UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549







FORM 10-K







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





For the year ended December 31, 2009


or


oTRANSITION 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 r organization)

(I.R.S. Employer Identification No.)300 Walnut Street, Philadelphia, PA

19106(Address of principal executive offices)

(Zip Code)





(267) 546-9073


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 þ





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.þ  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. þ





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes o    No o


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
oNon-accelerated filer

(Do not check if a smaller reporting company)
o
Smaller reporting company
þ




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o  Yes   þ  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 $4,571,603.





Number of shares of Common Stock outstanding as of April 13, 2010: 83,051,056.












POWER SPORTS FACTORY, INC.





INDEX







PageItem 1.
Business.


1Item 1A.
Risk Factors.


5Item 1B.
Unresolved Staff Comments.


11Item 2.
Properties.


11Item 3.
Legal Proceedings.


11Item 4.
Submission of Matters to a Vote of Security Holders.


12Item 5.
Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


13Item 6.
Selected Financial Data.


13Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.


13Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.


16Item 8.
Financial Statements and Supplementary Data.


17Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.


39Item 9A (T).
Controls and Procedures.


39Item 9B.
Other Information.


39Item 10.
Directors, Executive Officers, Promoters, Control Persons and Corporate Governance.


40Item 11.
Executive Compensation.


41Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.


42Item 13.
Certain Relationships and Related Transactions, and Director Independence.


42Item 14.
Principal Accountant Fees and Services.


43Item 15.
Exhibits and Financial Statement Schedules.


44










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.  We have recently directed our activities through our “BikeShareSource”TM division at sustainable transportation solutions to municipalities and transit agencies and other transportation related businesses.





BikeShareSource Division




On May 1, 2009, we formed an Alternative Transportation Division named "BikeShareSource" (TM). This newly launched division will provide sustainable transportation solutions to municipalities and transit agencies, property managers and real estate developers, colleges and universities, hotels, parks and other transportation related businesses. We are, developing, distributing and operating solar powered Bike Sharing Stations, enabling bicycle sharing to be an integral part of the transportation system. In addition, we intend to partner with major universities, municipalities, transit agencies, real estate developers, hotels, parks and other transportation related businesses companies to facilitate our bike sharing solution. Our services will include sustained transportation consulting and customized solutions development, software licensing, equipment manufacturing and distribution.




Bike Sharing (also known as Community Bicycle Programs) as it exists today is an emerging form of environmentally friendly public transportation that incorporates information technology with shared bicycles, which allows for an alternative form of one-way transit for residents and visitors of a region. Imagine a service that gives citizens the convenience of a bike without all the hassles of storage, maintenance, etc. A few of the more noteworthy benefits of bike sharing include:




· Greater mobility




· Greater quality of human life and health found through exercise




· Reach destinations poorly served by public transit




· Reduced traffic congestion leading to quieter, safer and more livable streets




· Reduced carbon emissions (Green House Gases)




· Retention of 18-34 years of age demographic




· Further reinforce community’s position for leading in innovation and quality of life




· Creates employment opportunities




· Mitigated security concerns leading to reduced crime (bikers less likely to be assaulted   than walkers)




· Provides transportation-based case study prospects




· Increased amounts of disposable income for users




· Increased public transit ridership (subways, trolleys, buses, taxis, etc.)




· Greater environmental awareness across community




The main focus of the division will be on Bicycle Sharing Market, which is an emerging form of environmentally friendly public transportation that is growing at a significant pace. The number of bike sharing programs worldwide nearly doubled over the last 12 months, according to research information provided by CityRyde, LLC. Continued growth is expected primarily due to increased environmental impact awareness, increased usage of public transit systems and greater need for decreased traffic congestion.




2




PSF is currently participating in multiple bids and proposals for Bike Sharing Services in the United States. These projects are located in CO, OH, PA, MD and FL. In addition to the progress on potential sales, an upgraded Bike Sharing Station has been developed by our manufacturing partner. It now boasts dual-release option to rent bikes: using a cell phone or smart card – all powered by solar energy. This technological advancement makes our system more competitive by simplifying the bike renting and return process and significantly improves revenue generation for the system.




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 February 14th, 2010, 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 and 2008.  As of December 31, 2009, the Company had a balance of $1,285,000 due to Andretti IV. Under the Restructuring Agreement, Provided (1) that the money is received into the Andretti IV account by wire transfer by close of business on Monday, February 22, 2010; (2) that PSF can demonstrate and represent that any and all usage of the Andretti name in all forms is discontinued immediately; and (3) any release concerning the termination by Andretti IV is submitted to us for review and our modification prior to distribution, Andretti IV would accept a lump sum payment of $50,000 in settlement of claims.  Upon receipt of these payments, Andretti agreed to forgive the remaining balance of license fees owed for 2008 and 2009. We did not pay the $50,000 payment and we believe Andretti IV will file a lawsuit against PSF in the near future.





We have a 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 not met the 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.





3




Marketing





We have one employee (other than our officers) involved in sales and marketing. We have relationships with over 100 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 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 $1 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.




4




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.





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, 2010, we had two employees (excluding our two executive officers), all of whom are employed at our Philadelphia, Pennsylvania offices. All of our employees were employed on a consulting basis including two salespersons. 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.





5




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 Benelli 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.





6




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.





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 $1,000,000 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.





7




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.





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.




8




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.





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 subsidies that allow them to compete at substantially lower prices.  These events could substantially impact our ability to sell our product at profitable prices.




9




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.





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.





10




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.





ITEM 1B. UNRESOLVED STAFF COMMENTS.





Not applicable.





ITEM 2. PROPERTIES.


