**U.S.
Securities and Exchange Commission**


**Washington,
D.C. 20549**







FORM
10-KSB

















[X]
    ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the fiscal year ended December 31, 2004





[ ]
    TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the transition period from _______ to
_______





COMMISSION
FILE NUMBER: 333-87992





DIAMOND
POWERSPORTS, INC.


**(Exact
name of small business issuer as specified in its charter)**







**Florida**
      (State or other jurisdiction of
      incorporation or organization)
    **65-0419601**
      (IRS
      Employer identification No.)




**5150
NW 109th Ave., Suite 4, Sunrise, Florida 33351**


(Address
of principal executive offices)





**(954)
749-8606**


(Issuer's
telephone number)





Securities
registered under Section 12(b) of the Exchange Act:





None.





Securities
registered under Section 12(g) of the Exchange Act:





None.





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





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or an
amendment to this Form 10-KSB. [x]














State
issuer's revenues for its most recent fiscal year: $1,491,929.





As of
April 4, 2005, there were 14,868,344 common shares outstanding and the aggregate
market value of the common shares (based upon the close price of $.16 reported
by brokers) held by non-affiliates was approximately $2,378,935.





Transitional
Small Business Disclosure Format (check one): Yes[ ] No[X]





Number of
shares of common stock outstanding as of April 4, 2004: 14,868,344


Number of
shares of preferred stock outstanding as of April 4, 2004: -0-







CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION





The
discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") contains forward-looking statements that
involve risks and uncertainties. The issuer's actual results could differ
significantly from those discussed herein. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "we believe," "the Company believes," "management believes" and similar
language, including those set forth in the discussion under "Description of
Business," including the "Risk Factors" described in that section, and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-KSB. We base our forward-looking statements
on information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-KSB that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.





2





PART
I





**ITEM
1.**  **Description
of Business**





Our
operations primarily involve motorcycle accessory and apparel manufacturing and
distributing, specializing in affordable brand name and after-market products.
Through our emphasis on budget pricing and high quality products, we have
developed a market in the motorcycle accessory and apparel industry. We
currently operate one office that is maintained by a management team of three
individuals. The present geographic area we operate includes primarily the Dade
County, Broward County, and South Palm Beach County areas of South Florida.
Additional markets have also developed in the Caribbean islands.





Marketing
for our products is accomplished through print ads in newspapers and magazines
as well as wholesale referral. Additionally, we utilize a network of industry
wholesale buyers to sell large product quantities.





The
motorcycle accessory and apparel industry is highly competitive with respect to
price, service, quality, and location. There are numerous competitors in the
motorcycle accessory and apparel industry such as Dennis Kirk, Chaparral and
Motorcycle Stuff that possess substantially greater financial, marketing,
personnel and other resources than Diamond Powersports. There can be no
assurance that we will be able to respond to various competitive factors
affecting the business. We plan to gain a competitive advantage over our
competitors in the motorcycle accessories and apparel industry by offering
quality products and services at a low price.





Our
services include international shipping and a thirty day refund policy, which
many industry distributors do not currently offer. We believe our product
prices, product quality and good customer service will differentiate our
products from our competitors. For example, many of our listed prices currently
match or are lower than the advertised prices of our major competitors. In
addition, the aluminum metal alloy used in our lowering links and top clamps is
a 7075 alloy that has been tested by Kaiser Aluminum, a non-affiliate, to be
stronger than most traditional metal alloys. Our other products use a 6061 alloy
that is slightly less in strength than the 7075 alloy but remains stronger than
most of our competitors products. There are some competitors currently using the
6061 alloy in their products but we are not currently aware of any other
companies using 7075 aluminum alloy in lowering links or top clamps. Also, we
offer next day shipping on our products and our customer service professionals
have an average of five years in the motorcycle industry which allows them to
better serve our customers. However, since many of our competitors have greater
brand loyalty and more capital resources than we do, there can be no assurance
we will be successful in gaining that competitive advantage in our
marketplace.





The main
markets for Diamond Powersports are individual retail customers and wholesale
buyers and no single customer makes up more than ten percent of the total
revenues of Diamond Powersports, Inc. We do not expect that this will change in
the future.





3





We have eight full-time employees
and one part-time employee. We also have two management consultants that are
each independently contracted with by Diamond Powersports, Inc. to service and
provide financial consulting and services relating to our filings and compliance
with the Securities and Exchange Commission.





Our
product line consists primarily of the following:


·
    Air
      filtersFuel
      valvesThrottle
      assemblies


·
    Air
      shiftersGasketsTires


·
    CarburetorsIgnitionsTransmission
      and clutch parts


·
    ChainsPiston
      kitsValves


·
    Chain
      GuardsRace
      engine valvesVelocity
      stacks


·
    Exhaust
      systemsRPM
      limitersWheels


·
    Frame
      slidersSprocketsOther
      racing components





We
currently manufacture and assemble the frame sliders, wheels, lowering links,
adjustable kick stands and top clamps. Other products are purchased on a
wholesale basis from manufacturers. We
accomplish our manufacturing either in our warehouse facility or through our
arrangement with Henderson Industrial Technology with whom we have an oral
agreement to outsource certain alloy metal product manufacturing at fixed
prices. Our agreement with Henderson Industrial technologies is non-exclusive
and other companies may utilize their manufacturing services as well. This
agreement can be cancelled by either party at any time. We do not typically
provide installation services for our products.





Diamond
Powersports does not expect that any single customer will account for more than
ten percent of our business. At the present time there is no need for
governmental approvals, though this may change in the future.





The
Diamond Powersports, Inc. staff is projected at 4-5 new employees for the next
twelve months. The three managers that are presently on staff will supervise
these new employees.





**Manufacturing
and Distributing**





Our
inventory consists of products which we either purchase from wholesalers or
manufacture under our brand name Diamond Powersports. Of our 4,500 total square
feet of facility, 4,000 square feet is dedicated to manufacturing, assembly and
packaging of our products. We also subcontract approximately fifty percent of
our manufacturing to a local machine shop. Currently, we use Henderson
Industrial Technology in Ft. Lauderdale, Florida to manufacture the majority of
our racing components. We do not have any written agreements with respect to our
manufacturing arrangements with Henderson Industrial Technology. Our oral
agreement can be cancelled by either party at any time. Henderson Industrial
Technology assists us with manufacturing of certain alloy metal products at
fixed prices per unit. However, we still assemble, package and ship the products
manufactured from their location. If Henderson Industrial Technology was unable
to fulfill our product manufacturing, we could use other local machine shops
with approximately the same terms.




4




**Environmental
Law Compliance**


****


There are
no current existing environmental concerns for our manufacturing or our products
and services. If this changes in the future, we make every effort to comply with
all such applicable regulations.





Additional
Financing





The
Company may need to raise additional funds to meet operating requirements in the
future. If the Company raises additional funds through issuance of equity
related or debt securities, such securities may have rights to the Company's
common stock, such as warrants or options. Shareholders may experience
additional dilution from exercise of these equity instruments. The Company
cannot be certain that additional financing will be available when required or
at all. (See 'Liquidity and Capital Resources' for further
discussion).





**ITEM
2. Properties**





We have
two long-term non-cancelable operating leases for our warehouse and office
space, the total area of which is 11,500 square feet, located at 5150 Northwest
109 th Avenue,
Suite 3 and Suite 4 - Sunrise, Florida 33351. We lease beginning in 2003 and
ending in October 1, 2008 and December 31, 2006, respectively. Pursuant to the
terms of our lease, rental payments and related expense for the years ending
December 31, 2004 and 2003 were $84,907 and $41,231, respectively, which was
approximately $7,076 per month in 2004. We also maintain a standard general
comprehensive public liability insurance policy as part of our lease agreement.
The warehouse space, which is approximately 70% of total, will be used for
manufacturing of new products.





**ITEM
3. Legal Proceedings**





We are
not a party to any legal proceedings, nor, to the best of our knowledge, are any
such proceedings threatened or contemplated.





**ITEM
4. Submission of Matters to a Vote of Security Holders**





None.





5





PART
II





**ITEM
5. Market for the Registrant’s Common Stock and Related Security Holder
Matters**





(a)
    Our
      Common Stock is quoted on the Over-the-Counter Bulletin Board, a service
      maintained by the NASDAQ Stock Market, Inc., under the symbol "DPWS".
      Trading in our Common Stock in the over-the-counter market has been
      limited and sporadic and the quotations set forth below are not
      necessarily indicative of actual market conditions. Further, these
      quotations reflect inter-dealer prices, without retail mark-up, markdown,
      or commission, and do not necessarily reflect actual transactions. Set
      forth below is the range low and high bid information for our Common Stock
      for each quarter of the years ended December 31, 2004.





BidQuarter
      Ended
    Low
    High3/31/04
    .69
    .736/30/04
    .25
    .269/30/04
    .25
    .2612/31/04
    .14
    .17


(b)
    Holders.
      The approximate number of holders of record of the Registrant's Common
      Stock as of April 4, 2005 was 76.





(c)
    The
      Registrant has not paid dividends from inception to date and does not
      currently intend to do so.








Penny
Stock Characterization





Our
Shares are "penny stocks" within the definition of that term as contained in the
Securities Exchange Act of 1934, which are generally equity securities with a
price of less than $5.00. Our shares will then be subject to rules that impose
sales practice and disclosure requirements on certain broker-dealers who engage
in certain transactions involving a penny stock. These will impose restrictions
on the marketability of the common stock.





