**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,
                2005**





**[
                 ]**
            **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 [ ] No [x]
 
 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: $1,265,298.
 
 As
        of
        June 16, 2006, there were 16,277,835 common
        shares outstanding and the aggregate market value of the common shares (based
        upon the closing bid price of $.055 reported by brokers) held by non-affiliates
        was approximately $368,877.
 
 Transitional
        Small Business Disclosure Format (check one): Yes[  ] No[X]
 
 Number
        of
        shares of common stock outstanding as of June 16, 2006: 16,277,835
 Number
        of
        shares of preferred stock outstanding as of June 16, 2006: 
-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 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 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 Unites States,
        Canada
        and 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 industry is highly competitive with respect to price,
        service, quality, and location. There are numerous competitors in the motorcycle
        accessory 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 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. In the fourth quarter of 2004, we developed relationships with two
        large, national distributors.   In the year ending December 31, 2005, these
        distributors accounted for 35% and 6% of our revenues, in comparison to 12%
        and
        10% in 2004.
 
 We
        have
        ten 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:
 
 ·
            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  3
  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 Ultimate Machine with
        whom we have an oral agreement to outsource certain alloy metal product
        manufacturing at fixed prices. Our agreement with Ultimate Machine 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.
  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 to increase by 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 the 11,500 total
        square
        feet of our facility, approximately 8,000 square feet is dedicated to
        manufacturing, assembly and packaging of our products. Currently, we use
        Ultimate Machine 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 Ultimate Machine. Our oral agreement can
        be
        cancelled by either party at any time. Ultimate Machine 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 Ultimate Machine was unable to fulfill our product manufacturing,
        we could use other local machine shops with approximately the same
        terms.
  **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 in addition 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. Our leases began in 2003 and
        end
        in October 1, 2008 and December 31, 2006, respectively. Pursuant to the terms
        of
        our leases, rental payments and related expense for the years ending December
        31, 2005 and 2004 were $95,238 and $84,907, respectively. 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,
        is
        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.
  4
  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 of low and high bid information for our
                  Common
                  Stock for each quarter of the years ended December 31, 2004 and
                  2005.
  
 BidQuarter
                  Ended
              Low
              High3/31/04
              .69
              .736/30/04
              .25
              .269/30/04
              .25
              .2612/31/04
              .14
              .173/31/05
              .15
              .246/30/05
              .14
              .149/30/05
              .12
              .1512/31/05
              .15
              .17
  (b)
              Holders.
                  The approximate number of holders of record of the Registrant's
                  Common
                  Stock as of June 16, 2006 was 71.
 
 (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.
 
 5
  **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 Powersports 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
        2005 so that we are able to profile and deliver our products throughout the
        United States, primarily at motorcycle racing events.
 
 We
        have
        developed a strategy to expand our operations. Currently, this business plan
        includes:
 
 w
              Growing
                  our revenues through new product offerings. Since 2001, we released
                  several new products including frame sliders, wheels, lowering
                  links,
                  adjustable kick stands and top clamps.w
              Increase
                  the marketing of our products to additional geographical areas.
                  The
                  present geographic area we operate includes primarily the Unites
                  States,
                  Canada and the Caribbean islands. We plan to increase our marketing
                  efforts to other markets. For example, we have looked into marketing
                  such
                  areas as China and Japan.
 
 w
              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.w
              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.
 
 Selected
                  financial dataYear
                  Ended
                December
                  312005
              
              2004Net
                  Sales
              
              $
              1,265,298
              
              $
              1,491,929Net
                  Loss
              
              
              (312,409
              )
              
              (680,244
              )Net
                  Loss per Common Share
              
              
              (.02
              )
              
              (.05
              )Weighted
                  Average Common Shares Outstanding
              
              
              15,214,079
              
              
              12,411,820As
                  of December 31,2005
              
              
              2004Total
                  Assets
              
              $
              481,634
              
              $
              449,312Working
                  Capital Deficiency
              
              
              (231,816
              )
              
              (167,657
              )Shareholders’
                  (Deficiency) Equity
              
              
              (9,710
              )
              
              87,191No
                  dividends have been declared or paid for any of the periods
                  presented.
  6
  Results
        of Operations
 
 Year
        Ended December 31, 2005 Compared to Year Ended December 31, 2004
 
 Sales.
 
 Sales
        for
        the year ended December 31, 2005 were $1,265,298 versus sales of $1,491,929
        for
        the year ended December 31, 2004, a decrease of 15%. The decrease in sales
        during 2005 was due primarily to the decision of one of our larger purchasers
        to
        enter the retail sales market. They have several competitive advantages with
        regard to their size and financial resources which impacted our sales during
        2005. We expect our sales will improve during the first quarter of 2006 due
        to
        broader distribution of our products and higher demand for motorcycle parts
        and
        accessories in general.
 