Our principal executive offices are located at our 300 Walnut Street Philadelphia, Pennsylvania and comprise an approximately 1,000 square foot facility. We lease this facility under a 6 month lease with a monthly rental rate $1,900.





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 received an entry of Judgment on November 7th, 2009 for $31,592.07. The Company entered into a forbearance agreement with Yellow Transportation on January 7th, 2010. The agreement requires PSF to pay $5,000 per month to Yellow for 5 months starting in January. PSF failed to make the any payment on this forbearance agreement and expects Yellow to obtain a judgment against PSF.




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 expect Liberty Mutual to obtain a judgment against us in the amount of $45,096.




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 $137,634.42 for goods and/or services rendered.  On October 15th, 2009 BTP and PSF reached a settlement agreement. The agreement states that PSF will pay BTP $75,000 in payments beginning on November 5th, 2009 and ending April 5th, 2010. Business Technology Partners filed a final judgment on December 7th in this case against us in the amount of $137,634.




Justin Gasarch v. Power Sports Factory, Inc.  The plaintiff in this case filed suit against the Company, Shawn Landgraf, our Chief Executive Officer, and a Company consultant on July 9, 2009. On April 24, 2009 Mr. Gasarch had loaned the Company $25,000 with a maturity date of May 24, 2009. Shawn Landgraf and the consultant sued in this case had personally guaranteed the loan.




Fedex Customer Information Services, Inc. v. Power Sports Factory, Inc.  The Company was sued in April 2009 by Fedex Customer Information Services for $9,470 in the Superior Court of New Jersey. Power Sports Factory has not answered this claim as a result of cash flow constraints and expects Fedex to obtain a judgment against us in the amount of $11,788.




Advanstar Commnications, Inc. v. Power Sports Factory, Inc. & Shawn LandgrafAdvanstar Communications filed suit against us in the Superior Court of New Jersey on August 19, 2009, for $43,955 for advertising services.  The Company intends to settle this lawsuit.




11





Aicco, Inc. v. Power Sports Factory, Inc.  The Company was sued on September 23rd, 2009 by Aicco Inc for $22,396.73 in the Superior Court of New Jersey. Power Sports Factory has not answered this claim as a result of cash flow constraints and expects Aicco to obtain a judgment against us in the amount of $22,396.73.




RR Donnelly and Sons. v. Power Sports Factory, Inc. RR Donnelly and Sons filed suit against us in the Superior Court of New Jersey on September 25, 2009, for $7,855 for printing services. Power Sports Factory has not answered this claim as a result of cash flow constraints and expects RR Donnelly to obtain a judgment against us in the amount of $7,855.




Cananwill Inc. v. Power Sports Factory, Inc.  Cannanwill Inc. filed suit against us in the Superior Court of New Jersey on October 1, 2009, for $20,456.47 for financing services. Power Sports Factory has not answered this complaint as a result of cash flow constraints and expects Cananwill to obtain a judgment against us in the amount of $20,456.47.




5WPR v. Power Sports Factory, Inc.5WPR. filed suit against us in the Superior Court of New York on October 21, 2009, for $33,000 for Public Relations services.  The Company intends to contest this lawsuit as 5WPR never performed any services under the contract.




1stPriority. 1st Priority filed suit against us in the Superior Court of New Jersey on October 22, 2009, for $41,538.16 for shipping services. Power Sports Factory has not answered this complaint as a result of cash flow constraints and expects 1st Priority to obtain a judgment against us in the amount of $41538.16.




USA MotorToys v. Power Sports Factory, Inc.On November 9, 2009 we received a notice of entry of judgment against Power Sports Factory in the fourth judicial district Court of Utah for $22,085.  The Company intends to contest this lawsuit as Power Sports Factory was never served with a complaint or summons.




Highroad Press filed suit against us on March 17th, 2010, in the Superior Court of New Jersey for the amount of $14,353, for printing services. Power Sports Factory has not answered this complaint as a result of cash flow constraints and expects High Road Press to obtain a judgment against us in the amount of $14,353.





ITEM 4.  RESERVED.
  12





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, 2010, the Company had approximately 117 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.





2010

High


LowFirst Quarter Ended March 31, 2010

$
0.10


$
0.032009First Quarter Ended March 31, 2009

$
0.19


$
0.015Second Quarter Ended June 30, 2009


0.22



0.05Third Quarter Ended September 30, 2009


0.148



0.035Fourth Quarter Ended December 31, 2009


0.12



0.0422008First 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



0.01





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.





13




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, 2009 and December 31, 2008





Revenues.   For the year ended December 31, 2009, net sales decreased to $798,486  from  $2,304,828, a decrease of approximately $1,500,000 from the year ended December 31, 2008.





Gross Profit.   Gross profit was approximately $(138,000) for the year ended December 31, 2009, compared to $356,726 for the year ended December 31, 2008, representing an decrease of approximately $495,000  over the previous year.





Selling, General and Administrative Expenses.   Selling, general and administrative expenses decreased to approximately $1,983,000 for the year ended December 31, 2009, from approximately $3,976,000 for the year ended December 31, 2008.  The higher 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.





Interest Expense.   Interest expense increased from $163,999 in fiscal 2008 to $296,015 in fiscal 2009. This increase was due primarily to increased corporate debt incurred in 2009.





Net loss.   Our net loss for the year ended December 31, 2009 was $2,308,775 compared to a net loss of $3,870,334 for the year ended December 31, 2008.





14




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.





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.  There is no assurance that we will be successful in acquiring additional financing. If our 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, 2009, the Company had $ -0-  of cash on hand. The Company has incurred a net loss of $2,308,775   in the year ended December 31, 2009, and has working capital and stockholders' deficiencies of $4,132,430  and $4,122,513, respectively, at December 31, 2009.  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, 2009, we received net proceeds of $42,690 from loans payable, and $456,000 from the sale of our common stock.  In 2009, we also received proceeds of $20,000 from the sale of convertible debt.