Under the
penny stock regulations, a broker-dealer selling penny stock to anyone other
than an established customer or "accredited investor" must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to the sale, unless the broker-dealer
is otherwise exempt. Generally, an individual with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 individually or $300,000 together
with his or her spouse is considered an accredited investor. In addition, unless
the broker-dealer or the transaction is otherwise exempt, the penny stock
regulations require the broker-dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. A broker-dealer is also
required to disclose commissions payable to the broker-dealer and the Registered
Representative and current bid and offer quotations for the securities. In
addition a broker-dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account, the account’s value and information regarding the limited market in
penny stocks. As a result of these regulations, the ability of broker-dealers to
sell our stock may affect the ability of selling security holders or other
holders to sell their shares in the secondary market. In addition, the penny
stock rules generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction.





These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be adversely affected, with
concomitant adverse affects on the price of our securities. Our shares may
someday be subject to such penny stock rules and our shareholders will, in all
likelihood, find it difficult to sell their securities.





We have
no outstanding options and no outstanding warrants.





6


****


**ITEM
6.**  **Management’s
Discussion and Analysis**





Introduction





The
discussion contained in this prospectus contains “forward-looking statements”
that involve risk and uncertainties. These statements may be identified by the
use of terminology such as “believes”, “expects”, “may”, “will”, or “should”, or
“anticipates”, or expressing this terminology negatively or similar expressions
or by discussions of strategy. The cautionary statements made in this prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this prospectus. Our actual results could differ
materially from those discussed in this prospectus. Important factors that could
cause or contribute to such differences include those discussed under the
caption entitled “risk factors,” as well as those discussed elsewhere in this
prospectus.





We were
incorporated in Florida on May 13, 1992 to engage in the business of
distributing motorcycle parts and accessories primarily in the South Florida
area. Our products and services are offered to both retail consumers and
wholesale buyers. Orders for our products are typically shipped in one to three
days from the time of order. All retail and wholesale orders are fulfilled from
our warehouse location in Sunrise, Florida. Our retail customers typically
locate Diamond Po wersports
through either our product catalog or print advertisements in industry
publications. We do not have a retail showroom, but we opened a traveling
showroom contained in a semi truck and tractor trailer in 2004 so that we are
able to profile and deliver our products throughout the United
States.





We have
developed a strategy to expand our operations. Currently, this business plan
includes:





·
    Growing
      our revenues through new product offerings. Started from 2001, we released
      several new products including frame sliders, wheels, lowering links,
      adjustable kick stands and top clamps.


·
    Increase
      the marketing of our products to additional geographical areas. Although
      we currently deliver our products on a national and international basis,
      we focus the majority of our marketing efforts domestically. We plan to
      increase our marketing efforts to other markets. For example, we have
      looked into marketing such areas as Canada and
Japan.


·
    Reducing
      costs of sales through strategic vendor relationships. Many of our vendors
      have orally agreed to provide discounts or additional credit terms if our
      volume of buying increases. We believe an increase in our purchasing will
      reduce our cost of sales as a percentage of
sales.


·
    Obtain
      additional funding. Currently, our assets and income are insufficient to
      fund our business plan. We may need to raise capital through debt or a
      follow on stock offering. We presently have no commitments for either of
      these sources of funding. Our business plan may be adversely affected if
      we are unable to raise additional capital.





7




Selected
      financial dataYear
      Ended December 312004
    
    2003Net
      Sales
    
    $
    1,491,929
    
    $
    888,047Net
      Loss
    
    
    (642,744
    )
    
    (361,596
    )Net
      Loss per Common
      Share
    
    
    (.05
    )
    
    (.04
    )Weighted
      Average Common
      Shares Outstanding
    
    
    12,411,820
    
    
    9,904,700As
      of December 31,2004
    
    
    2003Total
      Assets
    
    $
    449,312
    
    $
    169,214Working
      Capital
    
    
    (167,657
    )
    
    (157,798
    )Shareholders’
      Equity
    
    
    87,191
    
    
    (129,584
    )No
      dividends have been declared or paid for any of the periods
      presented.


Results
of Operations





Year
Ended December 31, 2004 Compared to Year Ended December 31, 2003





Sales.


Sales for
the year ended December 31, 2004 were $1,491,929 versus sales of $888,047 for
the year ended December 31, 2003, an increase of 68%. We attribute the increase
in sales to new and improved parts as well as a growing awareness of our
products. Product sales consisted primarily of the following:





·
    Bar
      end slidersIgnitionsSprockets


·
    Clutch
      cable kitsLowering
      linksTires


·
    ChainsMaster
      cylinderMirror
      block-off capsTransmission
      and clutch parts


·
    Flame
      slidersOil
      pansValves


·
    Frame
      slidersPiston
      kitsWheels


·
    Fuel
      valvesR1
      swing arm slidersOther
      motorcycle components


·
    Foot
      peg slidersRPM
      limiters








8





All revenues were from unrelated third parties and were made to retail consumers
and wholesale buyers.





Cost of
Goods Sold.





The cost of
goods sold includes the purchase price for our parts and accessories plus other
direct costs associated with making the products available for resale. It is
customary to experience variations in the cost of sales as a percentage of net
sales based on the types of products sold. Our gross margins typically range
between 30-60%.








The cost of
goods sold for the year ended December 31, 2004 was $816,089 versus $446,680 in
the same period in 2003. Cost of sales as a percentage of sales was 55% for 2004 and was
50% in 2003. The increase in cost of sales as a percentage of sales was due to
the increase in sales of the products which have lower gross
margins.





We expect
cost of sales as a percentage of sales to decrease to around 40% of total sales
for fiscal year 2005 through increasing the sales of products with better
margins. For example, our frame sliders, wheels, lowering links, adjustable kick
stands and top clamps were introduced last year which have between a 90-300
percent price markup, depending on whether they are sold wholesale or retail. If
we can successfully grow our revenues through sales of these higher margin
products, our cost of sales as a percentage of sales should be lower in future
periods. In addition, volume discounts will be available to us if we are
successful in achieving sales growth in the future, which will further reduce
our cost of sales as a percentage of sales.





Expenses.




Selling,
general and administrative expenses for the years ended December 31, 2004 and
2003 were $405,299 and $221,964, respectively, an increase of $183,335. The
increase in expenses was primarily attributable to minimal fixed cost increases
incurred in our lease, the increase in advertising expenses, board compensation,
shipping expenses, and an allowance for doubtful account which has been
established for estimated uncollectible accounts in the amount of $11,000. Also,
we started our traveling showroom contained in a semi truck and tractor trailer
in 2004, which caused the increase in travel expenses,





We expect
increases in expenses through the year 2005 as we move towards developing our
business plan. We expect the increase to be primarily in sales related expenses
such as advertising and salespersons' salaries.





Income /
Losses.




Net loss for
the year ended December 31, 2004 was $642,744 versus $361,596 in 2003, an
increase of $281,148. The increase was primarily attributable to an increase in
payroll expenses and an increase on selling, general and administrative expenses
for the period. We expect to continue to incur losses through the year 2005. In
addition, there can be no assurance that we will achieve or maintain
profitability or that our revenue growth can be sustained in the
future.





9





Impact of
Inflation.





We believe
that inflation has had a negligible effect on operations since inception. We
believe that we can offset inflationary increases in the cost of labor by
increasing sales and improving operating efficiencies.





Liquidity
and Capital Resources.




Cash flows
used in operating activities were $181,497 for the year ended December 31, 2004
versus cash used in operating activities of $13,759 in 2003. The increase in
cash flows used in operating activities for 2004 were primarily attributable to
the increase in net loss and the retirement of common stock and options, which
was $169,050 and $65,050, respectively, due to nonperformance of the
consultants, partially offset by non-cash services and compensation expense for
the period of $745,974.





Cash flows
used in investing activities were $239,441 for the year ended December 31, 2004
versus $20,180 during the year ended in 2003. Cash flows used in investing
activities for the 2004 were due primarily to purchases of property and
equipments.




Cash flows
provided by financing activities were $424,536 for the year ended December 31,
2004 versus $33,939 during the year ended in 2003. Cash flows for the 2004
included $347,645 in proceeds from sales of common stock, and $31,718 in
proceeds from stockholder loans and $45,173 in proceeds from notes payable.
Notes payable at December 31, 2004 includes two unsecured non-interest bearing
notes payable which will mature in 2005.





Going concern
opinion. As shown in our accompanying financial statements, our independent
auditors have raised substantial doubt about its ability to continue as a going
concern. The ability of Diamond Powersports to continue as a going concern is
dependent on developing operations, increasing revenues and obtaining new
capital. Management has enacted the following plan to address these issues: (1)
obtain funding from new investors to alleviate the Diamond Powersports' capital
deficiency, (2) refinance existing debt on existing assets, (3) lease larger
facilities in order to manufacture certain products thereby reducing costs and
(4) market motorcycle accessories through significant, proven trade shows that
produce individual orders in excess of $75,000.





Bank Line of
Credit. Diamond Powersports has two unsecured bank lines of credit bearing
interest between 10.25% and 17.9% at December 31, 2003. The credit line in the
amount of $32,314 in 2003 was reclassified as short-term credit card debt, and
included in accounts payable, the balance of the line of credit of $20,448 was
transferred to the Officer in exchange for our common stock.