 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  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, 2005 was $780,485 versus $816,089
        in
        the same period in 2004. Cost of sales as a percentage of sales was 62% in
        2005
        and was 55% in 2004.
  We
        expect
        cost of sales as a percentage of sales to decrease to around 50% of total
        sales
        for fiscal year 2006 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 two years ago 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.
  7
 
 Expenses.
  Operating
        expenses for the years ended December 31, 2005 and 2004 were $786,631 and
        $1,344,945, respectively, a decrease of $558,314. The decrease in expenses
        during 2005 was primarily attributable to the decrease in payroll expenses
        by
        $493,747. The 2004 amount included approximately $550,000 in common stock
        issued
        for services, which was a non-cash expense.
  We
        expect
        increases in expenses through the year 2006 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.
 
 Losses.
  Net
        loss for
        the year ended December 31, 2005 was $312,409 versus $680,244 in 2004, a
        decrease of $367,835. The decrease in net loss was primarily attributable
        to a
        decrease in payroll expenses and a decrease in selling, general and
        administrative expenses for the period. We expect to continue to incur losses
        through the year 2006. 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.
 
 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 $69,836 for the year ended December 31,
        2005
        versus cash used in operating activities of $181,497 in 2004. The decrease
        in
        cash flows used in operating activities for 2005 were primarily attributable
        to
        the decrease in net loss, partially offset by non-cash services and compensation
        expense for the period of $152,508, and the increase in accounts payable
        and
        accrued expense of $88,986.
  Cash
        flows
        used in investing activities were $12,067 for the year ended December 31,
        2005
        versus $239,441 during the year ended in 2004. Cash flows used in investing
        activities for the 2005 were due primarily to purchases of property and
        equipments.
  Cash
        flows
        provided by financing activities were $79,352 for the year ended December
        31,
        2005 versus $424,536 during the year ended in 2004. Cash flows for the 2005
        included $63,000 in proceeds from sales of common stock, $14,597 in proceeds
        from stockholder loans and $10,892 in proceeds from notes payable, offset
        by the
        principal payments of $9,137 on notes payable. Notes payable of $45,173 at
        December 31, 2004 includes two unsecured demand notes payable.
  Going
        concern
        opinion. As shown in the accompanying financial statements, the Company has
        suffered recurring losses from operations, has negative working capital and,
        has
        a stockholders’ deficiency 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 assets, (3) increase marketing
        of
        products to additional geographical areas, such as China and Japan.
  We
        estimate
        we will need approximately $50,000 in additional capital during 2006. If
        revenues increase during 2006, we may have sufficient cash flow from operations.
        During 2005, we had a negative $69,836 from operations.
  8
  Overall,
        we
        have funded our cash needs from inception through December 31, 2005 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 $1,048 on hand and a working capital deficit of $231,816 as of December
        31,
        2005. 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
        2006 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 2006 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. ****
  9
  **ITEM
          7. Financial Statements**
  --------
 **AUDITED
          FINANCIAL STATEMENTS**
 
 **Diamond
          Powersports, Inc.**
 
 **DECEMBER
          31, 2005 and 2004**
 --------
  
 
 
 
 
 
 Perrella
          & Associates, P.A.
 *Certified
          Public Accountants*
  
 10
 **CONTENTS**REPORT
                      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                      FIRM
                  12BALANCE
                      SHEET
                  13STATEMENTS
                      OF OPERATIONS
                  14STATEMENTS
                      OF STOCKHOLDERS’ DEFICIENCY
                  15STATEMENTS
                      OF CASH FLOWS
                  16NOTES
                      TO FINANCIAL STATEMENTS
                  17-24
   11
 
 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, 2005 and the related statements of operations, stockholders'
          deficiency, and cash flows for the years ended December 31, 2005 and 2004.
          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, 2005 and the results of its operations and its cash flows
          for the
          years ended December 31, 2005 and 2004 in conformity with accounting principles
          generally accepted in the United States of America.
 
 As
          discussed in Note K to the financial statements, the Company has restated
          its
          financial statements for the year ended December 31, 2004 to reflect an
          error in
          the reporting of a stock transaction that occurred during 2004.
 
 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 and has a stockholders’ deficiency
          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.
 
  /s/
          Perrella & Associates, P. A.
 
  Pompano
          Beach, Florida
 June
          23,
          2006
  12
 
 **DIAMOND
                    POWERSPORTS, INC.****Balance
                    Sheet*****December
                    31, 2005***ASSETSCURRENT
                    ASSETSCash
                    and cash equivalents
                
                **$**
                **494**Accounts
                    receivable, net of allowance for doubtfulaccounts
                    of $8,896 in 2005
                
                
                **83,060**Inventories,
                    net
                
                
                **168,208**TOTAL
                    CURRENT ASSETS
                
                
                **251,762**PROPERTY
                    AND EQUIPMENTMachinery
                    and equipment
                
                
                **57,006**Furniture
                    and fixtures
                
                
                **19,257**Trade
                    show and transportation equipment
                
                
                **255,214**Accumulated
                    depreciation
                
                
                **(109,720**
                **)**Net
                    property and equipment
                
                
                **221,757**OTHER
                    ASEETSPrepaid
                    expenses
                
                
                **6,711**Deposits
                
                
                **1,404****8,115**TOTAL
                    ASSETS
                
                **$**
                **481,634**LIABILITIES
                    AND STOCKHOLDERS' DEFICIENCYCURRENT
                    LIABILITIESBank
                    account overdraft
                