We are required under our Settlement Agreement with Andretti IV LLC to make a final settlement payment of $50,000 on or before February 22nd, 2010. We are in the process of liquidating our obligations with Crossroads Financial.  The principal balance of this loan was $144,943 on April 12th, 2010. We expect to have the Crossroads Financial balance paid off by June 30th, 2010.  We also have approximately $375,000 in collection litigation against us, for which we will require capital in the near term.  Our obligations to the Internal Revenue Service total approximately $545,222 including employment taxes through December 31, 2009, which includes interest and penalties.




We expect that sale of our inventory bikes will provide us working capital of approximately $100,000; however, we will need to raise additional capital to meet the above obligations. There is no assurance that we will be able raise additional required capital to meet obligations arising from the settlements with Andretti IV LLC and Crossroads Financial, as well as planned settlement in litigation matters and with the Internal Revenue Service.  If we are unable to meet one or more of these obligations, we could be forced to file under the Federal Bankruptcy Code for protection from creditors.




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.




15




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.





NEW FINANCIAL ACCOUNTING STANDARDS




For a summary of new financial accounting standards applicable to the Company, please refer to the accompanying notes to the 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.





16





ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


PageReport of Independent Registered Public Accounting Firm

18Consolidated Balance Sheets at December 31, 2009

19Consolidated Statements of Operations for the Years Ended December31, 2009 and 2008

20Consolidated Statements of Stockholders’ Equity (Deficiency) for the Period January 1, 2008 through December 31, 2009

21Consolidated Statement of Cash Flows for the Years Ended December 31, 2009 and 2008

22Notes to Consolidated Financial Statements

24-38





17




Madsen & Associates, CPA's Inc.




684 East Vine Street




Murray, UT 84107






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Board of Directors


Power Sports Factory, Inc.


Philadelphia, PA







We have audited the accompanying consolidated balance sheets of Power Sports Factory, Inc. and Subsidiary (collectively, the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ deficiency and cash flows for the years ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.




We conducted our audits in accordance with 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.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Power Sports Factory, Inc. and Subsidiary as of December 31, 2009 and 2008, and the results of its operations and cash flows for the years ended December 31, 2009 and 2008, 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 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.






/s/ Madsen & Associates CPA's Inc.




Madsen & Associates, CPA's Inc.








April 15, 2010




18


POWER SPORTS FACTORY, INC.
 CONSOLIDATED BALANCE SHEETS


ASSETSDecember 31,2009


2008Current Assets:Cash

$
-


$
117Accounts receivable - net of allowance of $24,000and $ -0-


32,975



67,749Inventory


932,285



1,735,181Prepaid expenses


6,129



97,363Total Current Assets


971,389



1,900,410Property and equipment-net


9,918



25,135Other assets


-



9,876TOTAL ASSETS

$
981,307


$
1,935,421LIABILITIES AND STOCKHOLDERS' DEFICIENCYCurrent Liabilities:Accounts payable

$
2,840,622


$
3,554,654Account payable to related party


2,954



28,383Notes payable to related party


19,508



22,863Current portion of long-term debt


326,796



387,882Convertible debt


300,000



501,356Accrued expenses


1,099,404



1,226,211Dividends Payable


477,488



673,176Customer deposits


37,048



52,774Total Current Liabilities


5,103,820



6,447,299Long term liabilites:Long-term debt - less current portion


-



7,370Convertible debt - less current portion


-



24,323Total Long-Term Liabilities


-



31,693TOTAL LIABILITIES


5,103,820



6,478,992Stockholders' Deficiency:Preferred stock; stated at, as no par value - authorized50,000,000 shares, Series B Convertible PreferredStock - outstanding  -0- shares at December 31, 2009


-and 2008Common stock, stated at, as no par value - authorized100,000,000 shares;outstanding 77,725,647 shares at December 31, 2009and 31,385,188 shares at December 31, 2008


8,206,061



5,476,228Additional paid-in capital


456,000



456,000Deficit


(12,784,574
)


(10,475,799
)Total Stockholders' Deficiency


(4,122,513
)


(4,543,571
)TOTAL LIABILITIES ANDSTOCKHOLDERS' DEFICIENCY

$
981,307


$
1,935,421









19


POWER SPORTS FACTORY, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS




Years Ended December 31,2009


2008Net sales

$
798,486


$
2,304,828Costs and Expenses:Cost of sales


936,849



1,948,102Selling, general and administrativeexpenses


1,983,296



3,976,5542,920,145



5,924,656Loss from operations


(2,121,659
)


(3,619,828
)Other income and  expenses:Forgiveness of debt


133,222Acretion of beneficial conversion feature


(24,323
)


(89,375
)Interest expense


(296,015
)


(163,999
)Interest income


-



2,868(187,116
)


(250,506
)Loss before benefitfrom income taxes


(2,308,775
)


(3,870,334
)Income tax benefit


-



-Net  loss

$
(2,308,775
)

$
(3,870,334
)Loss per common share - basicand diluted

$
(0.05
)

$
(0.13
)Weighted average common shares -Basic and diluted


50,309,884



30,880,325










20


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, 2008


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 splitIssuance of preferred stock forservices (valued at $2.50 to $7.00  per share)


39,103



63,543



















63,543Issuance of 200,000 warrants














80,000











80,000Conversion of preferred stock intocommon 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)










1,224,285



178,750











178,750Conversion of debt for common stock










550,000



250,000











250,000Net loss for the twelve months endedDecember 31,2008


-



















(3,870,334
)