We estimate
we will need approximately $50,000 in additional capital during 2005. If
revenues increase during 2005, we may have sufficient cash flow from operations.
During 2004, we had a negative $181,497 from operations.





10





Overall, we
have funded our cash needs from inception through December 31, 2004 with a
series of debt and equity transactions, primarily with related parties. If we
are unable to receive additional cash from our related parties, we may need to
rely on financing from outside sources through debt or equity transactions. Our
related parties are under no legal obligation to provide us with capital
infusions. Failure to obtain such financing could have a material adverse effect
on operations and financial condition.





We had cash
of $3,598 on hand and a working capital deficit of $167,657 as of December 31,
2004. We had no cash on hand and a working capital deficit of $157,798 as of
December 31, 2003. Our working capital deficit is primarily due to current
obligations in accounts payable, accrued payroll for stockholders and loans from
stockholders. We will substantially rely on the existence of revenue from our
business; however, we have no current or projected capital reserves that will
sustain our business for the next 12 months. Currently, we have enough cash to
fund our operations for about six months. This is based on current cash flows
from financing activities and projected revenues. Also, if the projected
revenues fall short of needed capital we may not be able to sustain our capital
needs. We will then need to obtain additional capital through equity or debt
financing to sustain operations for an additional year. A lack of significant
revenues in 2005 will significantly affect our cash position and move us towards
a position where the raising of additional funds through equity or debt
financing will be necessary. Our current level of operations would require
capital of approximately $50,000 to sustain operations through year 2005 and
approximately $50,000 per year thereafter. Modifications to our business plans
or a new retail location may require additional capital for us to operate. For
example, if we are unable to raise additional capital in the future we may need
to curtail our number of new product offers or limit our marketing efforts to
the most profitable geographical areas. This may result in lower revenues and
market share for Diamond Powersports. In addition, there can be no assurance
that additional capital will be available to us when needed or available on
terms favorable to Diamond Powersports.





On a
long-term basis, liquidity is dependent on continuation and expansion of
operations, receipt of revenues, and additional infusions of capital and debt
financing Our current capital and revenues are insufficient to fund such
expansion. If we choose to launch such an expansion campaign, we will require
substantially more capital. The funds raised from this offering will also be
used to market our products and services as well as expand operations and
contribute to working capital. However, there can be no assurance that we will
be able to obtain additional equity or debt financing in the future, if at all.
If we are unable to raise additional capital, our growth potential will be
adversely affected and we will have to significantly modify our plans. For
example, if we unable to raise sufficient capital to develop our business plan,
we may need to:





§
    Curtail
      new product launches


§
    Forego
      or postpone opening new traveling showrooms,
or


§
    Limit
      our future marketing efforts to areas that we believe would be the most
      profitable.





Demand for
the products and services will be dependent on, among other things, market
acceptance of our products, the motorcycle parts and accessories market in
general, and general economic conditions, which are cyclical in nature. Inasmuch
as a major portion of our activities is the receipt of revenues from the sales
of our products, our business operations may be adversely affected by our
competitors and prolonged recession periods.





Our success
will be dependent upon implementing our plan of operations and the risks
associated with our business plans. We operate a motorcycle parts and
accessories distribution business to retail consumers and wholesale buyers. We
plan to strengthen our position in these markets. We also plan to expand our
operations through aggressively marketing our products and Company
concept. ****
 
 11


**ITEM
7. Financial Statements**


**DIAMOND
      POWERSPORTS, INC.****Balance
      Sheet*****For
      the Year Ended December 31, 2004***ASSETS2004CURRENT
      ASSETSCash
      and Cash Equivalents
    
    $
    3,598Accounts
      Receivable, net of allowance for doubtfulaccounts
      of $11,000 in 2004 and $5,000 in 2003
    
    
    30,522Inventories,
      net
    
    
    160,344TOTAL
      CURRENT ASSETS
    
    
    194,464PROPERTY
      AND EQUIPMENTMachinery
      and equipment
    
    
    44,999Furniture
      and fixtures
    
    
    19,257Trade
      show and transportation equipment
    
    
    255,154Accumulated
      Depreciation
    
    
    (79,227
    )Net
      Property and Equipment
    
    
    240,183OTHER
      ASEETSPrepaid
      expenses
    
    
    6,711Deposits
    
    
    7,95414,665TOTAL
      ASSETS
    
    $
    449,312LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued expenses
    
    $
    242,999Notes
      payable
    
    
    45,173Shareholder
      loan
    
    
    73,949TOTAL
      CURRENT LIABILITIES
    
    
    362,121STOCKHOLDERS'
      EQUITYPreferred
      Stock ($.001 par value, 5,000,000 authorized:none
      issued and outstanding)Common
      Stock ($.001 par value, 100,000,000 shares authorized:14,578,583
      shares issued and outstanding)
    
    
    14,579Additional
      Paid-in-Capital
    
    
    2,123,432Accumulated
      Deficit
    
    
    (2,050,820
    )TOTAL
      STOCKHOLDERS' EQUITY
    
    
    87,191TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
    
    $
    449,312The
      accompanying notes are an integral part of the financial
      statements
  12




**DIAMOND
      POWERSPORTS, INC.****Statements
      of Operations****For
      the years ended December 31, 2004 and 2003**2004
    
    2003SALES
      AND COST OF SALES:Sales
    
    $
    1,491,929
    
    $
    888,047Cost
      of Sales
    
    
    816,089
    
    
    446,680Gross
      Profit
    
    
    675,840
    
    
    441,367OPERATING
      EXPENSES:Consulting
      fees
    
    
    17,681
    
    
    319,962Payroll
      expenses
    
    
    884,465
    
    
    243,297Selling,
      general and administrative
    
    
    405,299
    
    
    221,9641,307,445
    
    
    785,223OPERATING
      LOSS
    
    
    (631,605
    )
    
    (343,856
    )OTHER
      EXPENSE:Interest
      Expense
    
    
    11,139
    
    
    17,740NET
      LOSS
    
    $
    (642,744
    )
    $
    (361,596
    )Net
      Loss Per Common ShareBasic
      & Fully Diluted
    
    $
    (0.05
    )
    $
    (0.04
    )Weighted
      Average CommonShares
      Outstanding - Basic and Fully Diluted
    
    
    12,411,820
    
    
    9,904,700The
      accompanying notes are an integral part of the financial
      statements
  13




**DIAMOND
      POWERSPORTS, INC.****Statements
      of Stockholders' Equity*****For
      the Years Ended December 31, 2004 and
2003***Preferred
      Stock, no Par
    
    Common
      Stock, $0.001 Par
    
    Common
      Stock tobe Delivered, $0.001 Par
    
    AdditionalNumber
      of
    
    Number
      of
    
    Number
      of
    
    Paid-in
    
    AccumulatedShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalsBalances,
      January 1, 2003
    
    
    -
    
    $
    -
    
    
    9,495,700
    
    $
    9,496
    
    
    -
    
    $
    -
    
    $
    547,304
    
    $
    (1,046,480
    )
    $
    (489,680
    )Issuances
      of common stock and exercise of
    
    
    -
    
    
    -
    
    
    190,277
    
    
    190
    
    
    -
    
    
    -
    
    
    48,384
    
    
    -
    
    
    48,574options
      for cashIssuances
      of common stock, for services
    
    
    -
    
    
    -
    
    
    476,080
    
    
    476
    
    
    140,000
    
    
    140
    
    
    191,441
    
    
    -
    
    
    192,057Issuances
      of common stock, for compensation
    
    
    -
    
    
    -
    
    
    83,000
    
    
    83
    
    
    1,104,531
    
    
    1,104
    
    
    264,940
    
    
    -
    
    
    266,127Issuances
      of common stock, for debt
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    385,586
    
    
    386
    
    
    84,443
    
    
    -
    
    
    84,829Options
      issued
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    130,105
    
    
    -
    
    
    130,105Net
      loss for year
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (361,596
    )
    
    (361,596
    )Balances,
      January 1, 2004
    
    
    -
    
    
    -
    
    
    10,245,057
    
    $
    10,245
    
    
    1,630,117
    
    $
    1,630
    
    $
    1,266,617
    
    $
    (1,408,076
    )
    $
    (129,584
    )Common
      stock delivered
    
    
    -
    
    
    -
    
    
    1,630,117
    
    
    1,630
    
    
    (1,630,117
    )
    
    (1,630
    )
    
    -
    
    
    -
    
    
    -Issuances
      of common stock, for cash
    
    
    -
    
    
    -
    
    
    895,000
    
    
    895
    
    
    -
    
    
    -
    
    
    346,750
    
    
    -
    
    
    -Issuances
      of common stock, for services
    
    
    -
    
    
    -
    
    
    490,891
    
    
    491
    
    
    -
    
    
    -
    
    
    190,269
    
    
    -
    
    
    190,760Issuances
      of common stock, for compensation
    
    
    -
    
    
    -
    
    
    1,797,625
    
    
    1,798
    
    
    -
    
    
    -
    
    
    553,416
    
    
    -
    
    
    555,214Common
      stock retired, from services
    
    
    -
    
    
    -
    
    
    (280,100
    )
    
    (280
    )
    
