible into shares of common stock at prices ranging
from $0.00577 to $0.0072 per share.
During
the three months ended July 31, 2011, a note holder converted
$38,579 principal amount of notes and accrued interest there
on into 6,564,650 shares of the Company’s common
stock.
During
the three months ended July 31, 2011, another note holder
converted $40,096 principal amount of notes into
6,564,650shares of the Company’s common stock.
During
the three months ended July 31, 2011, the Company made a
total of $15,000 in payments on two notes pursuant to their
terms.
|
NOTE C - INVENTORY
|
3 Months Ended |
---|---|
Jul. 31, 2011
|
|
Inventory Disclosure [Text Block] |
NOTE C
– INVENTORY
Inventory
is comprised of repossessed vehicles and vehicles which have
been returned at the end of their lease. Inventory
is carried at the lower of depreciated cost or market,
applied on a specific identification basis. At
July 31, 2011, the Company’s inventory of repossessed
or returned vehicles valued at market was $22,369, which will
be resold.
|
NOTE D - RETAIL (RISC) LOAN RECEIVABLES
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
NOTE D
– RETAIL (RISC) LOAN
RECEIVABLES
RISC
loan receivables, which are carried at cost, were $691,755
and $900,294 at July 31, 2011 and April 30, 2011,
respectively, including deficiency receivables of $13,565 and
$15,320, respectively. The following is a schedule
by years of future principal payments related to these
receivables. Certain of the assets are pledged as
collateral for the note described in Note F.
We
consider our portfolio of retail (RISC) loan receivables to
be homogenous and consist of a single segment and
class. Consequently we analyze credit performance
primarily in the aggregate rather than stratification by any
particular credit quality indicator.
We
consider an RISC contract delinquent when an obligor fails to
make a contractually due payment by the following due date,
which date may have been extended within limits specified in
the servicing agreements. The period of delinquency is based
on the number of days payments are contractually past due.
Automobile contracts less than 31 days delinquent are not
included. The following table summarizes the
delinquency status of finance receivables as of July 31, 2011
and April 30, 2011:
RISC
receivables totaling $30,066 and $40,855 at July 31, 2011 and
April
30, 2011, respectively, have been placed on non-accrual
status because of their bankruptcy status.
The
following table presents a summary of the activity for the
allowance for credit losses, for the three months and year
ended July 31, 2011 and April 30, 2011, respectively:
Excluded
from RISC receivables are contracts that were previously
classified as RISC receivables but were reclassified as
inventory because we have repossessed the vehicles securing
the RISC Contracts. The following table presents a
summary of such repossessed inventory together with the
allowance for losses in repossessed inventory that is
included in the allowance for credit losses:
|
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