UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-K





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




For the
year ended December
31, 2008




or




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




For the
transition period from_____________to_____________





Commission
File Number:  000-25385





POWER SPORTS FACTORY,
INC.


(Exact
name of registrant as specified in its charter)




MINNESOTA
            
            41-1853993(State
      of other jurisdiction of incorporation organization)
            
            (I.R.S.
      Employer Identification No.)6950 Central Highway,
      Pennsauken, NJ
            
            08109(Address
      of principal executive offices)
            
            (Zip
      Code)





(856)
488-9333


Registrant's
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
registered pursuant to Section 12(g) of the Act:  Common Stock, No Par
Value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  o   No
x





Indicate
by checkmark if the registrant is not required to file reports to Section 13 or
15(d)Of the Act.


o Yes  o No





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K. x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company.  (Check
One):





Large
accelerated filer  o                                                                                                Accelerated
filer  o





Non-accelerated
filer    o                                                                                  Smaller
reporting company x


(Do not
check if a smaller reporting company)





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





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates  as of the last business day of the registrant’s most
recently completed second fiscal quarter was $9,524,202.





Number of
shares of Common Stock outstanding as of April 9, 2009: 41,080,834.





Documents
incorporated by reference:  None












POWER
SPORTS FACTORY, INC.





INDEX





PageItem
      1.
              Business
              
              1Item
      1A.
              Risk
      Factors
              
              4Item
      1B.
              Unresolved
      Staff Comments
              
              8Item
      2.
              Properties
              
              8Item
      3.
              Legal
      Proceedings
              
              8Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              
              8Item
      5.
              Market
      for Common Equity, Related Stockholder Matters and Issuer Purchases of
      Equity Securities
              
              9Item
      6.
              Selected
      Financial Data
              
              10Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              10Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              12Item
      8.
              Financial
      Statements and Supplementary Data
              
              13Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              
              29Item
      9A (T).
              Controls
      and Procedures
              
              29Item
      9B.
              Other
      Information
              
              29Item
      10.
              Directors,
      Executive Officers, Promoters, Control Persons and Corporate
      Governance
              
              30Item
      11.
              Executive
      Compensation
              
              32Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              
              33Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              34Item
      14.
              Principal
      Accountant Fees and Services
              
              34Item
      15.
              Exhibits
      and Financial Statement Schedules
              
              35









PART
I




This
Annual Report on Form 10-K contains forward-looking statements that have
been made pursuant to the provisions of Section 27A of the Securities Act
of 1933, Section 21E of the Securities Exchange Act of 1934, and the
Private Securities Litigation Reform Act of 1995 and concern matters that
involve risks and uncertainties that could cause actual results to differ
materially from historical results or from those projected in the
forward-looking statements. Discussions containing forward-looking statements
may be found in the material set forth under “Business,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and in
other sections of this Form 10-K. Words such as “may,” “will,” “should,”
“could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue” or similar words are intended to identify
forward-looking statements, although not all forward-looking statements contain
these words. Although we believe that our opinions and expectations reflected in
the forward-looking statements are reasonable as of the date of this Report, we
cannot guarantee future results, levels of activity, performance or
achievements, and our actual results may differ substantially from the views and
expectations set forth in this Annual Report on Form 10-K. We expressly
disclaim any intent or obligation to update any forward-looking statements after
the date hereof to conform such statements to actual results or to changes in
our opinions or expectations.




Readers
should carefully review and consider the various disclosures made by us in this
Report, set forth in detail in Part I, under the heading “Risk Factors,” as
well as those additional risks described in other documents we file from time to
time with the Securities and Exchange Commission, which attempt to advise
interested parties of the risks, uncertainties, and other factors that affect
our business. We undertake no obligation to publicly release the results of any
revisions to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements.




Item 1.  Business.





General




Power
Sports Factory, Inc. (the “Company”, “we” or “us”) was organized under the laws
of the State of Minnesota on June 28, 1996. We changed our name to Power Sports
Factory, Inc. from Purchase Point Media Corp. effective June 10, 2008, to
reflect the acquisition in September 2007 of a Delaware corporation of the same
name. Through the acquisition in 1997 of a Nevada corporation, we acquired the
trademark, patent and exclusive marketing rights to, and invested in the
development of a grocery cart advertising display device called the last word®, a clear plastic
display panel that attaches to the back of the child’s seat section in
supermarket shopping carts.




Since
this business remained in the development stage, our Board of Directors
determined to acquire an operating business, and on April 24, 2007, we entered
into a Share Exchange and Acquisition Agreement (the “Share Exchange
Agreement”), with  Power Sports Factory, Inc., a Delaware corporation
with offices in Pennsauken, New Jersey (“PSF” or “Power Sports Factory”), and
the shareholders of PSF.  On May 14, 2007, we had issued 60,000,000
shares of Common Stock to Steve Rubakh, the major shareholder of PSF, and on
August 31, 2007, entered into an amendment to the Share Exchange Agreement, that
provided for a completion of the acquisition of PSF at a closing (the “Closing”)
which was held on September 5, 2007. The Share Exchange Agreement provided for
our acquiring all of the outstanding shares of PSF in exchange for shares of the
Company’s Common Stock, for the change of our name to Power Sports Factory, Inc.
and a 1:20 reverse split (the “Reverse Split”) of our outstanding common stock,
both of which were effective June 10, 2008, pursuant to a definitive information
statement filed with the Securities and Exchange
Commission.  Following effectiveness of the Reverse Split, each share
of Preferred Stock was converted into 10 shares of our Common
Stock.




1





Our
Business




Power
Sports Factory





PSF was
formed in Delaware in June, 2003, and imports, markets, distributes and
sells motorcycles and scooters. Through PSF’s manufacturing relationships in
China, it began to import and sell Power Sports products in the United States.
Its products have been marketed mainly under the “Strada” and “Yamati”, and
recently under the “Andretti”, brands. At the beginning of 2007, PSF made the
determination to focus primarily on the sales and distribution of motor
scooters. PSF now sells the motor scooters that it imports primarily to power
sports dealers and a small portion through the internet.





The
Motor Scooters That We Sell





Motor
scooters are step-through or feet-forward vehicles with automatic transmissions.
The motor scooter is engine-powered, with the drive system and engine usually
attached to either the rear axle or fixed under the seat of the vehicle. They
range in engine size from 49.50cc to 600cc with the 150cc and higher motor
scooters most capable of sustained highway speeds and capabilities to keep up
with regular motorcycles. Majority of motor scooters can be used on highways,
but in certain states, 49.50cc scooters may only be used on certain types of
roads, such as within the city limits.





The motor
scooters that we sell have engine sizes ranging from 49.50cc to 300 cc, with
wheel sizes from 10” to 16”. Most of motor scooters require a valid drivers'
license and a motorcycle registration. They comply and adhere to DOT safety and
comfort standards too and hence, have good brakes, suspension, strength, power,
and other things.





Our
Manufacturing and Licensing Rights





On May
15, 2007, PSF signed an exclusive licensing agreement with Andretti IV,
LLC. Andretti IV, LLC, has the rights to the personal name, likeness and
endorsement rights of certain members of the Mario Andretti family. This
agreement allows PSF to use the Andretti name to brand scooters for the next 10
years assuming minimum license fees are met.





On
January 20, 2009, we entered into a Restructuring Agreement, amending our June
27, 2008 licensing agreement with Andretti IV, LLC (“Andretti”), with respect to
payments due for the year 2008.  As of December 31, 2008, the Company
had a balance of $540,000 due to Andretti.  Under the Restructuring
Agreement, we agreed to pay $250,000 to Andretti by February 6, 2009, issued a
promissory note to Andretti in the principal amount of $87,000, due March 30,
2009, and converted $58,000 of the 2008 debt into 1,000,000 shares of our common
stock.  Upon receipt of these payments, including payment in full of
the promissory note due March 30, 2009, Andretti agreed to forgive the remaining
balance of license fees owed for 2008. This agreement is pending
payment..





We have
an exclusive manufacturing arrangement for the territory of the United States
and Puerto Rico with one of the largest manufacturers in China for our Andretti
branded line of motor scooters, utilizing the designs of an Italian company
purchased by this manufacturer.  We have to meet certain annual volume
requirements for different models of scooters we purchase under this
arrangement. We purchase motor scooters from other manufacturers from time to
time.





Product
Warranty Policies





Our
product warranty policy is two years on major parts or 5,000 miles and three
years on engines. In addition, the manufacturers of our parts and vehicles have
their own warranty policies that limit our financial exposure to a certain
extent during the first year of the warranty on major parts.




2


Marketing





We have
two employees (other than our officers) involved in sales and marketing. We have
relationships with over 200 dealers.




Competition





The
motorscooter industry is highly competitive. The Company’s competitors include
specialty companies as well as large motor vehicle companies with diversified
product lines. Competitors of the company in the motorcycle and scooter category
include Honda, Yamaha, Piaggio/Vespa, Keeway, Genuine Motor Company, Kymco, and
United Motors. A number of our competitors have significantly greater financial,
technological, engineering, manufacturing, sales, marketing and distribution
resources than Power Sports Factory. Their greater capabilities in these areas
may enable them to better withstand periodic downturns in the motorscooter
industry, compete more effectively on the basis of price and production and more
quickly develop new products. In addition, new companies may enter the markets
in which Power Sports Factory competes, further increasing competition. Power
Sports Factory believes its ability to compete successfully depends on a number
of factors including the strength of licensed brand names, effective advertising
and marketing, impressive design, high quality, and value.





Additionally,
our manufacturers may have relationships with our competitors in some or all
markets or product lines.  Pricing and supply commitments may be more
favorable to our competitors.  Power Sports Factory may not be able to
compete successfully in the future, and increased competition may adversely
affect our financial results.





We
believe that market penetration in this segment is difficult and, among other
things, requires significant marketing and sales expenditures. Competition in
this market is based upon a number of factors, including price, quality,
reliability, styling, product features, customer preference, and warranties. We
intend to compete based on competitively based pricing, quality of product
offering, service, support, and styling.




Government
Regulation





The
motorcycles and scooters we distribute are subject to certification by the U.S.
Environmental Protection Agency (“EPA”) for compliance with applicable emissions
and noise standards, and by California regulatory authorities with respect to
emissions, tailpipe, and evaporative emissions standards. All motorscooters,
components and manufactured parts are subject to Department of Transportation
(“DOT”) standards. Certain states have minimum product and general liability and
casualty insurance liability requirements prior to granting authorizations or
certifications to distributors to sell motor vehicles and scooters. Without this
insurance we are not permitted to sell these vehicles to motor vehicle dealers
in certain states. We have secured product liability policy coverage of $2
million per occurrence. While we believe that this policy limit will be
sufficient initially in order to qualify us to do business, the insurance
requirements that are imposed upon us may vary from state to state, and will
increase if and as sales increase or as the products we offer increase in
variety. Additionally, these insurance limits do not represent the maximum
amounts of our actual potential liability and motor vehicle liability tort
claims may exceed these claim amounts substantially. No assurance can be made
that we will be able to satisfy each state’s insurance coverage requirements or
that we will be able to maintain the policy limits necessary from time to time
in order to permit sales of our products in various jurisdictions that require
such coverage and, if a liability arises, no assurance can be made that these
insurance limits will be sufficient.





Agent
for Service of Process





To comply
and maintain with Federal regulations under National Highway Traffic Safety
Administration (“NHTSA”), we act as Agent for Service of Process for all the
products manufactured under the “Yamati” and “Strada” brand names.




3




Intellectual
Property





We have
trademarks for our “Power Sports Factory” brand name with the U.S. Patent and
Trademark Office.





Employees





As of
January 1, 2009, we had four employees (excluding our two executive officers),
all of whom are employed at our Pennsauken, New Jersey offices. All of our
employees were employed on a full-time basis including two salespersons and two
operations persons. We are not a party to a collective bargaining agreement with
our employees and we believe that our relationship with our employees is
satisfactory.





Item 1A. Risk Factors.





Some
of our customers rely on financing with third parties to purchase our products
and such financing may be difficult to obtain.




We rely
on sales of our products to distributors and customers to generate cash from
operations. A significant portion of our sales are financed by third party
finance companies on behalf of our customers. The availability of financing by
third parties is affected by general economic conditions and the credit
worthiness of our customers. Deterioration in the credit quality of our
customers could negatively impact the ability of our customers to obtain the
financing they need to make purchases of our products. Given the current
economic conditions, and the more limited liquidity in our credit markets, there
can be no assurance that third party finance companies will continue to extend
credit to our customers as they have in the past. These economic conditions
could have a material adverse effect on demand for our products and on our
financial condition and operating results.




Our
business is affected by the cyclical nature of the markets we
serve.




Demand
for our products depends upon general economic conditions in the markets in
which we compete. Our sales depend in part upon our customers’ new purchases in
favor of continuing to use or repairing existing transportation. Downward
economic cycles may result in reductions in sales of our products, which may
reduce our profits. There can be no assurance, however, that we will be able to
maintain our sales volume given the negative impact of the recent deterioration
in economic conditions.




We
could face limitations on our ability to access the capital
markets.




Our
ability to access the capital markets to raise funds through the sale of equity
or debt securities is subject to various factors, including general economic
and/or financial market conditions. The current conditions of the financial
markets have adversely affected the availability of credit and liquidity
resources and our access to capital markets is limited until stability
re-emerges in these markets.





We
will require additional financing to sustain operations and, without it, we may
not be able to continue operations.





We
require additional financing to sustain operations. Our inability to raise
additional working capital at all or to raise it in a timely manner may
negatively impact our ability to fund the operations, to generate revenues, and
to otherwise execute the business plan, leading to the reduction or suspension
of the operations and ultimately termination of the business. If we obtain
additional financing by issuing debt securities, the terms of these securities
could restrict or prevent the Company from paying dividends and could limit
flexibility in making business decisions.