    -
    
    
    -
    
    
    (114,770
    )
    
    -
    
    
    (115,050
    )Common
      stock retired, from compensation
    
    
    -
    
    
    -
    
    
    (200,000
    )
    
    (200
    )
    
    -
    
    
    -
    
    
    (53,800
    )
    
    -
    
    
    (54,000
    )Options
      retired
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (65,050
    )
    
    -
    
    
    (65,050
    )Net
      loss for year
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (680,244
    )
    
    (680,244
    )Balances,
      December 31, 2004
    
    
    -
    
    $
    -
    
    
    14,578,590
    
    $
    14,579
    
    
    -
    
    $
    (0
    )
    $
    2,123,432
    
    $
    (2,088,320
    )
    $
    (297,954
    )The
      accompanying notes are an integral part of these financial statements
  14




**DIAMOND
      POWERSPORTS, INC.****Statements
      of Cash Flows****For
      the years ended December 31, 2004 and 2003**2004
    
    2003CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
    
    $
    (642,744
    )
    $
    (361,596
    )Adjustments
      to reconcile net loss to netcash
      used in operating activities:Depreciation
    
    
    20,057
    
    
    3,135Non-cash
      services and compensation expense
    
    
    745,974
    
    
    215,187Options
      issued
    
    
    -
    
    
    130,105Options
      retired
    
    
    (65,050
    )
    
    -Common
      stock retired
    
    
    (169,050
    )
    
    -Noncash
      interest on Loans from Stockholders
    
    
    3,800
    
    
    -(Increase)
      decrease in operating assets:Accounts
      receivable
    
    
    (4,801
    )
    
    (16,591
    )Inventory
    
    
    (45,065
    )
    
    (57,714
    )Other
      assets
    
    
    (7,250
    )
    
    (7,115
    )Increase
      (decrease) in operating liabilities:Bank
      overdraft
    
    
    (6,716
    )
    
    5,622Interest
      accrued on note payable to bank
    
    
    -
    
    
    9,863Accrued
      compensation
    
    
    8,159
    
    
    (16,700
    )Accounts
      payable and accrued expenses
    
    
    (18,811
    )
    
    82,045NET
      CASH USED IN OPERATING ACTIVITIES
    
    
    (181,497
    )
    
    (13,759
    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
    
    
    (239,441
    )
    
    (20,180
    )NET
      CASH USED IN INVESTING ACTIVITIES
    
    
    (239,441
    )
    
    (20,180
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sales of common stock
    
    
    347,645
    
    
    48,574Proceeds
      from stockholder loans
    
    
    31,718
    
    
    17,679Proceeds
      from notes payable
    
    
    45,173
    
    
    -Repayments
      on bank line of credit
    
    
    -
    
    
    (32,314
    )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    424,536
    
    
    33,939NET
      INCREASE (DECREASE) IN CASH ANDCASH
      EQUIVALENTS
    
    
    3,598
    
    
    -CASH
      AND CASH EQUIVALENTS:Beginning
      of period
    
    
    -
    
    
    -End
      of period
    
    $
    3,598
    
    $
    -SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid during the year for interest
    
    $
    11,139
    
    $
    17,740Non-cash
      investing and financing activities:Increase
      in note payable due to interest accrued
    
    $
    482
    
    $
    9,863Common
      stock issued in exchange for services
    
    $
    75,710
    
    $
    192,057Common
      stock issued for compensation
    
    $
    501,214
    
    $
    23,130Conversion
      of accrued compensation and debt into commonstock
      by officer
    
    $
    -
    
    $
    327,826Options
      issued
    
    $
    -
    
    $
    146,869The
      accompanying notes are an integral part of the financial
      statements
  15




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Shareholders of
 Diamond
Powersports, Inc.
 
 We have
audited the accompanying balance sheet of Diamond Powersports, Inc. as of
December 31, 2004 and the related statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 2004 and 2003. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Diamond Powersports, Inc. as of
December 31, 2004 and the results of its operations and its cash flows for the
years ended December 31, 2004 and 2003 in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered recurring losses from
operations, has negative working capital, has a stockholders’ deficit and
certain debt is in default which raises substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters are
described in Note B. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
  Perrella
& Associates, P. A.
  Pompano
Beach, Florida
 March 31,
2005
 
 16
 ****
 **NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 *Business
Activity* -
Diamond Powersports, Inc. (the “Company”) was organized under the laws of the
State of Florida on May 13, 1992 to manufacture and distribute motorcycle parts
and accessories to dealers and retail customers worldwide. Manufacturing
operations are conducted in Fort Lauderdale, Florida.
 
 *Cash
and Cash Equivalents* - For
purposes of the Statements of Cash Flows, the Company considers liquid
investments with an original maturity of three months or less to be cash
equivalents.
 
 *Management’s
Use of Estimates* - The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 *Accounts
Receivable* - The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated credit risk by performing credit checks
and actively pursuing past due accounts. An allowance for doubtful accounts has
been established for estimated uncollectible accounts in the amount of $11,000.
Bad debt expense is $6,000 for 2004 and $2,000 for 2003.
 
 *Inventory* ** -
Inventory, consisting of motorcycle parts and accessories, is valued at the
lower of cost or market using the first-in, first-out (FIFO)
method.
 
 *Property
and Equipment* -
Property and equipment are recorded at cost and include expenditures that
substantially increase the productive lives of the existing assets. Maintenance
and repair costs are expensed as incurred. Depreciation is provided using the
straight-line method. Depreciation of property and equipment is calculated over
the management prescribed recovery periods, which range from 5 years for
equipment to 10 years for transportation equipment. Depreciation expense is
$20,057 for 2004 and $3,135 for 2003.
 
 When a
fixed asset is disposed of, its cost and related accumulated depreciation are
removed from the accounts. The difference between undepreciated cost and
proceeds from disposition is recorded as a gain or loss.
 
 *Revenue
Recognition*  - Revenue
is recognized when goods are shipped provided collection of the resulting
receivable is probable. If any material contingencies are present, revenue
recognition is delayed until all material contingencies are eliminated.
 
 17
  **NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)**
 
 *Long-Lived
Assets* -The
Company evaluates the recoverability of its property and equipment and other
assets in accordance with Statement of Financial Accounting Standards No.144, *“Accounting
for the Impairment or Disposal of Long-Lived Assets”(“SFAS 144”).* SFAS 144
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets or the business to which such assets relate. SFAS
144 excludes goodwill and intangible assets. When an asset exceeds its expected
cash flows, it is considered to be impaired and is written down to fair value,
which is determined based on either discounted future cash flows or appraised
values. The provisions of SFAS 144 are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The Company adopted the
statement for the year ending December 31, 2002. No impairments were recognized
during the years ended December 31, 2003 and 2004.
 
 *Fair
Value of Financial Instruments* -
Accounting principles generally accepted in the United States require that fair
values be disclosed for the Company’s financial instruments. The carrying
amounts of the Company’s financial instruments, which include cash and cash
equivalents, current liabilities and debt obligations, are considered to be
representative of their respective fair values.
 
 *Income
Taxes*
 The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. 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 recovered or settled. Under Statement 109, the
effect on defer tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
 
 Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or the entire deferred
tax asset will not be realized. Deferred tax assets and liabilities are adjusted
for the effect of changes in tax laws and rates on the date of enactment.
 
 *Advertising
Costs* -
Advertising costs are expensed as incurred. The Company does not incur any
direct-response advertising costs. Advertising expense is $43,725 for 2004 and
$30,492 for 2003.
 
 18
  **NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)**
 
 *Net
Loss Per Share* - In
accordance with accounting principles generally accepted in the United States,
basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the
respective periods (excluding shares that are not yet issued). The effect of
stock options, warrants and convertible preferred stock is antidilutive for all
periods presented.
 
 *Risk
and Uncertainties* - The
Company is subject to risks common to companies in the manufacturing industry,
including, but not limited to, litigation, product liability, development of new
technological innovations, dependence on key personnel and protections of
proprietary technology.
 
 *Recent
Accounting Pronouncements*
 In
January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 46, (“FIN 46’) “Consolidation of Variable Interest Entities”
which changes the criteria by which one company includes another entity in its
consolidated financial statements. FIN 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity’s activities or entitled to
receive a majority of the entity’s residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003, and apply in the first fiscal period beginning after
June 15, 2003, for variable interest entities created prior to February 1, 2003.
The implementation of the pronouncement did not have a material effect on our
financial condition and cash flows.
 
 In May
2003, the FASE issued Statement of Financial Accounting Standard (“SFAS”) No.
150, ‘Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity’. The SFAS No.150 improves the accounting for certain
financial instruments that, under previous guidance, issuers could account for
as equity and requires that those instruments be classified as liabilities in
statements of financial position. In addition to its requirements for the
classification and measurement of financial instruments in its scope, SFAS No.
150 also requires disclosures about alternative ways of settling the instruments
and the capital structure of entities, all of whose shares are mandatorily
redeemable. Most of the guidance in SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after September
15, 2003. The implementation of the pronouncement did not have a material effect
on our financial condition and cash flows.
 
 In
December 2003, the issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue
Recognition,” rescinded the accounting guidance contained in SAB No. 101,
“Revenue Recognition in Financial Statements,” and incorporated the body of
previously issued guidance related to multiple-element revenue arrangements. The
Company’s adoption of SAB No. 104 did not have any impact on its financial
statements.
 