                **$**
                **19,222**Accounts
                    payable
                
                
                **322,872**Accrued
                    expenses
                
                
                **8,791**Notes
                    payable
                
                
                **39,162**Shareholder
                    loan
                
                
                **93,531**TOTAL
                    CURRENT LIABILITIES
                
                
                **483,578**LONG
                    TERM LIABILITIESNotes
                    payable, net of $1,862 current portion
                
                
                **7,766**TOTAL
                    LONG TERM LIABILITIES
                
                
                **7,766**STOCKHOLDERS'
                    DEFICIENCYPreferred
                    stock ($.001 par value, 5,000,000 authorized:none
                    issued and outstanding)
                
                
                **-**Common
                    stock ($.001 par value, 100,000,000 shares authorized:15,849,568
                    shares issued and outstanding)
                
                
                **15,850**Additional
                    paid-in-capital
                
                
                **2,375,169**Accumulated
                    deficit
                
                
                **(2,400,729**
                **)**TOTAL
                    STOCKHOLDERS' DEFICIENCY
                
                
                **(9,710**
                **)**TOTAL
                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                
                **$**
                **481,634**The
                    accompanying notes are an integral part of the financial
                    statements
  13
 **DIAMOND
                    POWERSPORTS, INC.****Statements
                    of Operations****For
                    the years ended December 31, 2005 and 2004****2005**
                
                2004(As
                    Restated)SALES
                    AND COST OF SALES:Sales
                
                **$**
                **1,265,298**
                
                $
                1,491,929Cost
                    of sales
                
                
                **780,485**
                
                
                816,089Gross
                    profit
                
                
                **484,813**
                
                
                675,840OPERATING
                    EXPENSES:Consulting
                    fees
                
                
                **104,098**
                
                
                17,681Compensation
                    expenses
                
                
                **428,218**
                
                
                921,965Selling,
                    general and administrative
                
                
                **254,315**
                
                
                405,299**786,631**
                
                
                1,344,945OPERATING
                    LOSS
                
                
                **(301,819**
                **)**
                
                (669,105
                )OTHER
                    EXPENSE:Interest
                    expense
                
                
                **10,591**
                
                
                11,139NET
                    LOSS
                
                **$**
                **(312,409**
                **)**
                $
                (680,244
                )Net
                    loss per common sharebasic
                    & fully diluted
                
                **$**
                **(0.02**
                **)**
                $
                (0.05
                )Weighted
                    average commonshares
                    outstanding - basic and fully diluted
                
                
                **15,214,079**
                
                
                12,411,820The
                    accompanying notes are an integral part of the financial
                    statements
  14
 **Statements
                    of Stockholders' Deficiency*****For
                    the Years Ended December 31, 2005 and
                    2004***Preferred
                    Stock,
                  no
                    Par
                
                Common
                    Stock,
                  $0.001
                    Par
                
                Common
                      Stock to beDelivered, $0.001 ParNumber
                    of
                
                Number
                    of
                
                Number
                    of
                
                Additional
                  Paid-in
                
                AccumulatedShares
                
                Amount
                
                Shares
                
                Amount
                
                Shares
                
                Amount
                
                Capital
                
                Deficit
                
                TotalsBalances,
                    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
                
                
                -
                
                
                347,645Issuances
                    of common stock, for services
                
                
                -
                
                
                -
                
                
                490,891
                
                
                491
                
                
                -
                
                
                -
                
                
                190,269
                
                
                -
                
                
                190,760Issuances
                    of common stock, for compensation
                
                
                -
                
                
                -
                
                
                1,597,625
                
                
                1,598
                
                
                -
                
                
                -
                
                
                499,616
                
                
                -
                
                
                501,214Common
                    stock retired, from services
                
                
                -
                
                
                -
                
                
                (280,100
                )
                
                (280
                )
                
                -
                
                
                -
                
                
                (77,270
                )
                
                -
                
                
                (77,550
                )Options
                    consultant retired
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (65,050
                )
                
                -
                
                
                (65,050
                )Net
                    loss for year
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (680,244
                )
                
                (680,244
                )Balances,
                    December 31, 2004
                
                
                -
                
                $
                -
                
                
                14,578,590
                
                $
                14,579
                
                
                -
                
                $
                -
                
                $
                2,160,932
                
                $
                (2,088,320
                )
                $
                87,191Issuances
                    of common stock, for cash
                