4


Our
future success depends on our ability to respond to changing consumer demands,
identify and interpret trends in the industry and successfully market new
products.




The motor
scooter industry is subject to rapidly changing consumer demands, technological
improvements and industry standards. Accordingly, we must identify and interpret
vehicle trends and respond in a timely manner. Demand for and market acceptance
of new products are uncertain and achieving market acceptance for new products
generally requires substantial product development and marketing efforts and
expenditures. If we do not continue to meet changing consumer demands and
develop successful product lines in the future, the Company’s growth and
profitability will be negatively impacted.  If radical changes in
transportation technology occur, it could significantly diminish demand for our
products. If we fail to anticipate, identify or react appropriately to changes
in product style, quality and trends or is not successful in marketing new
products, we could experience an inability to profitably sell our products even
at lower cost margins.   These risks could have a severe negative
effect on our results of operations or financial condition.




Our
product offering is currently heavily concentrated.




The
Company currently concentrates on the sale of motor scooters.  If
consumer demand for motor scooters in general, or the Company’s offerings
specifically, wanes or fails to grow, our ability to sell motor scooters may be
significantly impacted.




Our
business and the success of our products could be harmed if Power Sports Factory
is unable to maintain their brand image.




Our
success is heavily dependent upon the market acceptance of our Andretti and
Yamati branded lines of motor scooters.  If we are unable to timely
and appropriately respond to changing consumer demand, the brand names and brand
images Power Sports Factory distributes may be impaired. Even if we react
appropriately to changes in consumer preferences, consumers may consider those
brand images to be outdated or associate those brands with styles of vehicles
that are no longer popular.  We invest significantly in our branded
presentation to the marketplace.  Lack of acceptance of our brands
will have a material impact on the performance of the Company.





Our
business could be harmed if we fail to maintain proper inventory
levels.





We place
orders with manufacturers for most products prior to the time we receive
customers’ orders. We do this to minimize purchasing costs, the time necessary
to fill customer orders and the risk of non-delivery. However, we may be unable
to sell the products we have ordered in advance from manufacturers or that we
have in inventory. Inventory levels in excess of customer demand may result in
inventory write-downs, and the sale of excess inventory at discounted prices
could significantly impair brand image and have a material adverse effect on
operating results and financial condition. Conversely, if we underestimate
consumer demand for our products or if our manufacturers fail to supply the
quality products that we require at the time we need them, the Company may
experience inventory shortages. Inventory shortages might delay shipments to
customers, negatively impact retailer and distributor relationships, and
diminish brand loyalty.




Our
products are subject to extensive international, federal, state and local
safety, environmental and other government regulation that may require us to
incur expenses, modify product offerings or cease all or portions of our
business in order to maintain compliance with the actions of
regulators.





Power
Sports Factory must comply with numerous federal and state regulations governing
environmental and safety factors with respect to its products and their use.
These various governmental regulations generally relate to air, water and noise
pollution, as well as safety standards. If we are unable to obtain the necessary
certifications or authorizations required by government standards, or fail to
maintain them, business and future operations would be harmed
seriously.




5


Use of
motorcycles and scooters in the United States is subject to rigorous regulation
by the EPA, and by state pollution control agencies. Any failure by the Company
to comply with applicable environmental requirements of the EPA or state
agencies could subject the Company to administratively or judicially imposed
sanctions such as civil penalties, criminal prosecution, injunctions, product
recalls or suspension of production. Additionally, the Consumer Product Safety
Commission exercises jurisdiction when applicable over the Company’s product
categories.




The
Company’s business and facilities also are subject to regulation under various
federal, state and local regulations relating to the sale of its products,
operations, occupational safety, environmental protection, hazardous substance
control and product advertising and promotion. Failure to comply with any of
these regulations in the operation of the business could subject the Company to
administrative or legal action resulting in fines or other monetary penalties or
require the Company to change or cease business.





A
significant adverse determination in any material product liability claim
against the Company could adversely affect our operating results or financial
condition.




Accidents
involving personal injury and property damage occur in the use of Power Sports
Factory’s  products.  Product liability insurance is
presently maintained by the Company in the amount of $2,000,000 per occurrence.
While Power Sports Factory does not have any pending product liability
litigation, no assurance can be given that material product liability claims
against Power Sports Factory will not be made in the future. Adverse
determination of material product liability claims made against Power Sports
Factory or a lapse in coverage could adversely affect our operating results or
financial condition.




Significant
repair and/or replacement with respect to product warranty claims or product
recalls could have a material adverse impact on the results of
operations.





Power
Sports Factory provides a limited warranty for its products for a period of two
years or 5,000 miles for parts and three years for engines.  Although
we have a one year warranty on parts and engine from our manufacturer, sometimes
a product is distributed which needs repair or replacement beyond that period.
Our standard warranties of two years or 5,000 miles on major parts and three
years on engines require us or our dealers to repair or replace defective
products during such warranty periods at no cost to the consumer.




Our
business is subject to seasonality and weather conditions that may cause
quarterly operating results to fluctuate materially.




Motorcycle
and scooter sales in general are seasonal in nature since consumer demand is
substantially lower during the colder season in North America. We may endure
periods of reduced revenues and cash flows during off-season months and be
required to lay off or terminate some employees from time to time. Building
inventory during the off-season period could harm financial results if
anticipated sales are not realized. Further, if a significant number of dealers
are concentrated in locations with longer or more intense cold seasons, or
suffer other adverse weather conditions, a lack of consumer demand may impact
adversely the Company’s financial results.




Power
Sports Factory faces intense competition, including competition from companies
with significantly greater resources, and if Power Sports Factory is unable to
compete effectively with these companies, market share may decline and business
could be harmed.




The
motorcycle and scooter industry is highly competitive. Our competitors include
specialty companies as well as large motor vehicle companies with diversified
product lines. Many of our competitors have significantly greater financial,
technological, engineering, manufacturing, sales, marketing and distribution
resources than the Company. Their greater capabilities in these areas may enable
them to better withstand periodic downturns in the recreational vehicle
industry, compete more effectively on the basis of price and production and more
quickly develop new products. In addition, new companies may enter the markets
in which Power Sports Factory competes, further increasing competition.
Additionally, our manufacturers may have relationships with our competitors in
some or all markets or product lines.  Pricing and supply commitments
may be more favorable to our competitors.  Power Sports Factory may
not be able to compete successfully in the future, and increased competition may
adversely affect our financial results.





6


We
have an exclusive licensing arrangement for a significant portion of our product
offering.




Our
exclusive marketing arrangement with Andretti IV, LLC, requires us to pay
Andretti IV a certain minimum payment per year.  If we do not make the
minimum payment, we may lose our exclusive license. Our licensing fee is a fixed
cost according to the agreement which may cause us to be inflexible in our
pricing structure.




The
failure of certain key manufacturing suppliers to provide us with scooters and
components could have a severe and negative impact on our business.





At this
time, we purchase scooters from several Chinese manufacturers and we rely on a
small group of suppliers to provide us with components for our products, some of
whom are located outside of the United States. If the manufacturers or these
suppliers become unwilling or unable to provide the scooters and components,
there are a limited number of alternative manufacturers or suppliers who could
provide them. Changes in business conditions, wars, governmental changes, and
other factors beyond our control or which we do not presently anticipate, could
affect our ability to receive the scooters and components from our manufacturer
and suppliers. Further, it could be difficult to find replacement components if
our current suppliers fail to provide the parts needed for these products. A
failure by our major suppliers to provide scooters and these components could
severely restrict our ability to manufacture our products and prevent us from
fulfilling customer orders in a timely fashion.





We currently have exclusive designs and
products from manufacturers that, in addition to other terms, will require us to
make minimum purchase commitments.  If we do not make the minimum
amount of purchases under the agreement, we may lose our exclusive rights to
certain products and designs.  Additionally we may have to agree to
offer reciprocal purchasing exclusivity which could increase risks associated
with single source supplying such as pricing, quality control, timely delivery
and market acceptance of designs.





Our
business is subject to risks associated with offshore
manufacturing.




We import
motorcycles and scooters into the United States from China for resale. All of
our import operations are subject to tariffs and quotas set by the U.S. and
Chinese governments through mutual agreements or bilateral actions. In addition,
China, where our products are manufactured, may from time to time impose
additional new quotas, duties, tariffs or other restrictions on our imports or
exports, or adversely modify existing restrictions. Adverse changes in these
import costs and restrictions, or our suppliers’ failure to comply with customs
regulations or similar laws, could harm our business.




Our
operations are also subject to the effects of international trade agreements and
regulations such as the North American Free Trade Agreement, the Caribbean Basin
Initiative and the European Economic Area Agreement, and the activities and
regulations of the World Trade Organization. Trade agreements can also impose
requirements that adversely affect our business, such as setting quotas on
products that may be imported from a particular country into our key market, the
United States. In fact, some trade agreements can provide our competitors with
an advantage over us, or increase our costs, either of which could have an
adverse effect on our business and financial condition.




In
addition, the recent elimination of quotas on World Trade Organization member
countries by 2005 could result in increased competition from developing
countries which historically have lower labor costs, including China. This
increased competition, including from competitors who can quickly create cost
and sourcing advantages from these changes in trade arrangements, could have an
adverse effect on our business and financial condition.




7


Our
ability to import products in a timely and cost-effective manner may also be
affected by problems at ports or issues that otherwise affect transportation and
warehousing providers, such as labor disputes or increased U.S. homeland
security requirements. These issues could delay importation of products or
require us to locate alternative ports or warehousing providers to avoid
disruption to our customers. These alternatives may not be available on short
notice or could result in higher transit costs, which could have an adverse
impact on our business and financial condition.




Our
international operations expose us to political, economic and currency
risks.




All of
our products came from sources outside of the United States. As a result, we are
subject to the risks of doing business abroad, including:




●
            currency
      fluctuations;




●
            changes
      in tariffs and taxes;




●
            political
      and economic instability; and




●
            disruptions
      or delays in shipments.





Changes
in currency exchange rates may affect the relative prices at which we are able
to manufacture products and may affect the cost of certain items required in our
operation, thus possibly adversely affecting our profitability.





There are
inherent risks of conducting business internationally. Language barriers,
foreign laws and customs and duties issues all have a potential negative effect
on our ability to transact business in the United States. We may be subject to
the jurisdiction of the government and/or private litigants in foreign countries
where we transact business, and we may be forced to expend funds to contest
legal matters in those countries in disputes with those governments or
with  customers or suppliers.




We
may suffer from infringements or piracy of our trademarks, designs, brands or
products.




We may
suffer from infringements or piracy of our trademarks, designs, brands or
products in the U.S. or globally.  Some jurisdictions may not honor
our claims to our intellectual properties. In addition, we may not have
sufficient legal resources to police or enforce our rights in such
circumstances.




Unfair
trade practices or government subsidization may impact our ability to compete
profitably.




In an
effort to penetrate markets in which the Company competes, some competitors may
sell products at very low margins, or below cost, for sustained periods of time
in order to gain market share and sales.  Additionally, some
competitors may enjoy certain governmental subsidations that allow them to
compete at substantially lower prices.  These events could
substantially impact our ability to sell our product at profitable
prices.





If
Power Sports Factory markets and sells its products in international markets, we
will be subject to additional regulations relating to export requirements,
environmental and safety matters, and marketing of the products and
distributorships, and we will be subject to the effects of currency fluctuations
in those markets, all of which could increase the cost of selling products and
substantially impair the ability to achieve  profitability in foreign
markets.





8


As a part
of our marketing strategy, Power Sports Factory plans to market and sell its
products internationally. In addition to regulation by the U.S. government,
those products will be subject to environmental and safety regulations in each
country in which Power Sports Factory markets and sells. Regulations will vary
from country to country and will vary from those of the United States. The
difference in regulations under U.S. law and the laws of foreign countries may
be significant and, in order to comply with the laws of these foreign countries,
Power Sports Factory may have to implement manufacturing changes or alter
product design or marketing efforts. Any changes in Power Sports Factory’s
business practices or products will require response to the laws of foreign
countries and will result in additional expense to the Company.





Additionally,
we may be required to obtain certifications or approvals by foreign governments
to market and sell the products in foreign countries. We may also be required to
obtain approval from the U.S. government to export the products. If we are
delayed in receiving, or are unable to obtain import or export clearances, or if
we are unable to comply with foreign regulatory requirements, we will be unable
to execute our complete marketing strategy.





Our
plan to grow will place strains on the management team and other Company
resources to both implement more sophisticated managerial, operational,
technological and financial systems, procedures and controls and to train and
manage the personnel necessary to implement those functions. The inability to
manage growth could impede the ability to generate revenues and profits and to
otherwise implement the business plan and growth strategies, which would have a
negative impact on business.





If we
fail to effectively manage growth, the financial results could be adversely
affected. Growth may place a strain on the management systems and resources. We
must continue to refine and expand the business development capabilities. This
growth will require the Company to significantly improve and/or replace the
existing managerial, operational and financial systems, procedures and controls,
to improve the coordination between various corporate functions, and to manage,
train, motivate and maintain a growing employee base. The Company’s performance
and profitability will depend on the ability of the officers and key employees
to: manage the business as a cohesive enterprise; manage expansion through the
timely implementation and maintenance of appropriate administrative,
operational, financial and management information systems, controls and
procedures; add internal capacity, facilities and third-party sourcing
arrangements as and when needed; maintain  quality controls; and
attract, train, retain, motivate and effectively manage employees. The time and
costs to implement these steps may place a significant strain on management
personnel, systems and resources, particularly given the limited amount of
financial resources and skilled employees that may be available at the time. We
may not be able to successfully integrate and manage new systems, controls and
procedures for the business, or even if we successfully integrate systems,
controls, procedures, facilities and personnel, such improvements may not be
adequate to support projected future operations. We may never recoup
expenditures incurred during our growth. Any failure to implement and maintain
such changes could have a material adverse effect on our business, financial
condition and results of operations.