 19
 
 **NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)**
 
 *Recent
Accounting Pronouncements*  *(continued)*
 In March
2004, the FASB ratified EITF Issue No. 03-1, “The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments”
(“EITF 03-1”), but delayed the recognition and measurement provisions of EITF
03-1 in September 2004. For reporting periods beginning after June 15, 2004,
only the disclosure requirements for available-for-sale securities and cost
method investments are required. The Company’s adoption of the requirements did
not have a significant impact on the Company’s disclosures.
  In July
2004, the FASB issued EITF Issue No. 02-14, “Whether an Investor Should Apply
the Equity Method of Accounting to Investments Other than Common Stock” (“EITF
02-14”). EITF 02-14 requires application of the equity method of accounting when
an investor is able to exert significant influence over operating and financial
policies of an investee through ownership of common stock or in-substance common
stock. EITF 02-14 is effective for reporting periods beginning after September
15, 2004. The adoption of EITF 02-14 will not have a significant impact on the
Company’s financial statements.
  On
December 16, 2004, the FASB issued Statement No. 123R, “Share-Based Payment”
which requires companies to record compensation expense for stock options issued
to employees at an amount determined by the fair value of the options. SFAS No.
123R is effective for interim or annual periods beginning after June 15, 2005.
As such, effective with the Company’s first fiscal quarter of 2006, SFAS No.
123R will eliminate the Company’s ability to account for stock options using the
method permitted under APB 25 and instead require us to recognize compensation
expense should the Company issue options to its employees or non-employee
directors. The Company is in the process of evaluating the impact adoption of
SFAS No. 123R will have on the financial statements.
 
 *Business
Segments*
 The
Company operates in one segment and therefore segment disclosure is not
presented.  Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated on a regular basis by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources to an individual segment and in assessing the performance of
the segment.
 
 20
  **NOTE
B - GOING CONCERN**
 
 As shown
in the accompanying financial statements, the Company has suffered recurring
losses from operations, has negative working capital, has a stockholders’
deficit and certain debt is in default that raises substantial doubt about its
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on developing operations, increasing revenues
and obtaining new capital. Management has enacted the following plan to address
these issues: (1) obtain funding from new investors to alleviate the Company's
capital deficiency, (2) refinance existing debt on existing assets, (3) lease
larger facilities in order to manufacture certain products thereby reducing
costs and (4) market motorcycle accessories through significant, proven trade
shows that produce individual orders in excess of $75,000.
 
 **NOTE
C - INVENTORIES**
 
 Inventories
consisted of the following at December 31, 2004:
  Raw
      materials
    
    $
    19,749Work-in-process
    
    
    40,869Finished
      goods
    
    
    99,726$
    160,344
   **NOTE
D - NOTES PAYABLE**
 
 Notes
payable at December 31, 2004 includes an unsecured non-interest bearing note
payable for $28,380 to an unrelated individual dated July 30, 2004. An interest
rate of 7% per annum is imputed. Payments on the note of $3,000 begin January 1,
2005 through October 1, 2005. The second note is an unsecured non-interest
bearing note payable due on demand from a stockholder of the Company also dated
July 30, 2004. An interest rate of 7% per annum is imputed. At December 31,
2004, the note balance is $16,793 with imputed interest of $482 included in
accrued expenses. Payments are $2,000 per month though September 30, 2005. Both
notes payable mature in 2005.
 
 In 2003,
the note payable to Bank, that was originally collateralized by certain
transportation equipment and guaranteed by one of the Company’s officers, was
transferred to the Officer. During 2002, the loan went into default whereby the
bank repossessed the equipment. The amount transferred to the Officer in 2003
was $64,381 in exchange for common stock of the Company.
  **NOTE
E - BANK LINE OF CREDIT**
 
 At
December 31, 2003, the Company’s bank line of credit in the amount of $32,314
was reclassified as short-term credit card debt, and included in accounts
payable. A separate line of credit was guaranteed by one of the Officers of the
Company, and in 2003, the balance of the line of credit of $20,448 was
transferred to the Officer in exchange for common stock of the
Company.
 
 21
 ****
 **NOTE
F - OPERATING LEASES**
 
 As of
December 31, 2004, the Company has two long-term non-cancelable operating leases
for warehouse and office space. The initial lease terms expire December 31, 2006
and October 1, 2008, both with two year renewal options, as defined. The amount
charged to rent expense is $84,907 in 2004 and $41,231 in 2003. Minimum future
lease payments for the initial lease terms as of December 31, 2004 are as
follows:
  **Year
      ending December 31**,
    
    **Amount**2005
    
    $
    91,7702006
    
    
    96,3682007
    
    
    47,7872008
    
    
    37,167Total
      minimum future lease payments
    
    $
    273,092
 ****
 **NOTE
G - EQUITY**
 
 During
the year ended December 31, 2004, the Company issued 3,183,516 shares of common
stock in exchange for cash, services and compensation and 1,630,117 shares, as
approved in 2003 (see below), for a total of 4,813,633 shares of its common
stock as follows:
 
 During
2004, the Company issued 895,000 shares to several unrelated investors under a
Regulation D private placement offering. The Company received cash proceeds of
$346,645 for 895,000 shares of common stock issued and recorded $20,759 in
consulting services, as the fair market value on the date of issue for 57,420
shares.
 
 In
January and December, 2004, 1,797,625 shares of common stock were issued as
bonus and compensation to Officers, employees and directors. Compensation
expense of $555,214 was expensed at the fair market value on the date of the
compensation agreement. In December 2004, 200,000 of these shares were retired
resulting in a decrease in compensation expense of $54,000.
 
 Services
were rendered by a public relations company in exchange for 433,471 shares.
Consulting expenses of $170,001 was charged as the fair value of services
rendered. In December 2004, 125,000 of these shares were retired resulting in a
decrease in consulting expenses of $37,500.
 ****
 **NOTE
G - EQUITY (continued)**
 
 During
the first quarter 2004, the Company retired 155,100 shares of common stock
issued in 2003 to a consultant due to nonperformance resulting in a decrease in
consulting expense of $77,550. In the fourth quarter, the Company retired
200,000 of free trading options previously expensed using the Black-Scholes
option pricing method as required under SFAS No, 123, see below, resulting in an
additional decrease in consulting expense of $65,050. The options were retired
due to the termination of the consulting agreement.
 
 22
 
 On
December 19, 2003, the Company adopted a non-qualified stock compensation plan
to register 500,000 shares of common stock and 250,000 options to purchase
shares the common stock at $.30 per share for a total registration and issuance
of 750,000 shares of common stock (see Note I).
 
 During
the year ended December 31, 2003, the Company issued a total of 749,357 shares
and approved the issuance of 1,630,117 shares of its common stock for a total of
2,379,474 shares as follows:
 
 In June,
August and December, 2003, 83,000 shares of common stock were issued as bonus
and compensation to employees. Compensation expense of $ 23,130 was expensed as
the fair value of the shares on the date of issue.
 
 During
2003, a consultant provided services in exchange for 60,000 shares. Consulting
expenses of $18,000 was expensed as the fair value for 2003
services.
 
 During
2003, the Company issued 291,157 shares to several unrelated investors under a
private placement offering. The Company received cash proceeds of $27,000 for
122,857 shares of common stock issued and, recorded $67,057 in consulting
services for 168,300 shares of common stock issued.
 
 On
November 3, 2003, as amended on March 3, 2004, the Company entered into a
consulting agreement to promote the Company in the investment community. The
term of the agreement was initially for six months with an option to extend but
was amended on March 13, 2004 to give the Company the right to terminate the
contract after the first three months of the contract extension after the
initial contract expires. The consultant shall be entitled to receive $25,000
cash per month, with adjustments (after the initial month of the agreement at
$40,000), or the equivalent in free trading stock. Based upon the terms of the
agreement, the Company issued 247,780 shares in 2003 having a fair value of $
65,000 for consulting services.
  **NOTE
G - EQUITY (continued)**
 
 The
consultant also has the option to purchase $240,000 worth of free trading
options at 30% discount to market, up to a maximum of 799,999 shares and at a
floor price of $.30 per share. The consultant exercised some of its purchase
options in 2003 and the Company received cash proceeds of $21,574 for 67,420
options exercised at a price of $.32 per share. The fair value of the options
aggregating $130,105, was estimated on the grant date using the Black-Scholes
option pricing method as required under SFAS No, 123 with the following weighted
average assumptions: expected dividend yield 0%, volatility 166%, risk-free
interest rate 0.93%, expected term, 6 months. The $130,105 was charged to
consulting expense at the grant date.
 
 On
September 30, 2003, the Company’s chief executive officer and corporate
secretary agreed to take and accept as payment 1,104,531 common shares for their
accumulated accrued compensation through December 31, 2002 which amounted to
$242,997 on September 30, 2003. In addition, on that date, they agreed to take a
bank note payable and line of credit amounting to $84,829 that are personally
guaranteed in exchange for 385,586 shares. These shares were issued January 20,
2004.
 
 During
2003, a consultant provided services in exchange for 140,000 shares of common
stock. Consulting expense of $42,000 was expensed as the fair value for 2003.
These shares were issued in 2004.
 