                
                -
                
                
                -
                
                
                419,761
                
                
                420
                
                
                -
                
                
                -
                
                
                62,580
                
                
                -
                
                
                63,000Issuances
                    of common stock, for services
                
                
                -
                
                
                -
                
                
                298,000
                
                
                298
                
                
                -
                
                
                -
                
                
                62,382
                
                
                -
                
                
                62,680Issuances
                    of common stock, for compensation
                
                
                -
                
                
                -
                
                
                553,217
                
                
                553
                
                
                -
                
                
                -
                
                
                89,275
                
                
                -
                
                
                89,828Net
                    loss for year
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (312,409
                )
                
                (312,409
                )Balances,
                    December 31, 2005
                
                
                -
                
                $
                -
                
                
                15,849,568
                
                $
                15,850
                
                
                -
                
                $
                -
                
                $
                2,375,169
                
                $
                (2,400,729
                )
                $
                (9,710
                )The
                    accompanying notes are an integral part of these financial statements
  15
 **DIAMOND
                    POWERSPORTS, INC.****Statements
                    of Cash Flows****For
                    the years ended December 31, 2005 and 2004****2005**
                
                2004(As
                    Restated)CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                **$**
                **(312,409**
                **)**
                $
                (680,244
                )Adjustments
                    to reconcile net loss to netcash
                    used in operating activities:Depreciation
                
                
                **30,493**
                
                
                20,057Non-cash
                    services and compensation expense
                
                
                **152,508**
                
                
                691,974Options
                    retired
                
                
                **-**
                
                
                (65,050
                )Common
                    stock retired
                
                
                **-**
                
                
                (77,550
                )Noncash
                    interest on Loans from Stockholders
                
                
                **4,985**
                
                
                3,800(Increase)
                    decrease in operating assets:Accounts
                    receivable
                
                
                **(52,538**
                **)**
                
                (4,801
                )Inventory
                
                
                **(7,864**
                **)**
                
                (45,065
                )Other
                    assets
                
                
                **6,550**
                
                
                (7,250
                )Increase
                    (decrease) in operating liabilities:Bank
                    overdraft
                
                
                **19,776**
                
                
                (6,716
                )Accrued
                    compensation
                
                
                **(322**
                **)**
                
                8,159Accounts
                    payable and accrued expenses
                
                
                **88,986**
                
                
                (18,811
                )NET
                    CASH (USED IN) OPERATING ACTIVITIES
                
                
                **(69,836**
                **)**
                
                (181,497
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchases
                    of property and equipment
                
                
                **(12,067**
                **)**
                
                (239,441
                )NET
                    CASH (USED IN) INVESTING ACTIVITIES
                
                
                **(12,067**
                **)**
                
                (239,441
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from sale of common stock
                
                
                **63,000**
                
                
                347,645Proceeds
                    from stockholder loans
                
                
                **14,597**
                
                
                31,718Proceeds
                    from notes payable
                
                
                **10,892**
                
                
                45,173Principal
                    payments on notes payable
                
                
                **(9,137**
                **)**
                
                -NET
                    CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                **79,352**
                
                
                424,536NET
                    INCREASE (DECREASE) IN CASH ANDCASH
                    EQUIVALENTS
                
                
                **(2,550**
                **)**
                
                3,598CASH
                    AND CASH EQUIVALENTS:Beginning
                    of year
                
                
                **3,598**
                
                
                -End
                    of year
                
                **$**
                **1,048**
                
                $
                3,598SUPPLEMENTAL
                    CASH FLOW INFORMATION:Cash
                    paid during the year for interest
                
                **$**
                **10,591**
                
                $
                11,139Non-cash
                    investing and financing activities:Increase
                    in note payable due to interest accrued
                
                **$**
                **3,286**
                
                $
                482Common
                    stock issued in exchange for services, net
                
                **$**
                **62,680**
                
                $
                113,210Common
                    stock issued for compensation
                
                **$**
                **89,828**
                
                $
                501,214Options
                    issued and (retired)
                
                **$**
                **-**
                
                $
                (65,050
                )The
                    accompanying notes are an integral part of the financial
                    statements
  16
 **DIAMOND
          POWERSPORTS, INC.**
 **Notes
          to Financial Statements**
 **For
          the Years Ended December 31, 2005 and December 31, 2004**
 
  **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* - 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. Bank overdrafts are classified as current liabilities.
 
 *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
            $8,896.
            Bad debt expense is $2,827 for 2005 and $6,000 for 2004.
 
 *Inventory* ** -
            Inventory, consisting of motorcycle parts and accessories, is valued
            at the
            lower of cost or market using the average cost 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 useful lives recovery periods, which range from 5 years for equipment
            to 10
            years for transportation equipment. Depreciation expense is $30,493 for
            2005 and
            $20,057 for 2004.
 
 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.
  17
 **DIAMOND
              POWERSPORTS, INC.**
 **Notes
              to Financial Statements**
 **For
              the Years Ended December 31, 2005 and December 31, 2004**
 
 **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. No impairments were recognized during the years ended December
            31, 2004
            and 2005.
 
 *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.
 
 *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 $20,783 for
            2005 and
            $43,725 for 2004.
 