We
may make acquisitions which could divert management’s attention, cause ownership
dilution to stockholders and be difficult to integrate.




Given
that our strategy envisions growing our business, we may decide that it is in
the best interest of the Company to identify, structure and integrate
acquisitions that are complementary to, or accretive with, our current business
model. Acquisitions, strategic relationships and investments often involve a
high degree of risk. Acquisitions can place a substantial strain on current
operations, financial resources and personnel.  Successful
integrations may not be achieved, or customers may become dissatisfied with the
Company. We may also be unable to find a sufficient number of attractive
opportunities, if any, to meet our objectives.





9





Item 1B. Unresolved Staff Comments.





Not
applicable.





Item 2. Properties.





Our
principal executive offices are located at our 6950 Central Highway, Pennsauken,
New Jersey, and comprise an approximately 19,700 square foot facility, which is
also the offices and warehouse for our motorcycle and scooter
products.  We lease this facility under a month-to-month lease with a
monthly rental rate $9,100.





Item 3.  Legal Proceedings.





The
Company is a party to the following lawsuits.





Yellow Transportation v.
Power Sports Factory, Inc. The Company was sued in December, 2008, by
Yellow Transportation for the sum of $28,838, plus lawful interest, attorneys’
fees and the costs of the suit, in the Superior Court of New Jersey, Camden
County, for transportation services rendered by the plaintiff.  The
Company intends to settle this lawsuit.





Liberty Mutual Insurance
Company v. Power Sports Factory, Inc. The plaintiff in this case has sued
the Company in the Superior Court of New Jersey, Camden County, for the sum of
$45,096 for goods and/or services rendered.  We have answered the
complaint denying that the Company owes any amounts to plaintiff.





Business Technology
Partners, Inc. v. Power Sports Factory, Inc. The plaintiff in this case
has sued the Company in the Superior Court of New Jersey, Camden County, for the
sum of $134,965.12 for goods and/or services rendered.  The parties to
this case are in discovery, and we have been served with interrogatories by the
plaintiff.





Steven Kempenich v. Power
Sports Factory, Inc. In March, 2009, our former Chief Executive Officer,
Steven Kempenich, who was terminated August 14, 2008, has sued the Company, and
our directors and executives, Shawn Landgraf and Steven Rubakh, in the U.S.
District Court for the District of New Jersey for, inter alia, unpaid
compensation, unpaid expense reimbursements, allegedly owing to Mr. Kempenich.
We filed an answer and counterclaim against Mr. Kempenich on Monday April 13,
2009.




Item 4.  Submission of Matters to a Vote of Security
Holders.





Not
Applicable.





10




PART
II





Item 5.  Market for Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.





The
Company's Common Stock trades on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. ("NASD") under the symbol "PSPF." As of
April 1, 2008, the Company had approximately 490 holders of record of its Common
Stock. These quotations represent prices between dealers, do not include retail
mark ups, mark downs or commissions and do not necessarily represent actual
transactions.





The
following table sets forth for each period indicated the high and the low bid
prices per share for the Company's Common Stock. The Common Stock commenced
trading on June 9, 1998.





2008
            
            High
            
            
            LowFirst
      Quarter Ended March 31, 2008
            
            $
            0.80
            
            
            $
            0.30Second
      Quarter Ended June 30, 2008
            
            
            1.05
            
            
            
            0.32Third
      Quarter Ended September 30, 2008
            
            
            1.00
            
            
            
            0.16Fourth
      Quarter Ended December 31, 2008
            
            
            0.25
            
            
            
            0.012007First
      Quarter Ended March 31, 2007
            
            
            0.02
            
            
            
            0.01Second
      Quarter Ended June 30, 2007
            
            
            0.07
            
            
            
            0.01Third
      Quarter Ended September 30, 2007
            
            
            0.06
            
            
            
            0.02Fourth
      Quarter Ended December 31, 2007
            
            
            0.08
            
            
            
            0.022006First
      Quarter Ended March 31, 2006
            
            
            0.08
            
            
            
            0.02Second
      Quarter Ended June 30, 2006
            
            
            0.08
            
            
            
            0.02Third
      Quarter Ended September 30, 2006
            
            
            0.08
            
            
            
            0.08Fourth
      Quarter Ended December 31, 2006
            
            
            0.03
            
            
            
            0.02




The
Company has never paid a cash dividend on its Common Stock and does not
anticipate paying dividends in the foreseeable future. It is the present policy
of the Company's Board of Directors to retain earnings, if any, to finance the
expansion of the Company's business. The payment of dividends in the future will
depend on the results of operations, financial condition, capital expenditure
plans and other cash obligations of the Company and will be at the sole
discretion of the Board of Directors




Item 6. Selected Financial Data.





Not
applicable.





Item 7.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations.





The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and notes thereto and the
other financial information included elsewhere in this
report.  Certain statements contained in this report, including,
without limitation, statements containing the words “believes,” “anticipates,”
“expects” and words of similar import, constitute “forward looking statements”
within the meaning of the Private Securities Litigation Reform Act of
1995.  Such forward-looking statements involve known and unknown risks
and uncertainties.  Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including our ability to create, sustain, manage or forecast our
growth; our ability to attract and retain key personnel; changes in our business
strategy or development plans; competition; business disruptions; adverse
publicity; and international, national and local general economic and market
conditions.




11


Overview





The
Company was organized under the laws of the State of Minnesota on June 28, 1996.
the Company, through the acquisition in 1997 of a Nevada corporation acquired
the trademark, patent and exclusive marketing rights to, and invested in the
development of a grocery cart advertising display device called the last word®, a clear plastic
display panel that attaches to the back of the child’s seat section in
supermarket shopping carts.





On April
24, 2007, we entered into the Share Exchange Agreement with Power Sports
Factory, Inc. (“PSF”) and the shareholders of PSF. The Share Exchange Agreement
provided for our acquiring all of the outstanding shares of PSF in exchange for
shares of the Company’s Common Stock. On May 14, 2007, we issued 60,000,000
shares of Common Stock to Steve Rubakh, the major shareholder of PSF, and on
August 31, 2007, entered into an amendment (the “Amendment”) to the Share
Exchange Agreement, that provided for a completion of the acquisition of PSF at
a closing (the “Closing”) which was held on September 5, 2007. At the Closing
the Company issued 1,650,000 shares of a new Series B Convertible Preferred
Stock  to the shareholders of PSF, to complete the acquisition of PSF
by us.  Each share of Preferred Stock was converted into 10 shares of
our Common Stock effective June 9, 2008, following approval by the shareholders
at a shareholders meeting held on May 28, 2008, of a 1:20 reverse split of our
common stock and changing our name from Purchase Point Media Corp. to Power
Sports Factory, Inc.




Results
of Operations for the Years ended December 31, 2008 and December 31,
2007




Revenues.  
For the year ended December 31, 2008, net sales increased to $2,304,828
from  $2,254,350, an increase of $50,478 from the year ended December
31, 2007.




Gross
Profit.   Gross profit was $356,726 for the year ended December 31,
2008, compared to $330,576 for the year ended December 31, 2007, representing an
increase of $26,150  over the previous year.




Selling, General and Administrative
Expenses.   Selling, general and administrative expenses increased to
approximately $3,709,275  for the year ended December 31, 2008, from
approximately $2,332,912 for the year ended December 31,
2007.  Selling, general and administrative expense increased
substantially in the year ended December 31, 2007 due to continuing expenses
associated with the launch of the Andretti brand in February
2008. The increase in
selling, general and administrative expense in 2008 was mainly due
to  increased accounting, legal and other costs associated with the
acquisition of PSF, as well as increased staff expense.




Depreciation
Expense.   Depreciation expense increased from approximately $6,705 in
fiscal 2007 to approximately $10,000 for the year ended December 31, 2008. The
increase is primarily due to a larger equipment depreciation base.




Interest
Expense.   Interest expense increased from $68,856 in fiscal 2007 to
$163,999 in fiscal 2008. This increase was due primarily to increased corporate
debt incurred in 2008.




Net
loss.   Our net loss for the year ended December 31, 2008 was
$3,870,334 compared to a net loss of $2,748,049 for the year ended December 31,
2007.





12




Liquidity
and Financial Resources





Prior to
the acquisition of Power Sports Factory, we have had no operations that have
generated any revenue.  We have had rely entirely on private
placements of Company stock to pay operating expenses.  Our liquidity
will depend primarily on consumer demand for our products, which demand is
driven by consumer likes or dislikes about our product offering.  Our
sales are to dealers and are driven by our ability to provide the market with
products people want. Since the Andretti line of scooters is a new product
offering, we do not believe that our past performance is necessarily indicative
of consumer demand for our new Andretti line.





We will
always require capital to purchase product inventory in an amount sufficient to
the meet the demands of our dealers.  If we do not have inventory
financing in place, our liquidity would necessarily be affected since we would
be limited in ordering product.  We estimate that approximately
$2,000,000 of inventory financing will be required for our marketing of the new
Andretti line.  We have closed on $1,000,000 in inventory financing
with Crossroads Financial.  There is no assurance that we will be
successful in acquiring additional financing. If our new Andretti product line
does not meet with market acceptance, or we are unsuccessful in negotiating
required financing for product sales, we would have to terminate operations and
most likely file for reorganization.





Since the
acquisition of Power Sports Factory, we have operated at a loss.  We
rely significantly on the private placement of debt and equity to pay operating
expenses.





As of
December 31, 2008, the Company had $117 of cash on hand. The Company has
incurred a net loss of $3,870,334  in the year ended December 31,
2008, and has working capital and stockholders' deficiencies of $4,546,889 and
$4,543,571, respectively, at December 31, 2008.  The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern.  These conditions raise substantial doubt about
the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





During
the year ended December 31, 2008, we received proceeds of $732,000 from
borrowings (net of payments on the outstanding indebtedness). We will require
substantial additional financing to maintain operations at Power Sports Factory,
and to expand our operations to continue the launch of our new Andretti
brand.




Critical
Accounting Policies





The
Securities and Exchange Commission recently issued "Financial Reporting Release
No.  60 Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" ("FRR 60"), suggesting companies provide additional
disclosures, discussion and commentary on those accounting policies considered
most critical to its business and financial reporting
requirements.  FRR 60 considers an accounting policy to be critical if
it is important to the Company's financial condition and results of operations,
and requires significant judgment and estimates on the part of management in the
application of the policy.  For a summary of the Company's significant
accounting policies, including the critical accounting policies discussed below,
please refer to the accompanying notes to the financial statements.





The
Company assesses potential impairment of its long-lived assets, which include
its property and equipment and its identifiable intangibles such as deferred
charges under the guidance of SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". The Company must continually determine if a
permanent impairment of its long-lived assets has occurred and write down the
assets to their fair values and charge current operations for the measured
impairment.





The
Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of the financial statements, requires
the Company to make estimates and judgments that effect the reported amount of
assets, liabilities, and expenses, and related disclosures of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to intangible assets, income taxes and contingencies and
litigation. The Company bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.




13


NEW FINANCIAL ACCOUNTING STANDARDS




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
enhances existing guidance for measuring assets and liabilities using fair
value.  This Standard provides a single definition of fair value,
together with a framework for measuring it, and requires additional disclosure
about the use of fair value to measure assets and
liabilities.    In February 2008, the FASB issued FASB
Staff Position SFAS 157-1, “Application of SFAS No. 157 to SFAS No. 13 and Its
Related Interpretative Accounting Pronouncements that Address Leasing
Transactions” (“FSP SFAS 157-1”) and FASB Staff Position SFAS 157-2, “Effective
Date of SFAS No. 157” (“FSP SFAS 157-2”). FSP SFAS 157-1 excludes SFAS No.
13 and its related interpretive accounting pronouncements that address leasing
transactions from the requirements of SFAS No. 157, with the exception of fair
value measurements of assets and liabilities recorded as a result of a lease
transaction but measured pursuant to other pronouncements within the scope of
SFAS No. 157. FSP SFAS 157-2 delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). FSP SFAS 157-1 and FSP SFAS 157-2 became effective
for the Company upon adoption of SFAS No. 157 on January 1, 2008. The Company
will provide the additional disclosures required relating to the fair value
measurement of nonfinancial assets and nonfinancial liabilities when it
completes its implementation of SFAS No. 157 on January 1, 2009, as required,
and does not believe they will have a significant impact on its financial
statements.




In February 2007, the FASB issued SFAS
No. 159 (“SFAS 159”) “The Fair Value Option for Financial Assets and Financial
Liabilities”, providing companies with an option to report selected financial
assets and liabilities at fair value.  The Standard’s objective is to
reduce both complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and liabilities
differently.  It also requires entities to display the fair value of
those assets and liabilities for which the Company has chosen to use fair value
on the face of the balance sheet.  SFAS 159 is effective for fiscal
years beginning after November 15, 2007.  SFAS No. 159 did not have a
material impact on its financial statements.





In June 2007, the Emerging Issues Task
Force of the FASB issued EITF Issue No. 07-3, "Accounting for Nonrefundable
Advance Payments for Goods or Services Received for Use in Future Research and
Development Activities," which is effective for calendar year companies on
January 1, 2008.  The Task Force concluded that nonrefundable advance
payments for goods or services that will be used or rendered for future research
and development activities should be deferred and capitalized.  Such
amounts should be recognized as an expense as the related goods are delivered or
the services are performed, or when the goods or services are no longer expected
to be provided.  EITF Issue No. 07-3 did not impact the Company’s
financial statements.





In December 2007, the FASB issued SFAS
141(R), which replaces SFAS 141 “Business Combinations”.  This
Statement is intended to improve the relevance, completeness and
representational faithfulness of the information provided in financial reports
about the assets acquired and the liabilities assumed in a business
combination.  This Statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the Statement.  Under SFAS
141(R), acquisition-related costs, including restructuring
costs,  must be recognized separately from the acquisition and will
generally be expensed as incurred.  That replaces SFAS 141’s
cost-allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values.  SFAS 141(R) shall be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual report period beginning on or after
December 15, 2008.  The Company will adopt SFAS No. 141(R) on January
1, 2009, as required, and does not believe it will have a material impact on its
financial statements.