(3,870,334
)Balance at December 31,2008


-



-



31,385,188



5,476,228



456,000



(10,475,799
)


(4,543,571
)Proceeds from sale of common stock










9,075,190



456,000











456,000Issuance of common stock for debt(valued at $.02-$.09 per share)










27,383,032



1691492



-







1,691,492Issuance of common stock for servicesand fees (valued at $.10 to $.70)










4,361,000



214,446











214,446Conversion of debt for common stock










5,521,237



367,895











367,895Net loss for the twelve months endedDecember 31,2009


-



















(2,308,775
)


(2,308,775
)Balance at December 31,2009


-


$
-



77,725,647


$
8,206,061


$
456,000


$
(12,784,574
)

$
(4,122,513
)


21




POWER SPORTS FACTORY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the YearsEnded December 31,2009


2008CASH FLOW FROMOPERATING ACTIVITIES:Net loss

$
(2,308,775
)

$
(3,870,334
)Adjustments to reconcilenet loss  to net cashused in operatingactivities:Depreciation andamortization


8,141



10,000Non cash compensation


214,446



242,293Forgiveness of debt


(133,222
)


-Non -cash fair value of warrants


-



80,000Loss on abandonment ofleasehold improvements


7,076



-Accretion of beneficial conversion feature


24,323



89,375Changes in operating assetsand liabilities


1,672,559



2,668,967Net cash used inoperating activities


(515,452
)


(779,699
)CASH FLOW FROMINVESTING ACTIVITIES:Return of equipment


-



36,254CASH FLOW FROMFINANCING ACTIVITIES:Proceeds from related parties


16,000



22,247Payment to related parties


(19,355
)


(25,850
)Proceeds from loans


547,500



601,920Payments on loans


(504,810
)


(115,901
)Proceeds from sale of common stock


456,000



-Proceeds from convertible debt


20,000



250,000Net cash provided by financing activities


515,335



732,416
 
   22
 
 POWER SPORTS FACTORY, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 For the Years EndedDecember 31,2009


2008Net decrease in cash


(117
)


(11,029
)Cash - beginning of year


117



11,146Cash - end of year

$
-


$
117Changes in operating assetsand liabilities consists of:(Increase)decrease in accounts receivable

$
34,773


$
(63,789
)( Increase)decrease in inventory


802,896



(797,479
)Decrease in prepaid expenses


91,234



37,956Increase in accounts payable


833,294



2,406,098Increase (decrease) in accrued expenses


(73,912
)


1,033,407Increase(decrease) in customer deposits


(15,726
)


52,774$
1,672,559


$
2,668,967Supplementary information:Cash paid during the year for:Income taxes

$
-


$
-Interest

$
189,114


$
34,585Non-cash financing activitiesIssuance of preferred stock for services

$
-


$
63,543Beneficial Conversion Feature

$
24,323


$
-Issuance of warrants for services

$
-


$
80,000Issuance of common stock for services

$
214,446


$
178,750Issuance of common stock for debt

$
2,273,833


$
351,000


23




Power Sports Factory, Inc.




Notes to Consolidated Financial Statements




As of and for the Years Ended December 31, 2009 and 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 the products 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 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 issued in the acquisition.




On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities.  Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.




GOING CONCERN




The Company’s consolidated financial statements for the year ended December 31, 2009 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.




24




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008


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.




SIGNIFICANT ACCOUNTING POLICIES




PRINCIPLES OF CONSOLIDATION




The Company’s consolidated financial statements include the accounts of the Company and its wholly-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. Estimates are used in determining such steps as accruals, income tax exposure, depreciable useful lives, allowance for doubtful accounts and valuation allowances.  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.  Cost is determined by the first-in, first-out (FIFO) method.





REVENUE RECOGNITION





The Company recognizes revenue in accordance with the guidance contained in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC”) 605 "Revenue Recognition” (ASC 605). 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.





25





Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008





ALLOWANCES FOR DOUBTFUL ACCOUNTS





Accounts receivable are recorded after title passes to the purchaser and are presented in the balance sheet net of allowance for doubtful accounts.  Accounts receivables are written off when they are deemed uncollectible.  The Company receives advances from customers prior to the delivery of the bikes.  The Company records these advance payments as Customer Deposits on the Company's consolidated balance sheet.  Customer deposits as of December 31, 2009 and 2008 were $37,048 and $52,774, respectively.  The allowance for doubtful accounts is estimated based on the Company's historical losses, the existing economic condition in the industry, and the financial ability of its customers.  For the years ended December 31, 2009 and 2008, the Company established a reserve for doubtful accounts of $24,000 and $-0- respectively.





During the years ended December 31, 2009 and 2008, the Company wrote off receivables of $156,000 and $25,000, respectively, which is included in selling, general and administrative expenses in the consolidated statement of operations.





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, 2009 and 2008 which include stock purchase warrants and convertible debt, are convertible into 650,000 and 3,250,000 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 FASB ASC 360-15-35, “Impairment or Disposal of Long-Lived Assets”, (ASC 360-15-35). 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.





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




For the years ended December 31, 2009 and 2008, the Company issued -0- and 200,000 warrants and recorded consulting expense of $-0- and $80,000, respectively, the fair value of the warrants at the time of issuance.




For the years ended December 31, 2009 and 2008, the Company issued 4,361,000 and 1,214,285 of its common stock and recorded consulting expenses and fees of $214,446 and $178,750 respectively, fair value of the shares at the time of issuance.




26




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




INCOME TAXES




The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.




The Company records net deferred tax assets to the extent they believe these assets will more-likely-than-not be realized.  In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.  In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.