 18
 **DIAMOND
              POWERSPORTS, INC.**
 **Notes
              to Financial Statements**
 **For
              the Years Ended December 31, 2005 and December 31, 2004**
 
 **NOTE
            A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
            (continued)**
 
 *Shipping
            Handling Costs* -
            Shipping handling costs are expensed as incurred and are included in
            the cost of
            goods sold. Shipping handling costs were $35,234 for 2005 and $25,350
            for 2004.
 
 *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*
 
 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.
 
 In
            December 2004, the FASB issued SEAS No. 153, “Exchange of Non-monetary Assets,
            an amendment of APB Opinion No 29, Accounting for Non-monetary Transactions”.
            SFAS No. 153 eliminates the exception for non-monetary exchanges of similar
            productive assets, which were previously required to be recorded on a
            carryover
            basis rather than a fair value basis. Instead, this statement provides
            that
            exchanges of non-monetary assets that do not have commercial substance
            be
            reported at carryover basis rather than a fair value basis. A non-monetary
            exchange is considered to have commercial substance if the future cash
            flows of
            the entity are expected to change significantly as a result of the exchange.
            The
            provisions of this statement are effective for non-monetary asset exchanges
            occurring in fiscal periods beginning after June 15, 2005. The Company
            expects
            to adopt the standard during the fiscal year 2006. The Company is evaluating
            the
            requirements of SFAS No. 153 and has not determined the impact on its
            financial
            condition or results of operations.
 
 19
 
 **DIAMOND
                POWERSPORTS, INC.**
 **Notes
                to Financial Statements**
 **For
                the Years Ended December 31, 2005 and December 31, 2004**
 **NOTE
            A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
            (continued)**
 
 *Recent
            Accounting Pronouncements* *(continued)*
  In
            May
            2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
which provides guidance on the accounting for and reporting of accounting
            changes and correction of errors. This statement changes the requirements
            for
            the accounting for and reporting of a change in accounting principle
            and applies
            to all voluntary changes in accounting principle. It also applies to
            changes
            required by an accounting pronouncement in the unusual instance that
            the
            pronouncement does not include specific transition provisions. This statement
            is
            effective for accounting changes and corrections of errors made in fiscal
            years
            beginning after December 15, 2005. The adoption of this standard is not
            expected
            to have a material effect on the Company’s results of operations or financial
            position.
 
 *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.
 
 **NOTE
            B - GOING CONCERN**
 
 As
            shown
            in the accompanying financial statements, the Company has suffered recurring
            losses from operations, has negative working capital and, has a stockholders’
deficiency 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 assets, (3) increase marketing of products
            to
            additional geographical areas, such as China and Japan.
 
 **NOTE
            C - INVENTORIES**
 
 Inventories
            consisted of the following at December 31, 2005:
  Raw
            materials                           
$ 68,435
 Work-in-process                               
            389
 Finished
            goods 99,384
 
 $ 168,208
 ======
  20
 **DIAMOND
              POWERSPORTS, INC.**
 **Notes
              to Financial Statements**
 **For
              the Years Ended December 31, 2005 and December 31, 2004**
  **NOTE
            D - NOTES PAYABLE**
 
 Notes
                      payable at December 31, 2005 includes an interest bearing note
                      payable for
                      $18,828 to an unrelated individual dated July 30, 2004 secured
                      by a
                      Company truck. An interest rate of 7% per annum is imputed
                      and during
                      2005, four $3,000 payments were made on the note.
                  
                  $
                  18,828The
                      second note is an unsecured, 10% interest bearing note payable,
                      due on
                      demand from a stockholder of the Company and is also dated
                      July 30, 2004.
                      At December 31, 2005, the note balance was $18,472 and includes
                      accrued
                      interest. No payments were made on the note in 2005.
                  
                  
                  18,472In
                      March 2005 the Company entered into a capital lease in the
                      amount of
                      $10,892 bearing an interest rate of 10.5%. Monthly payments
                      of $245 plus
                      interest commenced in June 2005. The lease is secured by a
                      cleaning
                      machine. The lease matures in March 2010 with an option to
                      purchase at 10%
                      of total cash price.
                  
                  
                  9,628Total
                  
                  
                  46,928Less
                      long-term portion
                  
                  
                  (7,766
                  )Notes
                      payable
                  
                  
                  39,162
 
 The
            maturities of long-term portion over the next four years are as
            follows:
 
 **Year**
                  
                  **Amount**2007
                  
                  $
                  2,0892008
                  
                  $
                  2,3432009
                  
                  $
                  2,6282010
                  
                  $
                  706Total
                  
                  $
                  7,766
 
 
 **NOTE
            E - OPERATING LEASES**
 
 As
            of
            December 31, 2005, the Company had 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. The amount charged
            to
            rent expense was $95,238 in 2005 and $84,907 in 2004. Minimum future
            lease
            payments for the initial lease terms as of December 31, 2005 are as
            follows:
  21
 **DIAMOND
              POWERSPORTS, INC.**
 **Notes
              to Financial Statements**
 **For
              the Years Ended December 31, 2005 and December 31, 2004**
 **NOTE
            E - OPERATING LEASES (CONTINUED)**
 
 **Year
            ending December 31** ,  **Amount**
  2006                                                   
               $ 96,368
 2007                                                      
               47,787
 2008                                                       
              37,167
 2009 0
 
 Total
            minimum future lease payments      $
            181,322
 **=========**
  
 **NOTE
            F - EQUITY TRANSACTIONS**
 
 During
            the year ended December 31, 2005, the Company issued 419,761 shares of
            common
            stock for $63,000 in a private placement.
 