14




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”).  SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (GAAP) in the United States.  This Statement is effective
sixty days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”  The
Company is currently evaluating the potential impact, if any, of the adoption of
SFAS No. 162 on its financial statements.





Item
7A. Quantitative and Qualitative Disclosures About Market Risk.





We are
primarily exposed to foreign currency risk, interest rate risk and credit
risk.





Foreign
Currency Risk - We import products from China into the United States and market
our products in North America. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or, if we
initiate our planned international operations, weak economic conditions in
foreign markets. Because our revenues are currently denominated in U.S. dollars,
a strengthening of the dollar could make our products less competitive in
foreign markets that we plan to enter.  If the Chinese Yuan
strengthened against the dollar, our cost of imported products could increase
and make us less competitive.  We have not hedged foreign currency
exposures related to transactions denominated in currencies other than U.S.
dollars. We do not engage in financial transactions for trading or speculative
purposes.





Interest
Rate Risk - Interest rate risk refers to fluctuations in the value of a security
resulting from changes in the general level of interest rates. Investments that
are classified as cash and cash equivalents have original maturities of three
months or less. Our interest income is sensitive to changes in the general level
of U.S. interest rates.  We do not have significant short-term
investments, and due to the short-term nature of our investments, we believe
that there is not a material risk exposure.





Credit
Risk - Our accounts receivables are subject, in the normal course of business,
to collection risks. We regularly assess these risks and have established
policies and business practices to protect against the adverse effects of
collection risks. As a result we do not anticipate any material losses in this
area.




15




Item 8. Financial
Statements and Supplementary Data.




PageReport
      of Independent Registered Public Accounting
Firm
            
            14Consolidated
      Balance Sheets at December 31, 2008
            
            15Consolidated
      Statements of Operations for the Years Ended December31, 2008 and
      2007
            
            16Consolidated
      Statements of Stockholders’ Equity (Deficiency) for the Period January 1,
      2007 through December 31, 2008
            
            17Consolidated
      Statement of Cash Flows for the Years Ended December 31, 2008 and
      2007
            
            18Notes
      to Consolidated Financial Statements
            
            20




16




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




MADSEN
      & ASSOCIATES. CPA's INC.
              684
      East Vine St. #3Certified
      Public Accountants and Business Consultants
              Murray,
      Utah 84107Telephone
      801-268-2632
                Fax
      801-262-3978
  Board of
Directors
 Power
Sports Factory, Inc.
 Pennsauken,
New Jersey
   REPORT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
 We have
audited the accompanying balance sheets of Power Sports Factory, Inc. and
Subsidiary at December 31, 2008 and 2007 and the related statement's of
operations, stockholders' equity, and cash flows for the years ended December
31, 2008 and 2007. 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness for the company's internal control over financial
reporting. Accordingly, we express no such opinion. 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
over all -financial statement presentation. We believe that our audit provides 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 Power Sports Factory, Inc. and
Subsidiary at December 31, 2008 and 2007 and the results of operations, and cash
flows for the years ended December 31, 2008 and 2007 in conformity with
accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company does not have the necessary
working capital to service its debt and for its planned activity, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in the notes to the financial
statements. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 
 Murray,
      Utah
              /s/
      Madsen & Associates, CPA’s Inc.
 April 16,
2009






17


POWER
SPORTS FACTORY, INC.  CONSOLIDATED
BALANCE SHEETS




December
      31,2008
            
            
            2007ASSETSCurrent
      Assets:Cash
            
            $
            117
            
            
            $
            11,146Accounts
      receivable
            
            
            67,749
            
            
            
            3,959Inventory
            
            
            1,735,181
            
            
            
            937,702Prepaid
      expenses
            
            
            97,363
            
            
            
            135,320Total
      Current Assets
            
            
            1,900,410
            
            
            
            1,088,127Property
      and equipment-net
            
            
            25,135
            
            
            
            71,389Other
      assets
            
            
            9,876
            
            
            
            9,876TOTAL
      ASSETS
            
            $
            1,935,421
            
            
            $
            1,169,392LIABILITIES AND STOCKHOLDERS'
      DEFICIENCYCurrent
      Liabilities:Accounts
      payable
            
            $
            3,554,654
            
            
            $
            1,096,769Accounts
      payable to related party
            
            
            28,383
            
            
            
            80,172Notes
      payable to related party
            
            
            22,863
            
            
            
            11,466Current
      portion of long-term debt
            
            
            387,882
            
            
            
            164,772Convertible
      debt
            
            
            501,356
            
            
            
            262,159Accrued
      expenses
            
            
            1,226,211
            
            
            
            192,804Dividends
      Payable
            
            
            673,176
            
            
            
            673,176Customer
      deposit payable
            
            
            52,774
            
            
            
            -Total
      Current Liabilities
            
            
            6,447,299
            
            
            
            2,481,318Long
      term liabilites:Long-term
      debt - less current portion
            
            
            7,370
            
            
            
            10,461Convertible
      debt - less current portion
            
            
            24,323
            
            
            
            24,143Total
      Long-Term Liabilities
            
            
            31,693
            
            
            
            34,604TOTAL
      LIABILITIES
            
            
            6,478,992
            
            
            
            2,515,922Stockholders'
      Deficiency:Preferred
      stock; no value - authorized50,000,000
      shares, Series B Convertible PreferredStock
      - outstanding  -0- shares at December 31, 2008and
      2,303,216 shares at December 31, 2007
            
            
            -
            
            
            
            2,687,450Common
      stock, no par value - authorized 100,000,000 shares outstanding
      31,375,188  shares at December 31, 2008 and 4,925,213 shares at
      December 31, 2007
            
            
            5,476,228
            
            
            
            2,216,485Additional
      paid-in capital
            
            
            456,000
            
            
            
            355,000Deficit
            
            
            (10,475,799
            )
            
            
            (6,605,465
            )Total
      Stockholders' Deficiency
            
            
            (4,543,571
            )
            
            
            (1,346,530
            )TOTAL
      LIABILITIES ANDSTOCKHOLDERS'
      Deficiency
            
            $
            1,935,421
            
            
            $
            1,169,392




See Notes to Consolidated
Financial Statements




18





POWER
SPORTS FACTORY, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS





Years
      Ended December 31,2008
            
            
            2007Net
      sales
            
            
            2,304,828
            
            
            $
            2,254,350Costs
      and Expenses:Cost
      of sales
            
            
            1,948,102
            
            
            
            1,923,774Selling,
      general and administrative expenses
            
            
            3,709,275
            
            
            
            2,332,912Non-cash
      compensation
            
            
            242,293
            
            
            
            726,950Bad
      Debt Expense
            
            
            24,9865,924,656
            
            
            
            4,983,636Loss
      from operations
            
            
            (3,619,828
            )
            
            
            (2,729,286
            )Other
      income and  expenses:Disposal
      of fixed asset
            
            
            
            
            
            
            (38,347
            )Forgiveness
      of debt
            
            
            
            
            
            
            3,580Acretion
      of beneficial conversion feature
            
            
            (89,375
            )
            
            
            (66,302
            )Interest
      expense
            
            
            (163,999
            )
            
            
            (68,856
            )Interest
      income
            
            
            2,868
            
            
            
            4,442Commissions
      income
            
            
            -
            
            
            
            18,688(250,506
            )
            
            
            (146,795
            )Loss
      before benefit from income taxes
            
            
            (3,870,334
            )
            
            
            (2,876,081
            )Income
      tax benefit
            
            
            -
            
            
            
            (128,032
            )Net  loss
            
            $
            (3,870,334
            )
            
            $
            (2,748,049
            )Loss
      per common share - basic and diluted
            
            $
            (0.13
            )
            
            $
            (0.80
            )Weighted
      average common shares -Basic and diluted
            
            
            30,880,325
            
            
            
            3,453,608


See Notes to Consolidated
Financial Statements


19





POWER
SPORTS FACTORY, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIENCY





Common
      Stock
            
            
            AdditionalPreferred
            
            
            Stated
            
            
            
            
            
            Stated
            
            
            Paid-InStock
            
            
            Value
            
            
            Shares
            
            
            Value
            
            
            Capital
            
            
            (Deficit)
            
            
            TotalBalance
      at January 1, 2007
            
            
            1,650,000
            
            
            $
            27,500
            
            
            
            3,000,000
            
            
            $
            174,000
            
            
            $
            
            
            
            $
            58,245
            
            
            $
            259,745Effect
      of reverse merger
            
            
            
            
            
            
            
            
            
            
            1,925,213
            
            
            
            2,042,485
            
            
            
            
            
            
            
            (3,915,661
            )
            
            
            (1,873,176
            )Conversion
      of debt for preferred stock
            
            
            240,716
            
            
            
            1,200,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,200,000Issuance
      of preferred stock for services
            
            
            265,900
            
            
            
            726,950
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            726,950-Issuarnce
      of preferred stock for debt (valued at $5.00 per share)
            
            
            92,600
            
            
            
            463,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            463,000Contribution
      by shareholders
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            175,000
            
            
            
            
            
            
            
            175,000Beneficial
      conversion feature
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            180,000
            
            
            
            
            
            
            
            180,000Sale
      of preferred stock
            
            
            54,000
            
            
            
            270,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            270,000Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,748,049
            )
            
            
            (2,748,049
            )Balance
      at December 31, 2007
            
            
            2,303,216
            
            
            
            2,687,450
            
            
            
            4,925,213
            
            
            
            2,216,485
            
            
            
            355,000
            
            
            
            (6,605,465
            )
            
            
            (1,346,530
            )Effect
      of one for twenty reverse stock split Issuance of preferred stock
      for services (valued at $2.50 to $7.00  per
      share)
            
            
            39,103
            
            
            
            63,543
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            63,543Issuance
      of 200,000 warrants Conversion of preferred stock into common
      stock
            
            
            (2,342,319)
            
            
            
            (2,750,993)
            
            
            
            23,423,190
            
            
            
            2,750,993
            
            
            
            
            
            
            
            -
            
            
            
            -Issuance
      of common stock for debt (valued at $.08 per share)
            
            
            
            
            
            
            
            
            
            
            1,262,500
            
            
            
            
            
            
            
            101,000
            
            
            
            
            
            
            
            101,000Issuance
      of common stock for services (valued at $.10 to $.70)
            
            
            
            
            
            
            
            
            
            
            1,214,285
            
            
            
            178,750
            
            
            
            
            
            
            
            
            
            
            
            178,750Conversion
      of debt for common stock (valued at $.08 to $.45)
            
            
            
            
            
            
            
            
            
            
            550,000
            
            
            
            250,000
            
            
            
            
            
            
            
            
            
            
            
            250,000Net
      loss for the twelve months ended December 31, 2008
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,870,334)
            
            
            
            (3,870,334)Balance
      at December 31, 2008
            
            
            -
            
            
            $
            -
            
            
            
            31,375,188
            
            
            $
            5,476,228
            
            
            $
            456,000
            
            
            $
            (10,475,799)
            )
            
            $
            (4,543,571)








20




POWER
SPORTS FACTORY, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For
      the YearsEnded
      December 31,2008
            
            
            2007CASH
      FLOW FROMOPERATING
      ACTIVITIES:Net
      loss
            
            $
            (3,870,334
            )
            
            
            (2,748,049
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            10,000
            
            
            
            6,705Non
      cash compensation
            
            
            242,293
            
            
            
            726,950Non
      -cash fair value of warrants
            
            
            80,000Loss
      on abandonment ofleasehold improvements
            
            
            -
            
            
            
            38,347Accretion
      of beneficial conversion feature
            
            
            89,375
            
            
            
            66,302Changes
      in operating assets and liabilities
            
            
            2,668,967
            
            
            
            2,363,957Net
      cash (used in) provided by operating activities
            
            
            (779,699
            )
            
            
            454,212CASH
      FLOW FROMINVESTING
      ACTIVITIES:Securiy
      deposit
            
            
            
            
            
            
            4,000Purchase
      of equipment
            
            
            
            
            
            
            (58,948
            )Return
      of equipment
            
            
            36,254Change
      in restricted cash
            
            
            -
            
            
            
            173,264Net
      cash provided by investing activities
            
            
            36,254
            
            
            
            118,316CASH
      FLOW FROMFINANCING
      ACTIVITIES:Proceeds
      from notes payable related party
            
            
            22,247
            
            
            
            369,800Payment
      to note payable related party
            
            
            (25,850
            )
            
            
            (412,600
            )Proceeds
      from loan payable
            
            
            601,920
            
            
            
            185,512Payments
      on loan
            
            
            (115,901
            )
            
            
            (1,595,834
            )Contributions
      by shareholder
            
            
            
            
            
            
            175,000Proceeds
      from sale of preferred stock
            
            
            
            
            
            
            270,000Proceeds
      from convertible debt
            
            
            250,000
            
            
            
            400,000Net
      cash provided by (used in) financing activities
            
            
            732,416
            
            
            
            (608,122
            )


See Notes to Consolidated
Financial Statements


21




POWER
SPORTS FACTORY, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)





For
      the Years EndedDecember
      31,2008
            
            
            2007Net
      decrease in cash
            
            
            (11,029
            )
            
            
            (35,594
            )Cash
      - beginning of year
            
            
            11,146
            
            
            
            46,740Cash
      - end of year
            
            $
            117
            
            
            $
            11,146Changes
      in operating assetsand
      liabilities consists of:(Increase)decrease
      in accounts receivable
            
            $
            (63,789
            )
            
            $
            162,441(
      Increase)decrease in inventory
            
            
            (797,479
            )
            
            
            675,201Decrease
      ( increase ) in prepaid expenses
            
            
            37,956
            
            
            
            (135,319
            )Increase
      in accounts payable
            
            
            2,406,098
            
            
            
            1,669,735Increase
      in accrued expenses
            
            
            1,033,407
            
            
            
            119,931Increase(decrease)
      in customer deposits
            
            
            52,774
            
            
            
            (128,032
            )$
            2,668,967
            
            
            $
            2,363,957Supplementary
      information:Cash
      paid during the year for:Income
      taxes
            
            $
            -
            
            
            $
            -Interest
            
            $
            34,585
            
            
            $
            53,849Non-cash
      financing activitiesIssuance
      of preferred stock for services
            
            $
            63,543
            
            
            $
            726,950Beneficial
      Conversion Feature
            
            $
            -
            
            
            $
            180,000Issuance
      of preferred stock for debt
            
            $
            -
            
            
            $
            1,663,000Issuance
      of warrants for services
            
            $
            80,000
            
            
            $
            -Issuance
      of common stock for services
            
            $
            178,750
            
            
            $
            -Issuance
      of common stock for debt
            
            $
            351,000
            
            
            $
            -


See Notes to Consolidated
Financial Statements


22




Power
Sports Factory, Inc.