 23
 ****
 **NOTE
H - INCOME TAXES**
 
 The
Company has approximately $266,000 of federal and state net operating losses
that expire in various years through the year 2024.
 
 Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.
 
 The
Company’s deferred tax asset at December 31, 2004 consists of net operating loss
carry forwards calculated using federal and state effective tax rates. Because
of the Company’s lack of earnings history, the deferred tax asset has been fully
offset by a valuation allowance. The valuation allowance increased by
approximately $103,500 and $12,000 for the years ended December 31, 2004 and
2003, respectively.
 
 The
Company’s net deferred tax asset as of December 31, 2004 is as
follows:
 
 Net
operating loss
carryforwards $
266,000
 Valuation
allowance (266,000)
 Net
deferred tax asset    $    
 --
 ========
 **NOTE
H - INCOME TAXES (Continued)**
  The
      reconciliation of income taxes computed at the federal statutory income
      tax rate to total income taxes for the years ended December 31, 2004 and
      2003 is as follows:
  2004
    2003Income
      tax computed at the federal statutory rate
    34%
    34%State
      income taxes, net of federal tax benefit
    4%
    4%Valuation
      allowance
    (38%)
    (38%)
  Total
      deferred tax asset
    0%
    0%
  24
 ****
 **NOTE
I - RELATED PARTY TRANSACTIONS**
 
 On
November 1, 1999, the Company entered into annual renewable employment
agreements with its chief executive officer and president and its corporate
secretary (“Officers”). The agreements provide for compensation to these two
Officers beginning in 2000 with annual renewals upon the mutual agreement of the
Company and Officers, for an incentive salary equal to one half of one percent
(1/2%) of the adjusted net profits (as defined) and for other normal benefits.
For 2004 and 2003, Officers’ compensation under the terms of the agreements are
$186,219 and 400,000 shares of the Company’s common stock and $169,290 salary
and 400,000 shares of the Company’s common stock respectively. The 800,000
shares compensation for 2004 and 2003 was issued in 2004 at the fair market
value of the shares on the date of agreement.
 
 At
December 31, 2002, $259,697 Officers’ compensation remained unpaid and was
recorded as accrued compensation, shareholders. This accrued compensation was
paid in common stock on September 30, 2003, See Note G.
 
 The
Company has a shareholder loan payable to these two Officers. The loan bears
interest at 7%, is due on demand and at December 31, 2004, the balance,
including accrued interest, is $73,949.
 
 The
Officers are guarantors of certain credit card debts of the
Company.
 
 **NOTE
J - SUBSEQUENT EVENTS**
 
 On
February 16, 2005, 50,000 shares of common stock were issued to an outside
consultant in exchange for services performed. Consulting services of $12,500
were recorded, representing the fair market value ($.25) on that date.
 
 In
February and March 2005, the Company sold 239,761 shares of common stock to
several unrelated investors under a private placement offering at prices varying
from $.13 to $.20 per share, and received cash proceeds of $33,000.
 
 25


**ITEM
8. Changes with and Disagreements With Accountants on Accounting And Financial
Disclosure**





None.





**Item
8A. Controls and Procedures**





Quarterly
Evaluation of Controls





As of the end
of the period covered by this annual report on Form 10-KSB, We evaluated the
effectiveness of the design and operation of (i) our disclosure controls and
procedures ("Disclosure Controls"), and (ii) our internal control over financial
reporting ("Internal Controls"). This evaluation ("Evaluation") was performed by
our President and Chief Executive Officer, Pierre Elliott ("CEO") and by Lisa
Elliott, our Chief Financial Officer ("CFO"). In this section, we present the
conclusions of our CEO and CFO based on and as of the date of the Evaluation,
(i) with respect to the effectiveness of our Disclosure Controls, and (ii) with
respect to any change in our Internal Controls that occurred during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect our Internal Controls.





CEO and
CFO Certifications





Attached to
this annual report, as Exhibits 31.1 and 31.2, are certain certifications of the
CEO and CFO, which are required in accordance with the Exchange Act and the
Commission's rules implementing such section (the "Rule 13a-14(a)/15d-14(a)
Certifications"). This section of the annual report contains the information
concerning the Evaluation referred to in the Rule 13a-14(a)/15d-14(a)
Certifications. This information should be read in conjunction with the Rule
13a-14(a)/15d-14(a) Certifications for a more complete understanding of the
topic presented.





Disclosure
Controls and Internal Controls





Disclosure
Controls are procedures designed with the objective of ensuring that information
required to be disclosed in our reports filed with the Commission under the
Exchange Act, such as this annual report, is recorded, processed, summarized and
reported within the time period specified in the Commission's rules and forms.
Disclosure Controls are also designed with the objective of ensuring that
material information relating to the Company is made known to the CEO and the
CFO by others, particularly during the period in which the applicable report is
being prepared. Internal Controls, on the other hand, are procedures which are
designed with the objective of providing reasonable assurance that (i) our
transactions are properly authorized, (ii) the Company's assets are safeguarded
against unauthorized or improper use, and (iii) our transactions are properly
recorded and reported, all to permit the preparation of complete and accurate
financial statements in conformity with accounting principals generally accepted
in the United States.





26





Limitations
on the Effectiveness of Controls





Our
management does not expect that our Disclosure Controls or our Internal Controls
will prevent all error and all fraud. A control system, no matter how well
developed and operated, can provide only reasonable, but not absolute assurance
that the objectives of the control system are met. Further, the design of the
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances so of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision -making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of a system
of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated objectives under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, or because
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.





Scope of
the Evaluation





The CEO and
CFO's evaluation of our Disclosure Controls and Internal Controls included a
review of the controls' (i) objectives, (ii) design, (iii) implementation, and
(iv) the effect of the controls on the information generated for use in this
annual report. In the course of the Evaluation, the CEO and CFO sought to
identify data errors, control problems, acts of fraud, and they sought to
confirm that appropriate corrective action, including process improvements, was
being undertaken. This type of evaluation is done on a quarterly basis so that
the conclusions concerning the effectiveness of our controls can be reported in
our quarterly reports on Form 10-QSB and annual reports on Form 10-KSB. The
overall goals of these various evaluation activities are to monitor our
Disclosure Controls and our Internal Controls, and to make modifications if and
as necessary. Our external auditors also review Internal Controls in connection
with their audit and review activities. Our intent in this regard is that the
Disclosure Controls and the Internal Controls will be maintained as dynamic
systems that change (including improvements and corrections) as conditions
warrant.





27





Among other
matters, we sought in our Evaluation to determine whether there were any
significant deficiencies or material weaknesses in our Internal Controls, which
are reasonably likely to adversely affect our ability to record, process,
summarize and report financial information, or whether we had identified any
acts of fraud, whether or not material, involving management or other employees
who have a significant role in our Internal Controls. This information was
important for both the Evaluation, generally, and because the Rule
13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
disclose that information to our Board (audit committee), and to our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as "reportable conditions". These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement cause by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employee in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Evaluation, and in each case, if a problem was identified, we considered what
revisions, improvements and/or corrections to make in accordance with our
ongoing procedures.





Conclusions





Based
upon the Evaluation, the Company's CEO and CFO have concluded that, subject to
the limitations noted above, our Disclosure Controls are effective to ensure
that material information relating to the Company is made known to management,
including the CEO and CFO, particularly during the period when our periodic
reports are being prepared, and that our Internal Controls are effective to
provide reasonable assurance that our financial statements are fairly presented
inconformity with accounting principals generally accepted in the United States.
Additionally, there has been no change in our Internal Controls that occurred
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to affect, our Internal Controls.








**ITEM
9. Directors and Executive Officers of the Registrant**





(a)
    Identification
      of Directors





Directors
and Executive Officers.





Our
Bylaws provide that we shall have that number of directors determined by the
majority vote of the board of directors. Currently we have five directors. Each
director will serve until our next annual shareholder meeting. Directors are
elected for one-year terms. Our Board of Directors elects our officers at the
regular annual meeting of the Board of Directors following the annual meeting of
shareholders. Vacancies may be filled by a majority vote of the remaining
directors then in office. Our directors and executive officers are as
follows:




**Name**
    **Age**
    **Position**Pierre
      Elliott
    43
    President
      and CEO for Diamond Powersports;
      DirectorLisa
      Elliott
    41
    Controller;
      DirectorMargaret
      Hurley
    46
    DirectorDavid
      A. Lewis, PH.D
    50
    Marketing
      Director; Director


28




*Pierre
Elliott* has been
President & CEO and Chairman of Diamond Powersports since its inception in
1992. Mr. Elliott has over 25 years experience in various aspects of the
motorcycle industry including: manufacturing, wholesaling, inventory management,
quality control, service and retail sales. During Diamond Powersports’ history,
Mr. Elliott developed and implemented all operations and developments creating a
company that started with less than 50 customers, and today retails and
wholesales products over 1,500 customers worldwide. Prior to this, Mr. Elliott
also owned several local ventures during a time span of five years including a
restaurant, a grocery store, and home cleaning service. During this time, Mr.
Elliott gained experience modifying racing bikes on a part-time basis. Prior to
this, Mr. Elliott had approximately 10 years of other industry experience in
employment with various local motorcycle sales and service offices. Mr. Elliott
is a member of the Diamond Racing team and the National Hot Rod Association.
Pierre Elliott is married to Lisa Elliott.