 During
            the year ended December 31, 2005, the Company issued 298,000 shares for
            professional and consultant services rendered. The shares were valued
            at the
            market price on the date of issuance for a total of $62,680. These expenses
            were
            included in the accompanying financial statements in selling, general
            and
            administration expenses.
 
 During
            the year ended December 31, 2005, the Company issued 553,217 shares as
            compensation to officers and directors of the Company. The shares were
            valued at
            the market price on the date of issuance for a total of $89,828. These
            expenses
            are included in the accompanying financial statements in compensation
            expenses.
 
 During
            the year ended December 31, 2004, the Company issued 2,983,516 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 4,613,633 shares of its
            common
            stock as follows:
 
 During
            2004, the Company sold 770,000 shares to several unrelated investors
            under a
            Regulation D private placement offering and 125,000 shares to an officer.
            The
            Company received cash proceeds of $347,645 for these 895,000 shares of
            common
            stock issued. In November, 2004, the 125,000 shares sold to the Officer
            were
            retired and returned to the Company without repayment in accordance with
            the
            Officer's termination agreement
 
 The
            Company recorded $190,760 in service expenses, as the fair market value
            on the
            date of issue for 490,891 shares issued in 2004 for services.
 
 In
            January and December, 2004, 1,597,625 shares of common stock were issued
            as
            bonus and compensation to Officers, employees and directors. Compensation
            expense of $501,214 was expensed at the fair market value on the date
            of the
            compensation agreement.
  22
 **DIAMOND
              POWERSPORTS, INC.**
 **Notes
              to Financial Statements**
 **For
              the Years Ended December 31, 2005 and December 31, 2004**
 **NOTE
            F - EQUITY TRANSACTIONS (CONTINUED)**
 
 During
            the first quarter 2004, the Company retrieved and retired 155,100 shares
            of
            common stock issued in 2003 to an investor relations consultant due to
            nonperformance by the consultant and also decreased consulting expense
            $77,550
            in 2004. The shares and services were rendered and expensed in 2003.
            However,
            final resolution and agreement to return shares were not known until
            2004.
            Regarding another consultant, the Company retired in the fourth quarter
            2004,
            200,000 of free trading options expensed in 2003 using the Black-Scholes
            option
            pricing method as required under SFAS No, 123, resulting in an additional
            decrease in consulting expense of $65,050 in 2004. The options were retired
            due
            to the termination of the consulting agreement in March 2004 due to non
            performance.
 
  **NOTE
            G - INCOME TAXES**
 
 The
            Company has approximately $384,000 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, 2005 consisted 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 reduced by a valuation allowance. The valuation allowance increased
            by
            approximately $106,000 and $12,000 for the years ended December 31, 2005
            and
            2004, respectively.
 
 The
            Company’s net deferred tax asset as of December 31, 2005 is as
            follows:
  Net
            operating loss
            carryforwards $
            384,000
 Valuation
            allowance     (384,000)
  Net
            deferred tax
            asset $         --
 ========
  The
            reconciliation of income taxes computed at the federal statutory income
            tax rate
            to total income taxes for the years ended December 31, 2005 and 2004
            is as
            follows:
  2005   2004
 Income
            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%
   23
 **DIAMOND
              POWERSPORTS, INC.**
 **Notes
              to Financial Statements**
 **For
              the Years Ended December 31, 2005 and December 31, 2004**
  **NOTE
            H - 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 and for other normal benefits. For
            2005 and
            2004, Officers’ compensation under the terms of the agreements were $204,841 and
            400,000 shares of the Company’s common stock and $186,219 and 400,000 shares of
            the Company’s common stock, respectively. The 800,000 shares compensation for
            2005 and 2004 were issued at the market price of the shares on the date
            of
            issuance.
 
 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, 2005, the balance,
            including accrued interest, was $93,531.
 
 The
            Officers are guarantors of certain credit card debts of the
            Company.
 
 **NOTE
            I - SUBSEQUENT EVENTS**
 
 Subsequent
            to the year ended December 31, 2005, the Company issued 500,000 shares
            of common
            stock and 250,000 options to purchase common stock to three consultants
            in
            connection with professional fees, product development in China and general
            corporate consulting. The options are exercisable at $.30 and expire
            in February
            2008.
 