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





The Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) on January 1, 2008, for all financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. While the Company adopted the provisions of ASC 820 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, no such assets or liabilities existed at the balance sheet date. As permitted by ASC 820, the Company delayed implementation of this standard for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis and adopted these provisions effective January 1, 2009.





The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability.  ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers include:  Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.





As of December 31, 2009, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents.  The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.  The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or 3 and there were no transfers in or out of Level 2 or Level 3 during the year ended December 31, 2009.





The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of December 31, 2009 and 2008.




27




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




Assets at Fair Value as of December 31, 2009 and 2008 UsingTotal


Quoted Prices in Active Markets for Identical Assets (Level 1)


Significant Other Observable Inputs (Level 2)


Significant Unobservable Inputs (Level 3)December 31, 2009Cash and cash equivalents

$
-


$
-


$
-


$
-December 31, 2008Cash and cash equivalents

$
117


$
117


$
-


$
-


The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above.  Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values.  The Company did not have any other financial liabilities with the scope of the fair value disclosure requirements as of December 31, 2009.




RECLASSIFICATIONS





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




NEW FINANCIAL ACCOUNTING STANDARDS




During 2009, the Company adopted the revised accounting guidance related to business combinations.  This guidance 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 literature.  In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred.  That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values.  The Company implemented this new guidance effective January 1, 2009.  This implementation did not have a material impact on the Company's results of operations, financial condition or cash flows.




During 2009, the Company implemented an update to the accounting guidance related to earnings per share.  In accordance with this accounting guidance, unvested share-based payment awards with rights to dividends are participating securities and shall be included in the computation of basic earnings per share.  The Company adopted this guidance effective January 1, 2009.  This implementation did not have a material impact on prior periods presented.




The FASB has published a update to the accounting guidance on fair value measurements and disclosures as it relates to investments in certain entities that calculate net asset value per share (or its equivalent).  This accounting guidance permits a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent).  This update also requires new disclosures, by major category of investments, about the attributes of investments included within the scope of this amendment to the Codification.  The guidance in this update is effective for interim and annual periods ending after December 15, 2009.  The Company does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial condition or cash flows.




28




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




2. Inventories




The components of inventories are as follows:




December 31,


December 31,2009


2008Motor bikes

$
684,209


$
1,339,802Parts


-



145,379Deposits on Inventory


250,000



250,000$
934,209


$
1,735,181


On August 12, 2008, 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.  The Company will begin to amortize this deposit in 2010.




3. Property and Equipment




Property and equipment consist of furniture and equipment used in the ordinary course of business and are recorded at cost less accumulated depreciation.





December 31,


December 31,2009


2008Equipment

$
20,924


$
41,898Signs


7,040



7,04027,964



48,938Less: accumulated depreciation


18,046



23,803$
9,918


$
25,135


Depreciation expense for the years ended December 31, 2009 and 2008 amounted to $8,141 and $10,000 and, respectively.




29




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008


4. Long-term debt




Long-term debt consists of the following:


December 31,


December 31,2009


2008Note payable to Five PointCapital Inc. due May 2011;interest at 18.45%; monthlypayments of $397

$
-


$
10,461Note payable due April 30, 2008;interest at 10% payable atmaturity (1)


68,645



68,645Note payable to Cananwill, Inc dueAugust 1, 2009, interest at 8.84%;monthly payments of $7,027


-



54,393Note payable to Cananwill, Inc. dueAugust 1, 2009, interest at 8.59%monthly payments of $2,807


-



21,753Note payable to BankDirectdue January 12, 2010; interest at 8%Monthly payments of $2,333


2,333



-Note payable to Crossroads Financial dueJanuary 9, 2010, interest 21% plus fees,monthly payments variable


232,818



-Note payable due May 24, 2009, interest@ 10% per anum (5)


23,000



-Note payable due June 15, 2008;interest at 20.0% simple interest with aprivate investor(s) (2)


-



240,000326,796



395,252Less amounts due within one year


-



164,772$
326,796


$
230,480





For the years ended December 31, 2009 and 2008, the Company recorded interest expense of $122,994, and $163,999, respectively.




30




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




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.  As of December 31, 2009 the balance on this note is $68,645. This note is currently in default.  As of December 31, 2009, the Company owes accrued interest in the amount of $36,041.




2)
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.  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, 1009.  On May 11, 2009, the $240,000 balance of the note and accrued interest in the amount of $46,430 was converted into 4,163,487 shares of common stock.




3)
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, with and annual percentage rate of 8% and monthly payments of $2,333.  As of December 31, 2009, the amount due was $2,333.




4)
On January 9, 2009, the Company entered into a revolving credit loan (the “Credit Facility”) with Crossroads Debt LLC, a private investment company (the “Lender” or "Crossroads").  The loan is for a term of one year which is renewable under certain conditions and in the amount of $1,000,000.  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 $350,000 and an early termination fee of $7,500 per month for every month still outstanding in the term.  The Lender has a first security interest in all accounts, chattel paper, goods (including inventory and equipment), instruments, investment property, documents, and general intangibles, letter of credit rights, commercial tort claims, deposit accounts, and the proceeds thereof via Uniform Commercial Code Filing Position.  The Company also issued Crossroads 250,000 shares of common stock, valued at $12,500, in connection with the agreement.  As of December 31, 2009, the outstanding balance on this line was $232,818.




The Company entered into a Loan and Security Agreement (the “Agreement”), dated January 9, 2009, by and between PSF, Inc. and Crossroads, pursuant to which advances to us of approximately $514,000 have been made. We are working with Crossroads to accelerate the liquidation of our inventory and pay the outstanding balance on the Agreement, which was approximately $144,943 as of April 12, 2010.