Notes to
Consolidated Financial Statements




December
31, 2008




1. Description
of Business and Summary of Significant Accounting Policies




ORGANIZATION




Power
Sports Factory, Inc. (formerly Purchase Point Media Corp, the “Company”) was
incorporated under the laws of the State of Minnesota.




The
Company, through a reverse acquisition described below is in the business of
marketing, selling, importing and distributing motorcycles and
scooters.  The Company principally imports products from
China.  To date the Company has marketed significantly under the
Yamati and Andretti brands.




BASIS OF
PRESENTATION




On
September 5, 2007, the Company entered into a share exchange agreement with the
shareholders of Power Sports Factory, Inc. (“PSF”).  In connection
with the share exchange, the Company acquired the assets and assumed the
liabilities of PSF (subsidiary) as the acquirer.  The financial
statements prior to September 5, 2007 are those of PSF and reflect the assets
and liabilities of PSF at historical carrying amounts.




As
provided for in the share exchange agreement, the stockholders of PSF received
60,000,000 shares of the Company’s common stock and 1,650,000 of Series B
Convertible Preferred Stock (“Preferred Stock”) of the Company (each share of
preferred stock is convertible into 10 shares of common stock) representing 77%
of the outstanding stock of the Company after the acquisition, in exchange for
the outstanding shares of PSF common stock they held, which was accounted for as
a recapitalization.  The financial statements show a retroactive
restatement of the Company’s historical stockholders’ deficiency to reflect the
equivalent number of shares of common stock and preferred stock issued in the
acquisition.




GOING
CONCERN




The
Company’s consolidated financial statements for the year ended December 31, 2008
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities in the normal course of
business.  Management recognizes that the Company’s continued
existence is dependent upon its ability to obtain needed working capital through
additional equity and/or debt financing and revenue to cover expenses as the
Company continues to incur losses.




The
Company presently does not have sufficient liquid assets to finance its
anticipated funding needs and obligations.  The Company’s continued
existence is dependent upon its ability to obtain needed working capital through
additional equity and/or debt financing and achieve a level of revenue and
production adequate to support its cost structure.  Management is
actively seeking additional capital to ensure the continuation of its current
operations, complete its proposed activities and fund its current debt
obligations.  However, there is no assurance that additional capital
will be obtained.  These uncertainties raise substantial doubt about
the ability of the Company to continue as a going concern.  The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties should the Company be
unable to continue as a going concern.




23




PRINCIPLES
OF CONSOLIDATION




The
Company’s consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries.  All
inter-company transactions and balances have been eliminated.




USE OF
ESTIMATES





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those
estimates.





CONCENTRATION
OF CREDIT RISK





Financial
instruments which potentially subject the Company to concentration of credit
risk consist principally of accounts receivable.  The Company grants
credit to customers based on an evaluation of the customer’s financial
condition, without requiring collateral.  Exposure to losses on the
receivables is principally dependent on each customer’s financial
condition.  The Company controls its exposure to credit risk through
credit approvals.





INVENTORIES





Inventories
are stated at the lower of cost or market.





REVENUE
RECOGNITION





The
Company recognizes revenue in accordance with the guidance contained in SEC
Staff Accounting Bulletin No. 104 "Revenue Recognition Financial Statements"
(SAB No. 104). Revenue is recognized when the product has been delivered and
title and risk of loss have passed to the customer, collection of the
receivables is deemed reasonably assured by management, persuasive evidence of
an agreement exist and the sale price is fixed and determinable.





EARNINGS
PER SHARE





Basic
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding during the specified period.  Diluted
loss per common share is computed by dividing net loss by the weighted average
number of common shares and potential common shares during the specified
period.  All potentially dilutive securities at December 31, 2008 and
2007, which include preferred stock convertible into -0- and 23,032,160 common
shares respectively have been excluded from the computation as their effect is
antidilutive.





EVALUATION
OF LONG-LIVED ASSETS





The
Company reviews property and equipment and finite-lived intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable in accordance with guidance in Statement of
Financial Accounting Standards (SFAS) No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." If the carrying value of the long-lived asset
exceeds the present value of the related estimated future cash flows, the asset
would be adjusted to its fair value and an impairment loss would be charged to
operations in the period identified.




24





DEPRECIATION
AND AMORTIZATION





Property
and equipment are stated at cost. Depreciation is provided for by the
straight-line method over the estimated useful lives of the related
assets.




STOCK
BASED COMPENSATION




The
Company accounts for stock-based compensation under Statement of Financial
Accounting Standards (“SFAS”) No. 123(R) “Share Based Payment”.




For the
years ended December 31, 2008 and 2007, the Company issued 39,103 and –0- of its
preferred shares and recorded consulting expense of $63,543 and $-0-,
respectively, the fair value of the shares at the time of issuance.




For the
years ended December 31, 2008, and 2007, the Company issued 200,000 and –0-
warrants and recorded consulting expense of $80,000 and $-0-, respectively, the
fair value of the warrants at the time of issuance.




For the
years ended December 31, 2008 and 2007, the Company issued 1,214,285 and –0- of
its common stock and recorded consulting expenses of $178,750 and $-0-
respectively, fair value of the shares at the time of issuance.




INCOME
TAXES





The
Company accounts for income taxes using an asset and liability approach under
which deferred taxes are recognized by applying enacted tax rates applicable to
future years to the differences between financial statement carrying amounts and
the tax basis of reported assets and liabilities. The principal item giving rise
to deferred taxes are future tax benefits of certain net operating loss
carryforwards.





BENEFICIAL
CONVERSION FEATURE





When debt
or equity is issued which is convertible into common stock at a discount from
the common stock market price at the date the debt or equity is issued, a
beneficial conversion feature for the difference between the closing price and
the conversion price multiplied by the number of shares issuable upon conversion
is recognized.  The beneficial conversion feature is presented as a
discount to the related debt, with an offering amount increasing additional
paid-in capital.





FAIR
VALUE OF FINANCIAL INSTRUMENTS





For
financial instruments including cash, accounts payable, accrued expenses, and
loans payable, it was assumed that the carrying amount approximated fair value
because of the short maturities of such instruments.





RECLASSIFICATIONS





Certain
reclassifications have been made to prior period amounts to conform to the
current year presentation.  We made changes to dividends payable but
it had no effect on the statement of operations.





25




NEW
FINANCIAL ACCOUNTING STANDARDS




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
enhances existing guidance for measuring assets and liabilities using fair
value.  This Standard provides a single definition of fair value,
together with a framework for measuring it, and requires additional disclosure
about the use of fair value to measure assets and
liabilities.    In February 2008, the FASB issued FASB
Staff Position SFAS 157-1, “Application of SFAS No. 157 to SFAS No. 13 and Its
Related Interpretative Accounting Pronouncements that Address Leasing
Transactions” (“FSP SFAS 157-1”) and FASB Staff Position SFAS 157-2, “Effective
Date of SFAS No. 157” (“FSP SFAS 157-2”). FSP SFAS 157-1 excludes SFAS No.
13 and its related interpretive accounting pronouncements that address leasing
transactions from the requirements of SFAS No. 157, with the exception of fair
value measurements of assets and liabilities recorded as a result of a lease
transaction but measured pursuant to other pronouncements within the scope of
SFAS No. 157. FSP SFAS 157-2 delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). FSP SFAS 157-1 and FSP SFAS 157-2 became effective
for the Company upon adoption of SFAS No. 157 on January 1, 2008. The Company
will provide the additional disclosures required relating to the fair value
measurement of nonfinancial assets and nonfinancial liabilities when it
completes its implementation of SFAS No. 157 on January 1, 2009, as required,
and does not believe they will have a significant impact on its financial
statements.




In February 2007, the FASB issued SFAS
No. 159 (“SFAS 159”) “The Fair Value Option for Financial Assets and Financial
Liabilities”, providing companies with an option to report selected financial
assets and liabilities at fair value.  The Standard’s objective is to
reduce both complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and liabilities
differently.  It also requires entities to display the fair value of
those assets and liabilities for which the Company has chosen to use fair value
on the face of the balance sheet.  SFAS 159 is effective for fiscal
years beginning after November 15, 2007.  SFAS No. 159 did not have a
material impact on its financial statements.





In June 2007, the Emerging Issues Task
Force of the FASB issued EITF Issue No. 07-3, "Accounting for Nonrefundable
Advance Payments for Goods or Services Received for Use in Future Research and
Development Activities," which is effective for calendar year companies on
January 1, 2008.  The Task Force concluded that nonrefundable advance
payments for goods or services that will be used or rendered for future research
and development activities should be deferred and capitalized.  Such
amounts should be recognized as an expense as the related goods are delivered or
the services are performed, or when the goods or services are no longer expected
to be provided.  EITF Issue No. 07-3 did not impact the Company’s
financial statements.





In December 2007, the FASB issued SFAS
141(R), which replaces SFAS 141 “Business Combinations”.  This
Statement is intended to improve the relevance, completeness and
representational faithfulness of the information provided in financial reports
about the assets acquired and the liabilities assumed in a business
combination.  This Statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the Statement.  Under SFAS
141(R), acquisition-related costs, including restructuring
costs,  must be recognized separately from the acquisition and will
generally be expensed as incurred.  That replaces SFAS 141’s
cost-allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values.  SFAS 141(R) shall be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual report period beginning on or after
December 15, 2008.  The Company will adopt SFAS No. 141(R) on January
1, 2009, as required, and does not believe it will have a material impact on its
financial statements.




26




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”).  SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (GAAP) in the United States.  This Statement is effective
sixty days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”  The
Company is currently evaluating the potential impact, if any, of the adoption of
SFAS No. 162 on its financial statements.




2. Inventories




The
components of inventories are as follows:




December
      31,2008
              
              
              2007Motor
      bikes
              
              $
              1,339,802
              
              
              $
              576,780Parts
              
              
              145,379
              
              
              
              44,340Deposits
      on Inventory
              
              
              250,000
              
              
              
              316,583$
              1,735,181
              
              
              $
              937,703




In October, 2007, the Company entered
into a Manufacturing Agreement, and subsequently entered into an Amendment
thereto, with Dickson International Holdings Ltd. for the manufacture of
Andretti/Benelli branded motor scooters for the exclusive distribution thereof
in the United States by the Company. The Manufacturing Agreement is for a term
of two years and is renewable for successive two-year terms unless either party
gives notice of termination in advance of the renewal
period.   The Company is required to use commercially reasonable
efforts to purchase certain minimum quantities of motor scooters.  As
an initial deposit under the Manufacturing Agreement, the Company issued to
Dickson International Holdings Ltd. 500,000 shares of the Company’s
common  stock valued at $250,000.




On August
12, 2008, the Company entered into an interim inventory funding arrangement with
a distributor whereby the distributor has agreed to acquire inventory of makes
and models from the Company’s manufacturers under the Andretti brand and finance
them exclusively for the Company over a ninety day period for and average cost
of 3.333% per month.  On August 26, 2008, the parties modified the
agreement to four percent fixed plus interest of one and one-tenth percent per
month after ninety days plus fees up to one hundred and eighty
days.  The Company also issued the distributor 250,000 shares of its
common stock valued at $62,500 as an additional incentive.  The
Company may utilize this arrangement up to one million two hundred thousand
dollars.  The distributor has the right to acquire inventory at
substantially favorable pricing if it desires to sell the product in territories
that the Company has no dealers.  These transactions must be approved
by the Company.  The Company maintains product liability and warranty
responsibility on the entire inventory, as well as financing costs and
warehousing costs.  If the Company does not take possession of the
inventory at the end of any ninety day period, the distributor has the right to
sell them at cost.  The agreement is personally guaranteed by a
current officer of the Company and a former officer of the Company.




27




3. Property
and Equipment


December
      31,2008
              
              
              2007Equipment
              
              
              41,898
              
              
              $
              40,586Signs
              
              
              7,040
              
              
              
              7,040Software
              
              
              
              
              
              
              37,56648,938
              
              
              
              85,192Less:
      accumulated depreciation
              
              
              23,803
              
              
              
              13,803$
              25,135
              
              
              $
              71,389


Depreciation
expense for the years ended December 31, 2008 and 2007 amounted to $10,000
and $ 6,705, respectively.





4. Note
Payable




On
January 27, 2006, the Company entered into a revolving credit loan and floor
plan loan (the “Credit Facility”) with General Electric Commercial Distribution
Finance Corporation (“CDF”).  Terms under the Trade Finance Purchase
Program (“TFPP”) included interest at prime plus 1 1⁄2 percent with one tenth of
one percent per month administration fee, and a rate of prime plus 5 percent on
all amounts outstanding after maturity with a two and one half tenths of one
percent administration fee.  Maturity on advances under the TFPP was
180 days.  Advance rate under the TFPP was 100 percent of supplier
invoice plus freight.  CDF had a first security interest in all
inventory equipment, fixtures, accounts, chattel paper, instruments, deposit
accounts, documents, general intangibles, letter of credit rights, and all
judgments, claims and insurance policies via Uniform Commercial Code Filing
Position or invoice purchase money security interest.  The Credit
Facility was personally guaranteed by an officer and director of the
Company.