 **NOTE
            J - CONCENTRATION OF RISK**
 
 Two
            customers accounted for 35% and 6%, respectively, of the Company's revenues
            in
            2005, compared to 12% and 10% in 2004.
 
 In
            2004
            there were not just 2 customers that accounted for large amounts. There
            were 3 -
            4 companies that account for 12%, 10% and 9%.
 
 **NOTE
            K - RESTATEMENT**
 
 The
            financial statements have been restated for the year ended December 31,
            2004 to
            respond to certain comments received by the Company from the Staff of
            the
            Securities and Exchange Commission ("SEC"). We have restated our balance
            sheet
            at December 31, 2004, and statements of income, stockholders' equity
            and cash
            flows for the year ended December 31, 2004. The restatement impacts the
            year
            ended December 31, 2004, but has no effect on the financial statements
            issued in
            prior fiscal years. The restatement corrects an error in recording 125,000
            common shares retired and returned to the Company from an officer of
            the
            Company. The returned shares originally were recorded as a $37,000 decrease
            in
            consulting expenses and should have been recorded without a credit. The
            impact
            of the restatement increased net loss by $37,500, and had no effect on
            net loss
            per share for the year ended December 31, 2004.
 24
  **ITEM
        8. Changes with and Disagreements With Accountants on Accounting And Financial
        Disclosure**
 
 None.
 
 **Item
        8A. Controls and Procedures**
 
 *Annual
        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 us 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.
 
 *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.
  25
 
 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, our disclosure controls and procedures are designed
        to
        provide reasonable assurance of achieving our objectives. Our CEO and CFO
        have
        concluded that our disclosure controls and procedures are effective at that
        reasonable assurance level 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 at that assurance level 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 three 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
              44
              President
                  and CEO for Diamond Powersports; DirectorLisa
                  Elliott
              42
              Controller;
                  DirectorDavid
                  A. Lewis, PH.D
              51
              Marketing
                  Director; Director
   *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.
  26
 
 *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.
  *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.
 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 has adopted a code of ethic (the "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 A draft of the Code of Ethics is incorporated by reference into
        Form
        10-KSB for the year ended December 31, 2004. The Code of Ethics is being
        designed with the intent to deter wrongdoing, and to promote the
        following:
 
 s
              Honest
                  and ethical conduct, including the ethical handling of actual or
                  apparent
                  conflicts of interest between personal and professional
                  relationships
  s
              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
  s
              Compliance
                  with applicable governmental laws, rules and
                  regulations
  s
              The
                  prompt internal reporting of violations of the code to an appropriate
                  person or persons identified in the
                  code
  s
              Accountability
                  for adherence to the code
  27
  Section
        16(a) Beneficial Ownership Reporting Compliance
  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 2005. 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
 
 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
              2005
                2004
                2003
                
                
                
                2005
                2004
                2003
              133,100
                121,000
                110,000
                
                
                
                71,741
                65,219
                59,290
              -
                -
                -
                
                
                
                -
                -
                -
              -
                -
                -
                
                
                
                -
                -
                -
              $34,540(2)
                $144,000(2)
                $98,000(1)
                
                
                
                $34,540(2)
                $144,000(2)
                -
              -
                -
                -
                
                
                
                -
                -
                -
              -
                -
                -
                
                
                
                -
                -
                -
              -
                -
                -
                
                
                
                -
                -
                -David
                  A. Lewis
                Marketing
                  Director
              2005
                2004
                2003
              55,000
                -
                -
              -
                -
                -
              -
                -
                -
              $23,000
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
  28
  Diamond
        Powersports entered into an annual renewable employment agreement in 1999
        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.
        For
        2005, Mr. Elliott shall receive an annualized base salary of $133,100 and
        is
        entitled to receive a salary increase of 10% for the remaining year as long
        as
        the sales reach 1.4 million. Mr. Elliott is also entitled to receive 200,000
        shares of restricted common stock for 2005.
 
 Diamond
        Powersports also entered into an annual renewable employment agreement in
        1999
        with Lisa Elliott for a term of 1 year, ending on December 31. For 2005,
        pursuant to the agreement, Mrs. Elliott serves as Secretary, Controller and
        Director. Mrs. Elliott shall receive an annualized salary of $71,741, payable
        in
        installments according to the Employer’s regular payroll schedule. Mrs. Elliott
        is also entitled to receive a salary increase of 5% for the remaining year
        as
        long as the sales reach 1.4 million. Mrs. Elliott is also entitled to receive
        200,000 shares of restricted common stock for 2005.
 
 (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 2003-2005 pursuant
                  to their
                  respective employment agreements.
  **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
        2005.
 
 **Aggregated
        Option Exercises and Fiscal Year End Option Values**
  There
        were no options exercised by the Company’s Chief Executive Officer during
        2005.
 