On April 6, 2010, we entered into a further agreement with Crossroads that provided for specified payments to Crossroads for sales of particular scooter models.  Crossroads specifically states that PSF is no longer in default on their loan and the new cash flow split is more advantageous to PSF. In addition, we agreed that we will sell at least 100 scooters in April, 150 scooters in May, and 150 scooters in June, 2010. We agreed to use our best efforts to facilitate scooter sales as quickly as possible. We agreed that in order to sell one X50, we must sell at least 10 units of another model. All other models would be sold in relation to their relative inventory levels.




31




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




5)
On April 24, 2009, the Company borrowed $25,000 from an investor on a short-term basis.  The interest rate is 10% per anum.  The loan was due May 24, 2009.  In October, 2009, the Company paid $2,000 against the outstanding balance.  As of December 31, 2009, the balance due was $23,000.  The loan is currently in default and the lender has instituted legal action.  The loan is personally guaranteed by an officer and director of the Company.




The aggregate amounts of all long-term debt to be repaid for the year following December 31, 2009 is:




2010

$
326,7962011


-2012


-326,796Current portion


-$
326,796


5. 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 matured 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 per note.  Total interest due as of December 31, 2009 is $46,504. The notes, all of which are outstanding as at December 31, 2009,  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 was 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.  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.  The note, of which $150,000 is due as of December 31, 2009, is currently in default.  As of December 31, 2009, the Company owed accrued interest in the amount of $52,559.




32




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




On October 1, 2008, the Company borrowed $150,000 on a short term basis at 15% 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 5, 2009, the Company paid $85,000 against the note.  On December 31, 2009, the note balance and accrued interest of $16,465 were converted into 1,357,750 common shares.




The Company has evaluated the conversion feature under applicable accounting literature, including FASB ASC 815 “Derivatves and Hedging”, (ASC 815)  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 year ended December 31, 2009 amounted to $24,321.  For the years ended December 31, 2009, and 2008, the Company recorded interest expense of $44,493 and $76,734, respectively.




6. Note Receivable/Note Payable - Related Party




a) During 2008, certain officers of the Company made advances to the Company.  After repayment to the officers, the balance due the officers as of December 31, 2009, and 2008, were $19,508 and $22,863, respectively.  The advances are interest free and all are due upon demand.  Interest expense for the years ended December 31, 2009, and 2008 were $-0- and $494, respectively.




7. Accrued Expenses




Accrued expenses consist of the following:




December 31,


December 31,2009


2008Payroll expense

$
342,117


$
167,902Payroll tax expense


419,812



379,572Penalties


164,250



486,903Professional fees


20,006



50,438Interest expense


153,224



141,296$
1,099,409


$
1,226,111


33




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008


8.Stockholders’ Equity





Common Stock









During the year ended December 31, 2008, the Company issued 1,262,500 shares of common stock in exchange for accounts payable in the amount of $101,000.




During the year ended December 31, 2008, the Company issued 1,224,285 shares of common stock, valued at $.10 - $.70 per share, for services in the amount of $178,750, the fair value of the shares of the date of issuance.




During the year ended December 31, 2008, the Company issued 550,000 shares of common stock, valued at $.08 - $.45 per share, upon conversion of long-term debt of $250,000.




During the year ended December 31, 2009, the Company received proceeds of $456,000 from the sale of 9,075,190 shares of common stock.




During the year ended December 31, 2009, the Company issued 4,361,000 shares of common stock, valued at $.04 - $.05 per share, of which 526,000 shares were to related parties, for services and fees in the amount of $214,446, the fair value of the shares at the date of issuance.




During the year ended December 31, 2009, the Company issued 27,383,032 shares of common stock, valued at $.02 - $.09 per share, of which 666,666 shares were to related parties, in exchange for accounts payable in the amount of $1,691,492.




During the year ended December 31, 2009, the Company issued 5,521,237 shares of common stock, valued at $.06 - $.07 per share, upon conversion of long-term debt and accrued interest of $367,895.




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.




In May 2008, the Company issued 39,103 shares of series B Convertible Preferred Stock for services valued at $63,543, the fair value of the services.




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.






34


Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008
 
 9. Income Taxes




The Company adopted the provisions of FASB ASC 740, "Income Taxes", ("ASC 740") on January 1, 2008.  As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liabilities or equity for unrecognized income tax benefits.  The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed.  Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet.  Included in any liability for uncertain tax positions, the Company will setup a liability for interest and penalties.  The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.




A reconciliation of taxes on loss computed at the federal stated rate to amounts provided:




For the Years EndedDecember 31,2009


2008Tax benefit computed at the statutoryrate of 34%:

$
(784,766
)

$
(1,315,914
)Effect of unused operating losses


784,766



1,315,914$
-


$
-


The Company files income tax returns in all jurisdictions in which it has reason to believe it is subject to tax.  The Company is subject to examination by various taxing jurisdictions.  To date, none of these examinations has resulted in any material additional tax.  Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdictions laws or regulations.  Significant judgment is required in determining the worldwide provisions for income taxes.  In the ordinary course of business of a global business, the ultimate tax outcome is uncertain for many transactions.  It is the Company’s policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities.  The Company establishes the provisions based upon management’s assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments.  The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions.




Components of deferred income tax assets are as follows:




35




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008


December 31,2009


2008Tax EffectDeferred Tax Asset - CurrentNet operating loss carryforward

$
3,451,000


$
2,672,000Valuation allowance


(3,451,000
)


(2,672,000
)$
-


$
-


As of December 31, 2009, the Company recorded a deferred tax asset with a U.S. net operating loss ("NOL") carryforward of approximately $10.2 million that was fully offset by a valuation allowance due to the determination that it was more than likely that the Company would be unable to utilize those benefits in the foreseeable future.  The Company's U.S. NOL expires in 2025.