On June
6, 2006, the Company entered into an amendment to the Credit Facility whereby
the Company agreed to post an Irrevocable Letter of Credit (“ILOC”) as
additional collateral for the amounts loaned under the Credit
Facility.  The amount of the ILOC was required to be 15 percent of the
amounts outstanding or advanced.  In addition, the Amendment provided
in part that “Interest on an advance for Import Inventory shall begin to accrue
on the date CDF makes such an advance.  Interest on all other advances
shall begin on the Start Date which shall be defined as the earlier of (A) the
invoice date referred to in the Vendors invoice; or (B) the ship date referred
to in the Vendors invoice; or (C) the date CDF makes such advance....” On October
9, 2006, CDF sent the Company a notice of default for failing to make one or
more payments due under the Credit Facility.  CDF demanded a payment
to cure the default in the amount of $320,034.10 by October 13, 2006, which
payment was not made. On November 6, 2006, CDF terminated the Credit Facility
and demanded full payment, requiring final payment of a claimed remaining
balance of $1,817,920.  On November 17, 2006, CDF initiated a lawsuit
in the United States District Court for the District of New Jersey to enforce
its rights under the Credit Facility and related documents.  The
requested relief included a Court for replevin, granting CDF the right to
possess any and all Collateral covered by its security interest. On January 20,
2007, the Company entered into a Forbearance Agreement with CDF regarding the
Credit Facility.  The Forbearance Agreement stated that the amount of
the Company’s indebtedness as of that date was $1,570,376. Under the Forbearance
Agreement, the Company agreed to a new Payment Program.  The new
Payment Program provided that the Company would make payments monthly through
April, 2007.  Under this agreement, the Company also agreed to execute
a Stipulated Order for Preliminary Injunction and Writ of Seizure
(“Writ”).  The Writ could be filed in the event of a default under the
Forbearance Agreement at any time.  If no default occurred, the Writ
could be duly filed after March 1, 2007, to further protect CFD’s
interest.  On March 19, 2007, CDF filed the Writ.  There was
no Forbearance Agreement default as of that date.  The Writ was never
executed upon, meaning that CDF did not repossess the Company’s Collateral at
any time.  The last payment to CDF was made by the Company on or about
July 20, 2007.  As of that date, all indebtedness under the Credit
Facility, the Forbearance Agreement, and any related Agreements with CDF has
been satisfied, by revenue generated through sales by the Company.




28




5. Long-term
debt




Long-term
debt consists of the following:




December
      31,
            
            
            December
      31,2008
            
            
            2007Note
      payable to Five PointCapital
      Inc. due May 2011;interest
      at 18.45%; monthlypayments
      of $397
            
            $
            10,461
            
            
            $
            13,036Note
      payable due October 1, 2008;interest
      at 10% payable atmaturity
      (1)
            
            
            68,645
            
            
            
            80,000Note
      payable to Premium PaymentPlan
      due May 31, 2008; interestat
      7.5%; monthly paymentsof
      $871
            
            
            -
            
            
            
            4,218Note
      payable to AICCO, Inc. dueJuly
      13, 2008; interest at 8%;monthly
      payments of $7,111 (2)
            
            
            -
            
            
            
            48,479Note
      payable to Micro CapitalManagement
      Corp. due June 14, 2008;interest
      at 8% (4)
            
            
            -
            
            
            
            14,500Note
      payable to AICCO, Inc dueSeptember10,
      2008, interest at 7.75%;monthly
      payments of $7,388 (3)
            
            
            -
            
            
            
            -Demand
      note payable to Shawn Landgraf;Interest
      free
            
            
            -
            
            
            
            15,000Note
      payable to Cananwill, Inc dueAugust
      1, 2009, interest at 8.84%;monthly
      payments of $7,027
            
            
            54,393
            
            
            
            -Note
      payable to Cananwill, Inc dueAugust
      1, 2009, interest at 8.59%;monthly
      payments of $2,807
            
            
            21,753
            
            
            
            -Note
      payable due June 15, 2008;interest
      at 20.0% simple interest with aprivate
      investor(s) (5)
            
            
            240,000
            
            
            
            -395,252
            
            
            
            175,233Less
      amounts due within one year
            
            
            387,882
            
            
            
            164,772$
            7,370
            
            
            $
            10,461




29




For the
years ended December 31, 2008 and 2007, the Company recorded interest expense of
$163,999  and $65,455, respectively.




1) On
July 31, 2007, the Company borrowed $80,000 from an investor.  The
note matured on April 30, 2008 at which time the principal amount plus ten
percent interest was due. The maturity date was extended to May 30, 2008
and then extended to October 1, 2008. The Company issued 10,000 shares of the
Company’s common stock valued at $3,000, as additional consideration with the
loan, subsequent to March 31, 2008. On December 31, 2008, the balance on this
note is $68,645.  This note is currently in default.




2) On
October 1, 2007, the Company entered into a premium finance agreement with
Aicco, Inc., for the purchase of insurances.  The total amount
financed was $68,575, with an annual percentage rate of 8% and monthly payments
of $7,111.  The final payment was due on July 13, 2008, and was
satisfied.




3) On
February 1, 2008, the Company entered into a premium finance agreement with
Aicco, Inc., for the purchase of additional insurances.  The total
amount financed was $57,420, with an annual percentage rate of 7.75% and monthly
payments of $7,387.66.  The final payment was due on September 10,
2008, and was satisfied.




4) On
December 14, 2007, the Company borrowed $14,500 on a short term basis due June
14, 2008 at 8% interest.  For the nine months ended September 30,
2008, the Company recorded interest expense of $821.  On August 6,
2008, the Company satisfied the outstanding debt and accrued interest with the
issuance of thirteen motorbikes and 10,000 shares of common stock valued at
$500.




5)  On
April 15, 2008, the Company entered into a short term promissory note with a
private investor in the amount of $300,000.  The interest rate is a
simple twenty percent and the note matures on June 15, 2008.  The
balance on this note is $240,000. On March 12, 2009, the Company issued 250,000
shares to the investor as compensation valued at $12,500 for an extension on
this loan until July 1, 2009.


30


The
aggregate amounts of all long-term debt to be repaid for the year following
December 31, 2008 are:




2008
              
              $
              385,2672009
              
              
              3,1882010
              
              
              3,8282011
              
              
              2,969395,252Current
      portion
              
              
              387,882$
              7,370




6. Convertible
Debt




On
September 7, 2007, the Company issued four convertible promissory notes for a
total of $150,000 with interest at twelve (12.0%) percent.  The notes
mature October 1, 2009.  The notes are convertible, at the option of the
holders, into 300,000 shares of the Company’s common stock.  Quarterly
interest and principal payments are $5,812.50 per note.  Total interest due
December 31, 2008 is $24,387.20. Payments due under the note for January 1,
April 1, July 1, and October 1, 2008 are currently in default.




On
November 2, 2007, the Company issued a convertible promissory note for $250,000
with interest at twelve (12%) percent.  The note matured on April 30,
2008.  The maturity date had been extended to October 1, 2008. The note is
convertible, at the option of the holder, into 250,000 shares of the Company’s
common stock. On August 6, 2008, this note and accrued interest of $25,000 were
converted in to 550,000 common shares.




On
January 4, 2008, the Company entered into a short term secured convertible
promissory note with a private investor for $250,000 at an annual simple
interest rate of 15%.  The note originally matured on March 1, 2008 and was
extended to August 15, 2008.  This note is currently in default. The note
has the option to convert into common shares @ $1.00 per share.  The
Company granted the investor a security interest in all of the Company’s right,
title and interest in all inventory of motorcycles, motor scooters, parts
accessories and all proceeds of any and all of same including insurance payments
and cash.  On December 9, 2008, the investor executed an agreement
with the Company’s new inventory financier in which the private investor
accepted a $100,000 payment towards principal, subordinated his security
interest to the new inventory financier and agreed to a stand still subject to
written authorization from the new financier. On January 9, 2009, the inventory
financing closed and the $100,000 payment was made.




31




On
October 1, 2008, the Company borrowed $150,000 on a short term basis at fifteen
percent interest compounded monthly and 125,000 shares of common stock valued at
$22,500.  The note and interest were due on November 30,
2008.  On January 7, 2009, the Company was granted an extension until
May 1, 2009 at which time the note was modified to include a conversion feature
at $.02 a share for all, or any part, of the principal and interest
due.  An Officer of the Company guaranteed the loan.




The
Company has evaluated the conversion feature under applicable accounting
literature, including SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” and EITF 00-19 “Accounting for Derivative Financial
Instruments indexed to, and Potentially Settled in, a Company’s Owned Stock” and
concluded that none of these features should be respectively accounted for as
derivatives.  The difference between the conversion of $650,000 and
the fair value of the common stock into which the debt is convertible of
$470,000 was included as additional paid in capital based on the conversion
discount. The beneficial conversion factor in the amount of $180,000 is being
accreted over the lives of the outstanding debt.  Accretion expense of
the beneficial conversion feature for the twelve months ended December 31, 2008
amounted to $89,375.  For the twelve months ended December 31, 2008,
and 2007, the Company recorded interest expense of $76,734 and $104 respectively
on the convertible notes of which $69,542 is included in accrued expenses on the
Company’s balance sheet.




7. Note
Receivable/Note Payable - Related Party




a) During
2008 and 2007, certain officers of the Company made advances to the Company.
After repayment to the officers, the balance due the officers as of December 31,
2008 and 2007, were $22,863 and $11,466, respectively.  Two of the
advances are interest free and all are due upon demand.  Interest
expense for the years ended December 31, 2008 and 2007, were $494 and $1,317,
respectively.




b) In
2007, one of our officers and directors made a short term loan to the company in
the amount of $110,000.  The loan was secured by scooter
inventory.  The interest rate on the loan was 12%.  The loan
was repaid as of September 30, 2007 in full satisfaction of the terms and the
Company recorded interest expense of $1,350 for the year ended December 31,
2007.




8. Accrued
Expenses




Accrued
expenses consist of the following:




December
      31,2008
              
              
              2007Professional
      fees
              
              $
              50,438
              
              
              $
              48,500Payroll
      expense
              
              
              167,903
              
              
              
              76,978Payroll
      Tax expense
              
              
              379,572
              
              
              
              45,825Penalties
              
              
              486,903
              
              
              
              -Rent
              
              
              -
              
              
              
              -Commission
      expense
              
              
              
              
              
              
              6,493Interest
      expense
              
              
              141,396
              
              
              
              15,008$
              1,226,211
              
              
              $
              192,804


32




9. Stockholders’
Equity


Common
Stock




The
Company is authorized to issue 100,000,000 shares of no par value common
stock.    All the outstanding common stock is fully paid and
non-assessable.  The total proceeds received for the common stock is
the value used for the common stock.




In June
2008, the Company’s shareholders approved a 1 for 20 reverse stock
split.  Except for the presentation of common shares authorized and
issued on the consolidated balance sheet, all shares and per share information
has been revised to give retroactive effect to the reverse stock
split.






During
2007, certain officers of the Company contributed $175,000 to the Company, which
is included in Additional paid-in capital on the Company’s consolidated balance
sheet.




a)
            On
      August 6, 2008, the Company converted a $250,000 note payable and accrued
      interest of $25,000 into 550,000 common
shares.




b)
            On
      August 20, 2008, the company retained a consultant to provide equity
      research services.  The Consultant was compensated 75,000 common
      shares for these services valued at
$18,750.





c)
            On
      August 26, 2008, the Company issued a distributor 250,000 shares of common
      stock valued at $62,500.




33




d)
            On
      August 28, 2008, the Company paid compensation to a staffing company for
      providing sales personnel for a total of $20,000, which was paid $10,000
      in cash and 14,285 shares of common stock valued at
    $10,000.




e)
            On
      September 25, 2008, the Company retained a consultant to provide long
      range investor relations planning.  The consultant was
      compensated 250,000 shares of common stock valued at $25,000 for these
      services.




f)
            On
      September 29, 2008, an officer and director of the company, converted
      $40,000 of debt into 500,000 shares of common
  stock.




g)
            On
      September 29, 2008, an officer and director of the company, converted
      $21,000 of debt into 262,500 shares of common
  stock.




h)
            On
      September 29, 2008, a consultant of the Company converted $40,000 of debt
      into 500,000 shares of common
stock.





i)
            On
      October 1, 2008, the Company issued 125,000 shares of common stock to a
      lender valued at $22,500.





j)
            On
      October 21, 2008, the Company entered into an agreement with a firm to
      provide the Company with capital restructuring and corporate financing
      advice.  The firm was compensated 500,000 shares of common stock
      valued at $40,000.




Preferred
Stock




The
Company is authorized to issue 50,000,000 shares of no par value preferred
stock.  The Company has designated 3,000,000 of these authorized
shares of preferred stock as Series B convertible Preferred
Stock.  The Board of Directors has the authority, without action by
the stockholders, to designate and issue the shares of preferred stock in one or
more series and to designate the rights, preferences and each series, any or all
of which may be greater than the rights of the Company’s common
stock.




a)
            During
      2007, the Company sold 54,000 shares of Series B Convertible Preferred
      Stock and received proceeds of
$270,000.




b)
            During
      2007, the Company issued 333,316 shares of Series B Convertible Preferred
      Stock in exchange for the liquidation of $1,663,000 of Company
      debt.




c)
            During
      2007, the Company issued 265,900 shares of Series B Convertible Preferred
      Stock for services with a fair value of
  $726,950.