 **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 June 16, 2006, 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 June 16, 2006, there were
        16,277,835 shares of common stock outstanding. As of June 16, 2006, 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
              9,405,164
                  (1)
              57.8%
   29
  The
        following table sets forth the number of shares owned beneficially on June
        16,
        2006, 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)
              Pierre
                  Elliott
                Lisa
                  Elliott
                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
              9,405,164
                  (1)
                
                
                
                
                165,812
                
                9,570,976
              57.8%
                
                
                
                
                1.0%
                
                58.8%
 
 (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.
 
 **ITEM
        12. Certain Relationships and Related Transactions**
 
 During
        the year ended December 31 2005, the Company issued 419,761 shares to several
        unrelated investors under a Regulation D private placement offering. The
        Company
        received cash proceeds of $63,000.
 
 During
        the year ended December 31, 2005, 298,000 shares of common stock were issued
        as
        services fees to the Company's consultants. Consulting services expense of
        $62,680 was expensed at the fair market price on the date of the consulting
        services agreement.
 
 During
        the year ended December 31, 2005, 553,217 shares of common stock were issued
        as
        bonus and compensation to Officers, employees and directors. Compensation
        expense of $89,828 was expensed at the fair market value on the date of the
        compensation agreement.
 
 During
        the year ended December 31, 2004, the Company issued 2,983,516 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 4,613,633 shares of its common
        stock as follows:
 
 During
        2004, the Company sold 770,000 shares to several unrelated investors under
        a
        Regulation D private placement offering and 125,000 shares to an officer.
        The
        Company received cash proceeds of $347,645 for 895,000 shares of common stock
        issued. In November, 2004, the 125,000 shares sold to the Officer were retired
        and returned to the Company without repayment in accordance with the Officer's
        termination agreement.
  30
 
 The
        Company recorded $190,760 in service expenses, as the fair market value on
        the
        date of issue for 490,891 shares issued in 2004 for services.
 
 In
        January and December, 2004, 1,597,625 shares of common stock were issued
        as
        bonus and compensation to Officers, employees and directors. Compensation
        expense of $501,214 was expensed at the fair market value on the date of
        the
        compensation agreement.
 
 During
        the first quarter 2004, the Company retrieved and retired 155,100 shares
        of
        common stock issued in 2003 to an investor relations consultant due to
        nonperformance by the consultant and also decreased consulting expense $77,550
        in 2004. The shares and services were rendered and expensed in 2003. However,
        final resolution and agreement to return shares were not known until 2004.
        Regarding another consultant, the Company retired in the fourth quarter 2004,
        200,000 of free trading options expensed in 2003 using the Black-Scholes
        option
        pricing method as required under SFAS No, 123, resulting in an additional
        decrease in consulting expense of $65,050 in 2004. The options were retired
        due
        to the termination of the consulting agreement in March 2004 due to non
        performance.
 
 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 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.
 
 **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.......................................  12
 Balance
        Sheet-December 31, 2005.................................  13
 Statements
        of Operations - years ended
 December
        31, 2005 and 2004........................................  14
 Statements
        of Cash Flows - years ended
 December
        31, 2005 and 2004......................................... 15
 Statements
        of Stockholders’ Equity - years ended
 December
        31, 2005 and 2004.......................................   16
 Notes
        to
        Financial Statements....................................  17-24
  31
  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 is
        incorporated by reference to the 2004 Form 10-KSB.
 31.1 Rule
        13a-14(a)/15d-14(a) Certifications of Chief ExecutiveOfficer
 31.2 Rule
        13a-14(a)/15d-14(a) Certifications of Chief FinancialOfficer
 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 year ended December 31,
        2005.
  **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, 2005 and 2004.
 
 Year
                  Ended December 31
              
              2005
              
              
              
              
              
              2004Audit
                  Fees(1)
              
              $
              32,585
              
              
              *
                  (3)
              
              
              
              
              $
              28,495
              
              
              (2)Audit-Related
                  Fees(4)
              
              
              --
              
              
              
              
              
              
              
              
              --Tax
                  Fees(5)
              
              
              --
              
              
              
              
              
              
              
              
              --All
                  Other Fees(6)
              
              
              --
              
              
              
              
              
              
              
              
              --Total
                  Accounting Fees and Services
              
              $
              32,585
              
              
              *
              
              
              
              
              $
              28,495
 *Estimate.
        Final billing not yet received.
   (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 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.
  (3)
              The
                  amounts shown for Perrella in 2005 relate to (i) the audit of the
                  Company's annual financial statements for the fiscal year ended
                  December
                  31, 2004, 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 2005.
  (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.
 
 32
 
 **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 2005 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, 2005, 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.
 
 33
  **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: June
                  16, 2006
              By:
              /s/ Pierre
                  ElliottName:
                  Pierre ElliottTitle: Chief
                  Executive Officer
 
 /s/
        Pierre Elliott
 Pierre
        Elliott
 Director
 
 /s/
        Lisa Elliott
 Lisa
        Elliott
 Secretary,
        Treasurer,
 Director
 
 /s/
        David Lewis
 David
        Lewis
 Director
 
 34