10. 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.




Summary of warrant activity as of December 31, 2009 and the changes during the twelve months ended December 31, 2009:




WeightedWeighted

Average

AggregateAverage

Remaining

IntrinsicWarrants

Shares


Exercise Price

Contractual Term

ValueOutstanding at January 1, 2009


200,000


$
0.01

9.5 yearsGranted


-



-



$
-Exercised


-



-Forfeited, expired or cancelled


-



-



$
-Outstanding at December 31, 2009


200,000


$
0.01

8.5 yearsExercisable at December 31, 2009


200,000


$
0.01

8.5 years





11. Dividend Payable




In September 2007, the Company entered into a share exchange agreement with the shareholders of PSF.  Following the share exchange, the Company intended to transfer the existing business relating to the development of lastword® to its subsidiary, The Last Word Inc.  To distribute the existing business of the Company to the shareholders, the Board of Directors of Purchase Point Media Corporation ("PPMC") declared a dividend, payable in common stock of the subsidiary holding the lastword® 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, the subsidiary holding the lastword® technology would have to file a registration statement under the Securities Act of 1933 with, and have the filing deemed effective by the Securities and Exchange Commission.  The Company intended to file the registration statement as soon as practicable.  As of December 31, 2009, the registration statement had not been filed.  During the year ended December 31, 2009, $30,000 of the intended liabilities has been transferred to accrued expenses and $165,688 was converted into 82,844 shares of common stock.  As of December 31, 2009 and 2008, the dividend payable in the amount of $477,488 and $673,176, respectively, represents the net liabilities that will be assumed by The Last Word Inc.





36


Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




12. Forgiveness of Debt




During the year ended December 31, 2009, expenses in the amount of $133,222 from prior years were forgiven.  The Company recorded a forgiveness of debt for this amount and the amount is included in the Company's consolidated statement of operations for the year ended December 31, 2009.




13. Commitments and Contingencies




a)
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”.  The 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 was 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.  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 at its fair value. 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 was 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.  On April 24, 2009, the Company made a $30,000 payment towards this agreement.  On December 12th, 2009 the company made a payment of $25,000 towards the balance. On February 14th, 2010, the Company 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 and 2009  As of December 31, 2009, the Company had a balance of $1,285,000 due to Andretti IV. Under the Restructuring Agreement, Provided (1) that the money is received into the Andretti IV account by wire transfer by close of business on Monday, February 22, 2010; (2) that PSF can demonstrate and represent that any and all usage of the Andretti name in all forms is discontinued immediately; and (3) any release concerning the termination by Andretti IV is submitted to us for review and our modification prior to distribution, Andretti IV would accept a lump sum payment of $50,000 in settlement of claims.  Upon receipt of these payments, Andretti agreed to forgive the remaining balance of license fees owed for 2008 and 2009. The Company did not pay the $50,000 payment.  Should the Company not reach an agreement with Andretti IV, the licensing agreement will terminate and the Company expects to incur litigation with Andretti IV.




b)
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 term and conditions.




c)
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.  As of December 31, 2009, the agreement has expired.




37




Power Sports Factory, Inc.
 Notes to Consolidated Financial Statements
 As of and for the Years Ended December 31, 2009 and 2008




14. Legal Proceedings




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 received an entry of Judgment on November 7th, 2009 for $31,592.07. The Company entered into a forbearance agreement with Yellow Transportation on January 7th, 2010. The agreement requires PSF to pay $5,000 per month to Yellow for 5 months starting in January. PSF failed to make the any payment on this forbearance agreement and expects Yellow to obtain a judgment against PSF.




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 expect Liberty Mutual to obtain a judgment against us in the amount of $45,096.




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 $137,634.42 for goods and/or services rendered.  On October 15th, 2009 BTP and PSF reached a settlement agreement. The agreement states that PSF will pay BTP $75,000 in payments beginning on November 5th, 2009 and ending April 5th, 2010. Business Technology Partners filed a final judgment on December 7th in this case against us in the amount of $137,634.




Justin Gasarch v. Power Sports Factory, Inc.  The plaintiff in this case filed suit against the Company, Shawn Landgraf, our Chief Executive Officer, and a Company consultant on July 9, 2009. On April 24, 2009 Mr. Gasarch had loaned the Company $25,000 with a maturity date of May 24, 2009. Shawn Landgraf and the consultant sued in this case had personally guaranteed the loan.




Fedex Customer Information Services, Inc. v. Power Sports Factory, Inc.  The Company was sued in April 2009 by Fedex Customer Information Services for $9,470 in the Superior Court of New Jersey. Power Sports Factory has not answered this claim as a result of cash flow constraints and expects Fedex to obtain a judgment against us in the amount of $11,788.




Advanstar Commnications, Inc. v. Power Sports Factory, Inc. & Shawn LandgrafAdvanstar Communications filed suit against us in the Superior Court of New Jersey on August 19, 2009, for $43,955 for advertising services.  The Company intends to settle this lawsuit.




Aicco, Inc. v. Power Sports Factory, Inc.  The Company was sued on September 23rd, 2009 by Aicco Inc for $22,396.73 in the Superior Court of New Jersey. Power Sports Factory has not answered this claim as a result of cash flow constraints and expects Aicco to obtain a judgment against us in the amount of $22,396.73.




RR Donnelly and Sons. v. Power Sports Factory, Inc. RR Donnelly and Sons filed suit against us in the Superior Court of New Jersey on September 25, 2009, for $7,855 for printing services. Power Sports Factory has not answered this claim as a result of cash flow constraints and expects RR Donnelly to obtain a judgment against us in the amount of $7,855.