*Lisa
Elliott* has
served as Secretary and Director of Diamond Powersports since its inception in
1992. During her tenure she has been in charge of staffing, customer relations,
and assists the accounting department. Mrs. Elliott served previously as a
financial accountant for Colorfilm Video and Mobo Enterprises. During her tenure
there, Mrs. Elliott was responsible for Diamond Powersports’ daily accounting
transactions including accounts receivable and accounts payable. Lisa Elliott is
married to Pierre Elliott.





*Margaret
Hurley* serves
in the capacity as a Marketing Director and Director of Diamond Powersports
since September of 1999. Prior to joining Diamond Powersports, Mrs. Hurley was a
team manager for State Farm Insurance Co. for over 19 years. Mrs. Hurley’s
background experience consists of defining a market and managing the marketing
process. Mrs. Hurley’s responsibilities include managing market penetration and
product quality control. Mrs. Hurley holds a bachelor’s degree in Criminal
Justice from the University of Central Florida.





*Dr.
David A. Lewis* serves
in the capacity as Director of Marketing of Diamond Powersports since September
of 1999. Dr. Lewis was previously the Director of Pastoral care at Covenant Life
Christian Church in Ft. Lauderdale, Florida where he was been employed for the
last 12 years. Prior to this, Dr. Lewis owned Tropical Clima-Coat, Inc., which
provided construction services to commercial and residential buildings. As the
Owner/ President, Dr. Lewis managed all aspects of the business including
construction operations, marketing, and accounting. Dr. Lewis has traveled to
several countries outside the U.S., including Mexico, Kenya, Ecuador, Belize,
and Haiti, to give seminars on organizational and corporate structure and
provide corporate assistance to charitable organizations. Dr. Lewis holds his
PH.D from So. Fla. Bible College and is licensed in the State of Florida as a
counselor.





29




Audit
Committee Financial Expert





The
Company does not have a separately designated standing audit committee. Pursuant
to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts
as an audit committee for the purpose of overseeing the accounting and financial
reporting processes, and audits of the financial statements of the Company. The
Commission recently adopted new regulations relating to audit committee
composition and functions, including disclosure requirements relating to the
presence of an "audit committee financial expert" serving on its audit
committee. In connection with these new requirements, the Company's Board of
Directors examined the Commission's definition of "audit committee financial
expert" and concluded that the Company does not currently have a person that
qualifies as such an expert. The Company has had minimal operations for the past
two (2) years. Presently, there are only four (4) directors serving on the
Company's Board, and the Company is not in a position at this time to attract,
retain and compensate additional directors in order to acquire a director who
qualifies as an "audit committee financial expert", but the Company intends to
retain an additional director who will qualify as such an expert, as soon as
reasonably practicable. While neither of our current directors meets the
qualifications of an "audit committee financial expert", each of the Company's
directors, by virtue of his past employment experience, has considerable
knowledge of financial statements, finance, and accounting, and has significant
employment experience involving financial oversight responsibilities.
Accordingly, the Company believes that its current directors capably fulfill the
duties and responsibilities of an audit committee in the absence of such an
expert.





Code of
Ethics





The
Company is presently working with its legal counsel to prepare and adopt a code
of ethics that applies to the Company’s principal chief executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions (the "Code of Ethics"). A draft of the Code
of Ethics is attached hereto as Exhibit
14.1 . The
Code of Ethics is being designed with the intent to deter wrongdoing, and to
promote the following:





·
    Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships




·
    Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that a small business issuer files with, or submits to, the
      Commission and in other public communications made by the small business
      issuer




·
    Compliance
      with applicable governmental laws, rules and
regulations




·
    The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code




·
    Accountability
      for adherence to the code





Section
16(a) Beneficial Ownership Reporting Compliance





30





Under Section
16(a) of the Exchange Act, all executive officers, directors, and each person
who is the beneficial owner of more than 10% of the common stock of a company
that files reports pursuant to Section 12 of the Exchange Act, are required to
report the ownership of such common stock, options, and stock appreciation
rights (other than certain cash-only rights) and any changes in that ownership
with the Commission. Specific due dates for these reports have been established,
and the Company is required to report, in this Form 10-KSB, any failure to
comply therewith during the fiscal year ended December 2003. The Company
believes that all of these filing requirements were satisfied by its executive
officers, directors and by the beneficial owners of more than 10% of the
Company’s common stock. In making this statement, the Company has relied solely
on copies of any reporting forms received by it, and upon any written
representations received from reporting persons that no Form 5 (Annual Statement
of Changes in Beneficial Ownership) was required to be filed under applicable
rules of the Commission.




**ITEM
10. Executive Compensation**





Summary
Compensation Table





No
compensation in excess of $150,000 was awarded to, earned by, or paid to any
executive officer of Diamond Powersports during the years 2004, 2003 and 2002.
The following table and the accompanying notes provide summary information for
each of the last three fiscal years concerning cash and non-cash compensation
paid or accrued by Pierre Elliott and Lisa Elliott, Diamond Powersports' chief
executive officer and secretary for the past three years.





**SUMMARY
COMPENSATION TABLE**


Annual
      CompensationAwards
    PayoutsName
      and Principal Position
    Year
    Salary
      ($)
    Bonus
      ($)
    Other
      Annual Compensation
      ($)
    Restricted
      Stock Award(s)
      ($)
    Securities
      Underlying Options
      SARs(#)
    LTIP
      payouts
      ($)
    All
      Other Compensation
      ($)Pierre
      Elliott
      Chief
      Executive Officer
      
      Lisa
      Elliott
      Secretary
    2004
      2003
      2002
      
      
      2004
      2003
      2002
    121,000
      110,000
      100,000
      
      
      65,219
      59,290
      38,500
    -
      -
      -
      
      
      -
      -
      -
    -
      -
      -
      
      
      -
      -
      -
    $144,000(2)
      $98,000(1)
      -
      
      
      $144,000(3)
      -
      -
    -
      -
      -
      
      
      -
      -
      -
    -
      -
      -
      
      
      -
      -
      -
    -
      -
      -
      
      
      -
      -
      -





Diamond
Powersports has entered into an employment agreement with Pierre Elliott.
Pursuant to the agreement, Mr. Elliott serves as President, Director and General
Manager for a term of 1 year, ending on December 31, 2004. Mr. Elliott shall
receive an annualized base salary of $121,000 and is entitled to an incentive
bonus of .5% of the gross profits. Mr. Elliott is also entitled to receive
200,000 shares of restricted common stock for 2004.





Diamond
Powersports has also entered into an employment agreement with Lisa Elliott for
a term of 1 year, ending on December 31, 2004. Pursuant to the agreement, Mrs.
Elliott serves as Secretary, Controller and Director. Mrs. Elliott shall receive
an annualized salary of $65,219, payable in installments according to the
Employer’s regular payroll schedule. Mrs. Elliott is also entitled to an
incentive bonus of .5% of the gross profits. Mrs. Elliott is also entitled to
receive 200,000 shares of restricted common stock for 2004.





31





Both
agreements provide for reimbursement of Diamond Powersports' expenses and may be
terminated with 30 days written notice by the employee. The agreements carry a
two-year non-competition agreement from the time of termination.





(1)
    Includes
      380,000 shares of common stock issued under our non-qualified 2003
      compensatory plan.


(2)
    Includes
      200,000 shares of restricted common stock for
2003.


(3)
    Includes
      200,000 shares of restricted common stock for
2003.





**Compensation
of Directors**





Diamond
Powersports committed itself to compensate each of its Board of Directors with
7,000 shares of its common stock per annum. Board members typically meet on a
quarterly basis.





**Stock
Option Awards**





There
were no options granted to the Company’s Chief Executive Officer during
2004.





**Aggregated
Option Exercises and Fiscal Year End Option Values**





There
were no options exercised by the Company’s Chief Executive Officer during
2004.





**ITEM
11. Security Ownership of Certain Beneficial Owners and Management**





The
following table sets forth certain information concerning the ownership of
Diamond Powersports’ Common Stock as of December 31, 2004, with respect to: (i)
each person known to Diamond Powersports to be the beneficial owner of more than
five percent of Diamond Powersports’ Common Stock, (ii) all directors; and (iii)
directors and executive officers of Diamond Powersports as a group. The notes
accompanying the information in the table below are necessary for a complete
understanding of the figures provided below. As of April 4, 2005, there were
14,868,344 shares of common stock outstanding. As of April 4, 2005, there were
no preferred shares outstanding.





Beneficial
Owners of 5% or more of our Common Stock


(1)
      Title
      of Class
    (2)
      Name
      and Address of Beneficial Owner(s)
    (3)
      Amount
      and Nature of Beneficial Ownership
    (4)
      Percent
      of classCommon
      Stock
      ($.001
      par value)
    Pierre
      Elliott
      Lisa
      Elliott
      5150
      NW 109th Ave., Suite 4
      Sunrise,
      FL 33351
    10,441,135
      (1)
    70.2%





The
following table sets forth the number of shares owned beneficially on April 5,
2004, by each Director and by all Officers and Directors as a group. Information
as to the beneficial ownership is based upon statements furnished to the Company
by such persons.