34




d)
            On
      January 18, 2008, the Company retained a firm to provide management
      consulting, business advisory, shareholder information and public relation
      services. The term of the agreement is one year. The Company issued 35,000
      Series B Convertible shares for services to be performed with a fair value
      $43,750 and pays $2,500 per month as compensation under the
      agreement.




e)
            On
      March 24, 2008, the Company issued 389 shares of Series B Convertible
      Preferred Stock for services valued at
$1,712.




f)
            On
      April 1, 2008, the Company retained a marketing consultant for
      $15,000.  On April 21, 2008, the consultant agreed to convert
      his payable into 3,000 shares of Series B Convertible
    Shares.




g)
            On
      April 24, 2008, the Company paid compensation to staffing company for
      providing permanent accounting personnel for a total of $10,272, which was
      paid $7,191 in cash and 514 shares of Series B Convertible Preferred
      Shares.





h)
            On
      May 16, 2008, the Company issued MCMC, LLC. 200 shares of Series B
      Convertible Preferred Shares.




As of
December 31, 2007, there were 2,303,216 Series B Convertible Preferred Shares
outstanding which were convertible into 23,034,160 common shares of the
Company’s common stock.




In June
2008, the Board of Directors converted all shares of Series B Convertible
Preferred shares outstanding on that date into shares of common stock at the
rate of 10 shares for each share of Series B Convertible Preferred
Stock.




10. Income
Taxes




The
Company adopted the provisions of financial Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007.  As a
result of the implementation of FIN 48, the Company recognized no adjustment in
the net liability for unrecognized income tax benefits.




During
the year ended December 31, 2007, the Company recorded a deferred tax asset
associated with its net operating loss (“NOL”) carryforwards of approximately
$2,200,000 that was fully offset by a valuation allowance due to the
determination that it was more likely than not that the Company would be unable
to utilize these benefits in the foreseeable future.  The Company’s
NOL carryforwards expire in years through 2022.




35




The types
of temporary differences between tax basis of assets and liabilities and their
financial reporting amounts that give rise to the deferred tax liability or
deferred tax asset and their appropriate tax effects are as
follows:




For
      the Year EndedDecember
      31, 2008
              
              
              December
      31, 2007Temporary
                Difference
              
              
              Tax
      Effect
              
              
              Temporary
                Difference
              
              
              Tax
      EffectGross
      deferred tax asset resulting from net operating loss
      carryforward
              
              $
              7,860,000
              
              
              $
              2,672,000
              
              
              $
              3,990,000
              
              
              $
              1,357,000Valuation
      allowance
              
              
              (7,860,000
              )
              
              
              (2,672,000
              )
              
              
              (3,990,000
              )
              
              
              (1,357,000
              )Net
      deffered tax asset
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -




The
reconciliation of the effective income tax rate to the federal statutory rate is
as follows:




For
      the Year EndedDecember
      31,2008
              
              
              2007Tax
      benefit computed at the statutory rate
              
              $
              (1,315,914
              )
              
              $
              (977,868
              )Tax
      effect of state operating losses
              
              
              -
              
              
              
              -Effect
      of unused operating losses
              
              
              1,315,914
              
              
              
              849,836$
              -
              
              
              $
              (128,032
              )




11. Warrants




During
January 2008, the Company issued a warrant to purchase 200,000 common shares at
an exercise price of $0.01 per share.  The warrant expires December
31, 2017.  The fair value of the warrant is estimated on the date of
the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for the warrant in 2008: dividend yields of
0%, expected volatility of 218% and expected life of 10 years.




36




Summary
of warrant activity as of December 31, 2008 and the changes during the twelve
months ended December, 2008:




WeightedWeighted
              
              
              AverageAverage
              
              
              RemainingWarrants
              
              Shares
              
              
              Exercise
      Price
              
              
              Contractual
      TermOutstanding
      at January 1, 2008
              
              
              -
              
              
              $
              -Granted
              
              
              200,000
              
              
              
              0.01
              
              
              
              9.5Exercised
              
              
              -
              
              
              
              -Forfeited,
      expired or cancelled
              
              
              -
              
              
              
              -Outstanding
      at December 31, 2008
              
              
              200,000
              
              
              $
              0.01
              
              
              
              9.5Exercisable
      at December 31, 2008
              
              
              200,000
              
              
              $
              0.01
              
              
              
              9.5




a. Dividend
Payable




In
September 2007, the Company entered into a share exchange agreement with the
shareholders of PSF.  Following the share exchange, the Company would
transfer its existing business relating to the development of lastwordâ to its subsidiary, The
Last Word Inc.  To distribute the existing business of the Company to
the shareholders, the Board of Directors of PPMC declared a dividend, payable in
common stock of our subsidiary holding the lastwordâ technology, at the rate of
one share of common stock of the subsidiary for each share of common stock of
PPMC owned on the record date. The Board of Directors of PPMC used May 2, 2007,
as the record date for this share dividend, with a payment date as soon as
practicable thereafter.  Prior to the payment of this dividend, our
subsidiary holding the lastwordâ technology will have to
file a registration statement under the Securities Act of 1933 with, and have
the filing deemed effective by the SEC.  As of December 31, 2008 and
December 31, 2007, the dividend payable in the amount of $673,176 represents the
net liabilities the will be assumed by The Last Word Inc.




12. Commitments
and Contingencies




a)
            On
      April 1, 2007, the Company hired two consultants to provide transition
      management services, business planning, managerial systems analysis, sales
      and distribution assistance and inventory management systems
      services.  Both contracts are each $15,000 per month and can be
      terminated at will when the Company decides that the services have been
      completed and/or are no longer necessary.  One contract ceased
      on May 15, 2008.  The other contract ceased on August 15
      2008.  For the twelve months ended December 31, 2008, the
      Company recorded consulting expense of
$202,500.




b)
            On
      May 15, 2007, the Company entered into an exclusive licensing agreement
      with Andretti IV, LLC, a Pennsylvanian limited liability company to brand
      motorcycles and scooters.  The term of the agreement is through
      December 31, 2017.  Royalties under the agreement are tied to
      motorcycle and scooter sales branded under the “Andretti
      line”.  Th e agreement calls for a minimum annual
      guarantee.  After year two of the agreement, if the Company does
      not sell a certain minimum number of motorcycles and scooters under the
      “Andretti Line” it may elect to terminate the licensing agreement. A
      minimum payment of $250,000 was due under the agreement on March 31,
      2008.  A minimum payment of $250,000 is also due on July 31,
      2008.  These two payments totaling $500,000 represent the minimum
      annual guarantee owed to Andretti IV LLC for 2008.  In addition,
      after certain volume targets are met, Andretti IV LLC receives a per bike
      fee.  A consultant working for the Company co-guaranteed the minimum
      annual guarantee for the first two years and receives a 4.1667% of the
      license fees as a fee throughout the life of the license related to that
      work. The consultant subsequently became an officer and director of the
      Company.  On January 1, 2008, the Company issued a warrant to
      Andretti IV, LLC, pursuant to their May 15, 2007 agreement, to purchase
      200,000 common shares following the effectiveness of the Reverse Split at
      an exercise price equal to $.01 per share.  The warrant expires
      December 31, 2017.  The Company issued the warrant as part of the
      consideration to Andretti IV LLC in connection with the original license
      agreement signed in May 2007.  The Company paid $50,000 as a
      licensing fee in 2007.  The Company has paid $50,000 in 2008. The
      warrant has been accounted for in the financial
      statements.




37




c)
            On
      June 1, 2007, the Company hired Steven A. Kempenich as its Chief Executive
      Officer and a director of the Company.  His contract is a
      two-year agreement at $16,666 per month.  On August 14, 2008, he
      was terminated for cause.  The Company is currently in
      litigation with him.




d)
            On
      October 11, 2007, the Company retained a firm to provide corporate
      communications and investor relations.  The agreement is for one
      year which automatically renews unless either party elects to terminate
      the agreement with a notice of termination no later than sixty days prior
      to the end of the term.  Fees for these services are $5,000 per
      month and 20,000 shares of common stock.  Fees are earned but
      deferred until the seventh month at which time the deferred fees are paid
      in equal amounts along with the current fees as they are
      incurred.  The Company paid $24,000 as consulting fees in 2007
      of which $14,000 was paid with 1,000 shares of preferred
      stock.




e)
            Effective
      January 1, 2008, the Company entered into a monthly agency retainer
      agreement with a marketing and advertising firm to provide the company
      with services at a fee of $25,000 per month. This agreement ceased at the
      end of May, 2008.




f)
            On
      January 4, 2008, the Company entered into a short term secured convertible
      promissory note with a private investor for $250,000 at an annual simple
      interest rate of 15%.  The note originally matured on March 1,
      2008 and was extended to May 1, 2008.  The note has the option
      to convert into post-reverse split common shares @ $1.00 per
      share.  The Company granted the investor a security interest in
      all of the Company’s right, title and interest in all inventory of
      motorcycles, motor scooters, parts accessories and all proceeds of any and
      all of same including insurance payments and cash.  There was no
      difference between the conversion price and the fair value of the common
      stock into which the debt is
convertible.




g)
            On
      January 18, 2008, the Company retained a firm to provide management
      consulting, business advisory, shareholder information and public relation
      services. The term of the agreement is one year. The Company issued 35,000
      Series B Convertible shares and pays $2,500 per month as compensation
      under the agreement.




h)
            On
      May 14, 2008, the Company signed an agreement with Road America Motor
      Club, Inc., to provide a 24 hour road-side assistance program to Andretti
      motorbike owners.  The agreement commenced as of April 1, 2008 and
      continues for an initial term of two years, or until terminated by either
      party according to the terms of the agreement.  The Company pays for
      the enrollment of each bike properly entered into the company warranty
      program for a period of one year subject to terms and
      conditions.




i)
            On
      June 27, 2008, the Company entered into a second licensing agreement with
      Andretti IV, LLC, to further utilize the name Andretti in the branding and
      sale of its Yamati brand line.  The term of the agreement is through
      December 31, 2018.  Royalties under the agreement are tied to
      motorcycle and scooter sales branded under the “Andretti Yamati
      line”.  The agreement calls for a Minimum Annual
      Guarantee.  Minimum payment of $45,000 was due on September 30,
      2008.  A minimum payment of $45,000 is also due on December 31,
      2008.  These payments have not been made.  After year two
      of the agreement, if the Company does not sell a certain minimum number of
      motorcycles and scooters under the “Andretti Yamati Line” it may elect to
      terminate the licensing
agreement.




38




j)
            On
      July 16, 2008, the Company entered into contracts with a storage company
      to provide warehousing and logistics services on the west coast of the
      United States.  This contract requires fees for storage and
      handling of our motor bike inventory which are incurred monthly on a per
      bike basis.




l)
              On
      August 15, 2008, the Company hired Shawn Landgraf as the chief executive
      officer.  His salary is $156,000 per year.  He does
      not have a contract at this time.  Landgraf is also the CEO of
      Magnus Partners, Inc., which has provided services to the Company in the
      past and is currently owed
$56,750.




m)
              On
      October 1, 2008, the Company entered into a premium finance agreement with
      Cananwill, Inc., for the purchase of insurance.  The total
      amount financed was $67,500, with an annual percentage rate of 8.84% and
      monthly payments of $7,026.50.  This contract was terminated on
      March 1, 2009.  There is an outstanding balance of
      $35,133.




n)
              On
      October 1, 2008, the Company entered into a premium finance agreement with
      Cananwill, Inc., for the purchase of additional insurance.  The
      total amount financed was $27,000, with an annual percentage rate of 8.59%
      and monthly payments of $2,807.44. This contract was terminated on March
      1, 2009.  There is an outstanding balance of
      $14,037.




o)
              On
      October 23, 2008, the Company entered into an exclusive distribution
      agreement with Eurospeed, Inc., to distribute its Andretti product line to
      new and used automotive dealers in the U.S. and Canada.  The
      agreement calls for an initial purchase of six hundred units before
      November 30, 2008 and a minimum of seventy-five hundred units over the
      first twelve months of the agreement.  The Company’s
      manufacturer has agreed to supply Eurospeed with product in the event that
      the Company defaults under its manufacturing agreement.  The
      initial purchase date had been extended to December 30,
      2008.  As of April, 2009, Eurospeed has not placed an initial
      order due to financing constraints.  This agreement has
      expired.




13. Subsequent
Events




a)
              On
      January 7, 2009, a creditor converted $90,000 into 4,500,000 shares of
      common stock.




b)
              On
      January 7, 2009, an officer and director converted $10,520 into 526,000
      shares of common stock.




39




c)
              On
      January, 9, 2009, the Company entered into a revolving credit loan (the
      “Credit Facility”) with a private investment company.  The loan
      is for a term of one year which is renewable under certain conditions and
      in the amount of one million dollars.  Terms under the agreement
      include and origination fee of one and one-half
      percent,  interest of one and three-quarters percent per month,
      a collateral management fee of one-half percent a month, an advance rate
      of fifty percent of cost, which includes supplier invoice, freight and
      customs, with a maturity on advances of one hundred and twenty days, audit
      fees, a minimum outstanding balance requirement of three hundred and fifty
      thousand dollars and an early termination fee of seven thousand five
      hundred dollars per month for every month still outstanding in the
      term.  The investor has a first security interest in all
      inventory, equipment, fixtures, accounts, chattel paper, instruments,
      deposit accounts, documents, general intangibles, letter of credit rights,
      and all judgments, claims and insurance policies via Uniform Commercial
      Code Filing Position.   As of April 13, 2009, there is an
      outstanding balance on this line of
$469,484.




d)
              On
      January 20, 2009, the Company entered into a modification of its licensing
      agreement with Andretti IV, LLC, for payments due for the year
      2008.  As of December 31, 2008, PSF had a balance of $540,000
      due to Andretti IV, LLC.  Under the restructuring agreement, PSF
      made a commitment to pay $250,000 by February 6, 2009, agreed to execute a
      note for $87,000 due March 30, 2009, and convert $58,000 into 1,000,000
      shares of common stock.  Upon receipt of the payments, and
      payment in full of the note, Andretti IV, LLC, agreed to forgive the
      remaining balance due for 2008.  This agreement is pending
      payment.





e)
              On
      February 12, 2009, an officer converted $21,000 into 666,666 shares of
      common stock.





f)
              On
      March 9, 2009, the company issued 1,000,000 shares of common stock to a
      senior sales executive as a retention incentive
  package.





g)
              On
      March 26, 2009, the Company entered into a premium finance agreement with
      Bank Direct Capital Finance for the purchase of insurance.  The
      total amount financed was $23,333.20, with and annual percentage rate of
      8% and monthly payments of
$2,333.32.




h)
              On
      March 30, 2009, the Company sold 428,750 shares of common stock to an
      investor for $15,000.




i)
              On
      March 31, 2009, the Company subleased a portion of its warehouse space at
      its headquarters.  The sublease is on a month-to-month basis for
      6,000 square feet at a monthly rate including CAM charges of
      $3,250.




j)
              On
      April 6, the Company sold 2,000,000 shares of common stock for
      $100,000.