Cananwill Inc. v. Power Sports Factory, Inc.  Cannanwill Inc. filed suit against us in the Superior Court of New Jersey on October 1, 2009, for $20,456.47 for financing services. Power Sports Factory has not answered this complaint as a result of cash flow constraints and expects Cananwill to obtain a judgment against us in the amount of $20,456.47.




5WPR v. Power Sports Factory, Inc.5WPR. filed suit against us in the Superior Court of New York on October 21, 2009, for $33,000 for Public Relations services.  The Company intends to contest this lawsuit as 5WPR never performed any services under the contract.




1stPriority. 1st Priority filed suit against us in the Superior Court of New Jersey on October 22, 2009, for $41,538.16 for shipping services. Power Sports Factory has not answered this complaint as a result of cash flow constraints and expects 1st Priority to obtain a judgment against us in the amount of $41538.16.




USA MotorToys v. Power Sports Factory, Inc.On November 9, 2009 we received a notice of entry of judgment against Power Sports Factory in the fourth judicial district Court of Utah for $22,085.  The Company intends to contest this lawsuit as Power Sports Factory was never served with a complaint or summons.




Highroad Press filed suit against us on March 17th, 2010, in the Superior Court of New Jersey for the amount of $14,353, for printing services. Power Sports Factory has not answered this complaint as a result of cash flow constraints and expects High Road Press to obtain a judgment against us in the amount of $14,353.




15.  Subsequent Events




a.
On January 1st, 2010 the Company signed a six month lease for office space at 300 Walnut Street Philadelphia, PA. The lease is for $1,900 a month and $200 a month for parking.


b.
On March 18th, 2010, the Company converted $324,369 of accounts payable due to its manufacturing supplier into 4,633,843 shares of common stock.


c.
On March 23rd, 2010the Company issued 1,000,000 common shares to Juggernaut Financial as part of a consulting agreement. Juggernaut will provide the company with business development, merger and acquisition strategy, corporate finance and strategic partnership consulting.








38





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, 2009, 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, 2009. 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, 2009, 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 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





ITEM 9A (T). CONTROLS AND PROCEDURES.


None.


39


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, 2010:





Name

Age

PositionSteve Rubakh

49

President, Acting ChiefFinancial Officer and DirectorShawn Landgraf

37

Chief Executive Officer,Acting 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 49, 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 37, 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.





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.





40




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 2009, we believe that Mr. Landgraf has complied with the filing requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended. Mr. Landgraf did not file a Form 3 or a Form 4 required to be filed in 2008.  A Form 5 for 2008 was filed by Mr. Landgraf on April 13th, 2010. Mr. Rubakh failed to file Form 4's for transactions by him in our common stock in 2008 and 2009. Mr. Rubakh is reviewing his transactions in our common stock to identify Section 16(a) filings that are required to be made for transactions in 2008 and 2009.





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, 2009, 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













$
165,0002009

$
30,000













$
30,000Shawn Landgraf, Chief Executive Officer

2008

$
51,000













$
51,0002009

$
21,000













$
21,000





41





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 March 2, 2010, 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 March 2, 2010, there were 77,117,213 shares of common stock outstanding.




Name of Stockholder

Number of Shares of

Common Stock Owned

Beneficially at March 2, 2010

% Outstanding Stock

at March 2, 2010Steve Rubakh (1)(2)

6,490,277

8.41%Shawn Landgraf (1)

2,825,234

3.66%Kurt Landgraf (1)

4,800,000

6.22%Liu Guanghui (3)

7,395,761

9.59%Dickson International Holdings Ltd (4)

4,604,428

5.97%All Officers and Directors as a Group

9,315,511

12.07%




(1)
The addresses of Messrs. Rubakh, Landgraf  and Landgraf are c/o Power Sports Factory, Inc., 300 Walnut Street Philadelphia, Pennsylvania 19106





(2)
Mr. Rubakh owns 3,497,678 shares of common stock directly, and beneficially owns an aggregate of 2,992,599 shares indirectly, which shares are owned by his children Dean Rubakh (936,220 shares), Harley Rubakh (685,000 shares), Jordan Rubakh (686,379 shares), and Paige Rubakh (685,000 shares).




(3)
The address of Mr. Guanghui is Rm. 1001, Blk 69#1, XRWN Garden, Xngzhou Zhuahai, Guandong, China(4)
The address of Dickson International Holdings Ltd. is Rm. 1903-6, 19/F, 272-284 Des Voeux, Road Central, Hong Kong.





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 was convertible into 10 shares of our Common Stock.





42





ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.


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 June 30, 2009 and 2008 are approximately $35,000 and $9,575, respectively.





Audit fees expected to be billed to us by Madsen & Associates, CPA's Inc. for the audit of financial statements included in our Annual Report on Form 10-K, and reviews of the financial statements included in our Quarterly Reports on Form 10-Q, for the years ended June 30, 2009 and 2008 are approximately $18,000 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, 2009 and 2008, 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, 2009 and 2008, 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.





43




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.)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.)10(k)

Settlement Agreement, dated October 23, 2009, between the Company and Andretti IV, LLC. (Incorporated by Reference to Exhibit 10(k) to the Company’s Current Report on Form 8-K, filed October 23, 2009.)10(l)

Agreement, dated April 6, 2010, between the Company and Crossroads Debt LLC. (Incorporated by reference to Exhibit 10(l) to the Company’s Current Report on Form 8-K, filed April 13, 2010.)




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.





44





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, 2010Chief Executive Officer/s/ SteveRubakh
April  15, 2010Steve Rubakh,President, Chief Financial Officer and Director/s/ Shawn Landgraf
April  15, 2010Shawn LandgrafChief Executive Officer, Secretary and Director


45