Ownership
of Directors and Officers


(1)
      Title
      of Class
    (2)
      Name
      and Address of Beneficial Owner(s)
    (3)
      Amount
      and Nature of Beneficial Ownership
    (4)
      Percent
      of classCommon
      Stock
      ($.001
      par value)
      
      
      
      Common
      Stock
      ($.001
      par value)
      
      
      Common
      Stock
      ($.001
      par value)
      
      Common
      Stock
      ($.001
      par value)
    Pierre
      Elliott
      Lisa
      Elliott
      5150
      NW 109th Ave., Suite 4
      Sunrise,
      FL 33351
      
      Margaret
      Hurley
      5150
      NW 109th Ave., Suite 4
      Sunrise,
      FL 33351
      
      Dr.
      David A. Lewis
      5150
      NW 109th Ave., Suite 4
      Sunrise,
      FL 33351
      
      All
      Directors & Officers
    10,441,135
      (1)
      
      
      
      
      6,000
      
      
      171,000
      
      
      
      10,618,135
    70.2%
      
      
      
      
      **%
      
      
      **%
      
      
      
      73.3%





(1)
    Pierre
      and Lisa Elliott are the beneficial owners of the above securities and
      hold them as Joint Tenancy with Rights of
Survivorship.





** Less
than 1%





(a)
    Changes
      in Control





The
Company knows of no arrangements that may at a subsequent date result in a
change of control in the Company.





32





**ITEM
12. Certain Relationships and Related Transactions**





During
the year ended December 31, 2004, the Company issued 3,183,516 shares of common
stock in exchange for cash, services and compensation and 1,630,117 shares, as
approved in 2003 (see below), for a total of 4,813,633 shares of its common
stock as follows:





During
2004, the Company issued 895,000 shares to several unrelated investors under a
Regulation D private placement offering. The Company received cash proceeds of
$346,645 for 895,000 shares of common stock issued and recorded $20,759 in
consulting services, as the fair market value on the date of issue for 57,420
shares.





In
January and December, 2004, 1,797,625 shares of common stock were issued as
bonus and compensation to Officers, employees and directors. Compensation
expense of $555,214 was expensed at the fair market value on the date of the
compensation agreement. In December 2004, 200,000 of these shares were retired
resulting in a decrease in compensation expense of $54,000.





Services
were rendered by a public relations company in exchange for 433,471 shares.
Consulting expenses of $170,001 was charged as the fair value of services
rendered. In December 2004, 125,000 of these shares were retired resulting in a
decrease in consulting expenses of $37,500.





During
the first quarter 2004, the Company retired 155,100 shares of common stock
issued in 2003 to a consultant due to nonperformance resulting in a decrease in
consulting expense of $77,550. In the fourth quarter, the Company retired
200,000 of free trading options previously expensed using the Black-Scholes
option pricing method as required under SFAS No, 123, see below, resulting in an
additional decrease in consulting expense of $65,050. The options were retired
due to the termination of the consulting agreement.





On
September 30, 2003, the Company’s chief executive officer and corporate
secretary agreed to take and accept as payment 1,104,531 common shares for their
accumulated accrued compensation through December 31, 2002 and amounted to
$242,997 on September 30, 2003. In addition, on that date, they agreed to take a
bank note payable and line of credit amounting to $84,829 that are personally
guaranteed in exchange for 385,586 hares. These shares were issued January 20,
2004.





During
2003, a consultant provided services in exchange for 140,000 shares of common
stock. Consulting expense of $42,000 was expensed as the fair value for 2003.
These shares were issued in 2004.





**ITEM
13. Exhibits and Reports on Form 8-K**





(a)
    Financial
      Statements


1. The
following financial statements of Diamond Powersports, Inc. are included in Part
II, Item 7:





Independent
Auditors’ Report....................................... 14


Balance
Sheet-December 31, 2004....................................  15-16


Statements
of Operations - years ended


December
31, 2004 and 2003............................... 17-18


Statements
of Cash Flows - years ended


December
31, 2004 and 2003............................... 19-20


Statements
of Stockholders’ Equity - years ended


December
31, 2004 and 2003.............................. 21


Notes to
Financial Statements.......................................... 22-28





33





2.
Exhibits





3.
Articles of incorporation, bylaws and related amendments are incorporated by
reference to Exhibit No. 1 of Form 10-SB filed November 1999.





14.1.  
Code of Ethics





31.1.  
Rule 13a-14(a)/15d-14(a) Certifications of Chief
Executive Officer





31.2.  
Rule 13a-14(a)/15d-14(a) Certifications of Chief
Financial Officer





32.1.  Section 1350 Certifications of Chief Executive
Officer





32.2.  
Section 1350 Certifications of Chief Financial
Officer





(b)
    Reports
      on Form 8-K





There were no reports on Form 8-K for the three months ended December 31,
2004.




**ITEM
14. Controls and Procedures**





**Fees
Billed For Audit and Non-Audit Services**





The
following table represents the aggregate fees billed for professional audit
services rendered to Perrella & Associates, P.A., our current independent
auditor ("Perrella") for the audit of the Company's annual financial statements
for the years ended December 31, 2003.


Year
      Ended December 31
    
    2004
    
    
    
    2003Audit
      Fees(1)
    
    $
    28,495
    
    
    (3
    )
    $
    25,000
    
    
    (2
    )Audit-Related
      Fees(4)
    
    
    --
    
    
    
    
    
    --Tax
      Fees(5)
    
    
    --
    
    
    
    
    
    --All
      Other Fees(6)
    
    
    --
    
    
    
    
    
    --Total
      Accounting Fees and Services
    
    $
    28,495
    
    
    
    
    $
    25,000






(1)
    *Audit
      Fees*.
      These are fees for professional services for the audit of the Company's
      annual financial statements, and for the review of the financial
      statements included in the Company's filings on Form 10-QSB, and for
      services that are normally provided in connection with statutory and
      regulatory filings or engagements.




(2)
    The
      amounts shown for Perrella in 2003 relate to (i) the audit of the
      Company's annual financial statements for the fiscal year ended December
      31, 2002, and (ii) the review of the financial statements included in the
      Company's filings on Form 10-QSB for the first, second and third quarters
      of 2003.




(3)
    The
      amounts shown for Perrella in 2004 relate to (i) the audit of the
      Company's annual financial statements for the fiscal year ended December
      31, 2003, and (ii) the review of the financial statements included in the
      Company's filings on Form 10-QSB for the first, second and third quarters
      of 2004.




(4)
    *Audit-Related
      Fees*.
      These are fees for the assurance and related services reasonably related
      to the performance of the audit or the review of the Company's financial
      statements.




(5)
    *Tax
      Fees*.
      These are fees for professional services with respect to tax compliance,
      tax advice, and tax planning.




(6)
    *All
      Other Fees*.
      These are fees for permissible work that does not fall within any of the
      other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
      Fees.





34





**Pre-Approval
Policy For Audit and Non-Audit Services**





The
Company does not have a standing audit committee, and the full Board performs
all functions of an audit committee, including the pre-approval of all audit and
non-audit services before the Company engages an accountant. All of the services
rendered to the Company by Perrella & Associates after December 2004 were
pre-approved by the Board of Directors of the Company.





The
Company is presently working with its legal counsel to establish formal
pre-approval policies and procedures for future engagements of the Company's
accountants. The new policies and procedures will be detailed as to the
particular service, will require that the Board or an audit committee thereof be
informed of each service, and will prohibit the delegation of pre-approval
responsibilities to management. It is currently anticipated that the Company's
new policy will provide (i) for an annual pre-approval, by the Board or audit
committee, of all audit, audit-related and non-audit services proposed to be
rendered by the independent auditor for the fiscal year, as specifically
described in the auditor's engagement letter, and (ii) that additional
engagements of the auditor, which were not approved in the annual pre-approval
process, and engagements that are anticipated to exceed previously approved
thresholds, will be presented on a case-by-case basis, by the President or
Controller, for pre-approval by the Board or audit committee, before management
engages the auditors for any such purposes. The new policy and procedures may
authorize the Board or audit committee to delegate, to one or more of its
members, the authority to pre-approve certain permitted services, *provided
that* the
estimated fee for any such service does not exceed a specified dollar amount (to
be determined). All pre-approvals shall be contingent on a finding, by the
Board, audit committee, or delegate, as the case may be, that the provision of
the proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.





(a) On
December 31, 2004, our Chief Executive Officer and Chief Financial Officer made
an evaluation of our disclosure controls and procedures. In our opinion, the
disclosure controls and procedures are adequate because the systems of controls
and procedures are designed to assure, among other items, that 1) recorded
transactions are valid; 2) valid transactions are recorded; and 3) transactions
are recorded in the proper period in a timely manner to produce financial
statements which present fairly the financial condition, results of operations
and cash flows for the respective periods being presented. Moreover, the
evaluation did not reveal any significant deficiencies or material weaknesses in
our disclosure controls and procedures.





(b) There
have been no significant changes in our internal controls or in other factors
that could significantly affect these controls since the last
evaluation.





35




SIGNATURES





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




**DIAMOND POWERSPORTS,
      INC..**
      (Registrant)Date: April 15,
2005
    By:
    /s/ Pierre
  ElliottName: Pierre ElliottTitle: Chief Executive
      Officer
  /s/
Pierre Elliott


Pierre
Elliott


Chief
Executive Officer


Director





/s/
Lisa Elliott


Lisa
Elliott


Secretary,
Treasurer,


Director





/s/
David Lewis


David
Lewis


Director





36