40





Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.





Not
applicable




Item 9A (T). Controls and Procedures.




As
supervised by our board of directors and our principal executive and principal
financial officers, management has established a system of disclosure controls
and procedures and has evaluated the effectiveness of that
system.  The system and its evaluation are reported on in the below
Management's Annual Report on Internal Control over Financial
Reporting.  Our principal executive and  financial officer
has concluded that our disclosure controls and procedures (as defined in the
1934 Securities Exchange Act Rule 13a-15(e) and 15d-15(e)) as of December 31,
2008, are effective, based on the evaluation of these controls and procedures
required by paragraph (b) of Rule 13a-15.





Management's
Annual Report on Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of
the Securities Exchange Act of 1934 (the "Exchange Act").  Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.





Management
assessed the effectiveness of internal control over financial reporting as of
December 31, 2008. We carried out this assessment using the criteria of the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated Framework.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by our
registered public accounting firm, pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management's report in
this annual report.  Management concluded in this assessment that as
of December 31, 2008, our internal control over financial reporting is
effective.





There
have been no significant changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fourth quarter of 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Item 9B. Other Information.





None.




41




PART
III





Item 10.  Directors, Executive Officers, Promoters, Control
Persons and Corporate Governance.





Directors and Executive
Officers





The
following sets forth-certain information with respect to the directors and
executive officers of the Company as at April 1, 2009:




Name
            
            Age
            
            PositionSteve
      Rubakh
            
            48
            
            President,
      Acting ChiefFinancial
      Officer and DirectorShawn
      Landgraf
            
            36
            
            Chief
      Executive Officer,Secretary
      and Director




The
Company's directors are elected at the annual meeting of stockholders and hold
office until their successors are elected and qualified. The Company's officers
are appointed annually by the Board of Directors and serve at the pleasure of
the Board. There is no family relationship among any of the Company's directors
and executive officers.





The
following is a brief summary of the business experience of each of the directors
and executive officers of the Company:





Steve
Rubakh, ­ Founder of PSF and President




Steve
Rubakh, age 48, founded Power Sports Factory, Inc., in June, 2003 and
currently serves as the President. Prior to founding Power Sports Factory, Mr.
Rubakh was the founder of International Parking Concepts specializing in
providing services to the hospitality industry. From 1987 to 1992 Mr. Rubakh was
the owner and operator of Gold Connection, a fine gem retail operation in
Atlantic City.  Mr. Rubakh attended both Community College of Philadelphia
and Temple University majoring in business administration.





Shawn
Landgraf, Chief Executive Officer





Shawn
Landgraf, age 36, graduated with honors from The Smeal College of Business
at the Pennsylvania State University in 1995.  From 2001 to present,
he has served as Chairman and CEO of Magnus Associates, a management consulting
firm with advisory expertise in domestic and international private equity,
investment banking, and business development matters. Mr. Landgraf currently is
responsible for Magnus Associates new business generation, investment strategy
and overall company direction. Additionally, over the last five years, Mr.
Landgraf has worked in an advisory role with Comprehensive Medical Staffing,
Diamond Property Development Co., and The Rail Network.





From 1996
to 2001, Mr. Landgraf was the founder, President and COO of TSI Broadband.
Within five years of market entry, TSI Broadband became the leader in commercial
broadband services.  As an integral member of TSI Broadband, Mr.
Landgraf was involved in the company’s overall strategy, business development,
financial analysis and marketing.  His responsibilities included
overall company operations including fiscal strategy, sales, capital allocation
and site acquisitions.  From 1997 to 2001, Mr. Landgraf also served as
Chairman of Aptegra Services, a premier provider of network integration and
consulting services. Aptegra Services enabled small- to medium-sized companies
to leverage technology in order to gain an edge over the
competition.  As Chairman, Mr. Landgraf oversaw the company’s
direction, fiscal policy, technology deployment and recruiting services. Prior
to 1996, Mr. Landgraf served as a financial analyst in the equity research
division of Prudential-Vector Securities, in Chicago, IL, where he covered
technology, biotechnology and healthcare companies.




42


Committees





We do not
have an
audit  committee,  although  we  intend  to  establish  such
a committee, with an independent "audit committee financial expert" member as
defined in the rules of the SEC.





Section 16(A) Beneficial
Ownership Reporting Compliance




In fiscal
2008, we believe that our officers and directors have complied with the filing
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended.





Code of
Conduct





We are
reviewing a proposed corporate code of conduct, which would provide for internal
procedures concerning the reporting and disclosure of corporate matters that are
material to our business and to our stockholders. The corporate code of conduct
would include a code of ethics for our officers and employees as to workplace
conduct, dealings with customers, compliance with laws, improper
payments,  conflicts of interest, insider trading,  company
confidential information, and behavior with honesty and integrity.





Item 11.  Executive Compensation.





The
following table sets forth information for the years ended December 31, 2008 and
2007 concerning the compensation paid or awarded to the Chief Executive Officer
and President of the Company..





SUMMARY
COMPENSATION TABLE





Name
      and Principal Position
              (a)
            
            Year
              (b)
            
            Salary
              ($)(1)
              (c)
            
            Bonus
              ($)
              (d)
            
            Stock
              Awards
              ($)
              (e)
            
            Option
              Awards
              ($)
              (f)
            
            Non-Equity
              Incentive
              Plan
      Compensation
              ($)
              (g)
            
            Change
      in Pension Value and Nonquali-
              fied
      Deferred
              Compensation
      Earnings
              ($)
              (h)
            
            All
      Other
              Compensation
              (i)
            
            Total
              ($)
              (j)Steven
      A. Kempenich, Chief Executive Officer
            
            2007
            
            $
            115,385
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            115,3852008
            
            $
            126,922
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            126,922Steve
      Rubakh, President and Chief Financial Officer
            
            2007
            
            $
            255,129
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            255,1292008
            
            $
            165,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            165,000Shawn
      Landgraf, Chief Executive Officer
            
            2008
            
            $
            51,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            51,000




43





Item 12.  Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.





The
following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 9, 2009, and on an as
adjusted basis following effectiveness of the Reverse Split, by (a) each person
known by the Company to own beneficially more than 5% of the Company's common
stock, (b) each director of the Company who beneficially owns common stock, and
(c) all officers and directors of the Company as a group. Each named beneficial
owner has sole voting and investment power with respect to the shares
owned.





As of
April 9, 2009, there were 41,080,834 shares of common stock
outstanding.





Name
      of Stockholder
            
            Number
      of Shares of Common Stock Owned Beneficially at April 9,
    2009
            
            
            %
      Outstanding Stock at April 9, 2009Steve
      Rubakh (1)
            
            
            7,021,665
            
            
            
            17.09
            %Shawn
      Landgraf (1)
            
            
            2,825,234
            
            
            
            6.88
            %Kurt
      Landgraf (1)
            
            
            4,000,000
            
            
            
            9.74
            %Gerald
      Goodman (2)
            
            
            2,250,000
            
            
            
            5.48
            %All
      Officers and Directors as a Group
            
            
            9,846,899
            
            
            
            23.97
            %




(1)
            The
      addresses of Messrs. Rubakh, Landgraf  and Landgraf are c/o
      Power Sports Factory, Inc., 6950 Central Highway, Pennsauken,
      NJ 08109.




(2)
            The
      address of Mr. Goodman is 2 Industrial Way West Eatontown, NJ
      07724.




Item 13.  Certain Relationships and Related Transactions, and
Director Independence. .




As part
of the acquisition of PSF, on May 14, 2007, the Company issued 60,000,000 shares
of Common Stock to Steve Rubakh, the major shareholder of PSF, and on August 31,
2007, entered into an amendment (the “Amendment”) to the Share Exchange
Agreement governing the acquisition, that provided for a completion of the
acquisition of PSF at a closing held on September 5, 2007. At the closing the
Company issued 1,650,000 shares of a new Series B Convertible Preferred Stock
(the “Preferred Stock”) to the shareholders of PSF, including 402,800 shares to
Mr. Rubakh, who is now our President and a director, and 185,833 shares to
Steven A. Kempenich, our former Chief Executive Officer and a former director,
to complete the acquisition of PSF by us.  Each share of Preferred
Stock is convertible into 10 shares of our Common Stock.





Item
14.  Principal Accountant Fees and
Services.





44


In
accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit
Committee's charter, all audit-related work and all non-audit work performed by
our independent accounts, Madsen & Associates, CPA's Inc. is approved in
advance by the Audit Committee, including the proposed fees for such
work.  The Audit Committee is informed of each service actually
rendered.





Audit Fees.  Audit
fees expected to be billed to us by Madsen & Associates, CPA's Inc. for the
audit of financial statements included in our Annual Reports on Form 10-K, and
reviews of the financial statements included in our Quarterly Reports on Form
10-Q, for the years ended December 31, 2008 and 2007 are approximately $31,615
and $9,575, respectively.




Audit-Related
Fees.  We have been billed $-0- and $-0- by Madsen &
Associates, CPA's Inc. for the fiscal years ended December 31, 2008 and 2007,
respectively, for the assurance and related services that are reasonably related
to the performance of the audit or review of our financial statements and are
not reported under the caption "Audit Fees" above.





Tax Fees.  We have
been billed an aggregate of $-0- and $-0- by Madsen & Associates, CPA's Inc.
for the fiscal years ended December 31, 2008 and 2007, respectively, for tax
services.





All Other Fees.  We
have been billed an aggregate of $-0- and $-0- by Madsen & Associates, CPA's
Inc. for the fiscal years ended December 31, 2008 and 2007, respectively, for
permitted non-audit services.





Other
Matters.  N.A.





Applicable
law and regulations provide an exemption that permits certain services to be
provided by our outside auditors even if they are not
pre-approved.  We have not relied on this exemption at any time since
the Sarbanes-Oxley Act was enacted.





To our
knowledge, there have been no persons, other than Madsen & Associates, CPA's
Inc.'s full time, permanent employees who have worked on the audit or review of
our financial statements.





Item 15.  Exhibits and Financial Statement
Schedules.





(3)
Exhibits.




Exhibit
      Number
              
              Title3
      (a)
              
              Certificate
      of Incorporation. (Incorporated by Reference to Exhibit 3(a) to the
      Company’s Registration Statement on Form 10-SB dated February 11,
      1999.)3
      (a)(2)
              
              Statement
      of Designations of Convertible Preferred Stock, Series B, filed August 4,
      2007. (Incorporated by Reference to Exhibit 3(a)(2) to the Company’s
      Current Report on Form 8-K, filed September 12, 2007.)3
      (b)
              
              By-Laws.
      (Incorporated by Reference to Exhibit 3(b) to the Company’s Registration
      Statement on Form 10-SB dated February 11,
  1999.)
  45
  3
      (b)(2)
                                      
                                      Amendment
      to By-Laws approved August 5, 2007. (Incorporated by Reference to Exhibit
      3(b)(2) to the Company’s Current Report on Form 8-K, filed September 12,
      2007.)10
      (g)
                                      
                                      Share
      Exchange and Acquisition Agreement, dated April 24, 2007, by and among the
      Company, Power Sports Factory, Inc., and the shareholders of Power Sports
      Factory, Inc. (Incorporated by Reference to Exhibit 10(g) to the Company’s
      Current Report on Form 8-K, filed September 12, 2007.)10
      (h)
                                      
                                      Amendment,
      dated as of August 31, 2007, to Share Exchange and Acquisition Agreement,
      dated April 24, 2007, by and among the Company, Power Sports Factory,
      Inc., and the shareholders of Power Sports Factory, Inc. (Incorporated by
      Reference to Exhibit 10(h) to the Company’s Current Report on Form 8-K,
      filed September 12, 2007.)10(i)
                                      
                                      Loan
      and Security Agreement, dated January 9, 2009, by and between Power Sports
      Factory, Inc. and Crossroads Debt LLC. (Incorporated by Reference to
      Exhibit 10(h) to the Company’s Current Report on Form 8-K, filed January
      21, 2009.)10(j)
                                      
                                      Restructuring
      Agreement, dated January 20, 2009, by and between Power Sports Factory,
      Inc. and Andretti IV, LLC. (Incorporated by Reference to Exhibit 10(h) to
      the Company’s Current Report on Form 8-K, filed January 29,
      2009.)




46





Exhibit
31.1 - Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith.





Exhibit
31.2 - Certification of the President and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.





Exhibit
32.1 - Certification of the Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, filed herewith.





Exhibit
32.2 - Certification of the President and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.





SIGNATURES





In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.




POWER
      SPORTS FACTORY, INC.By:
              /s/
      Shawn Landgraf
              
              April
      15 , 2009Chief
      Executive Officer/s/
      Steve Rubakh
              
              April  15,
      2009Steve
      Rubakh, President, Chief Financial Officer and Director/s/
      Shawn Landgraf
              
              April  15,
      2009Shawn
      LandgrafChief
      Executive Officer, Secretary and Director




47