Edgar Filing: Power Sports Factory, Inc

Power Sports Factory, Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

¨ TRANSITION REPORT UNDER 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 or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

6950 Central Highway, Pennsauken, NJ 08109

(Address of Principal Executive Office) (Zip Code)

(856-488-9333)

(Registrant’s Telephone number, Including Area Code)

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

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 ¨ No ¨

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 ¨ Accelerated filer ¨ Non-accelerated filer Smaller reporting company þ

(Do not check if a smaller reporting company)

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

The number of shares outstanding the issuer's common stock, no par value, was 58,751,769 as of November 18, 2009.

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

Item 2. Management's Discussion and Analysis or Plan of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Item 4T. Controls and Procedures.

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

Item 1A. Risk Factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3. Defaults Upon Senior Securities.

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

Item 5. Other Information.

Item 6. Exhibits.

EXHIBIT INDEX

Item 1. Financial Statements

Power Sports Factory, Inc.

I N D E X


	Page No.
Consolidated Balance Sheets as at September 30, 2009 and December 31, 2008 (Unaudited)	3
Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2009 and 2008 (Unaudited)	4
Consolidated Statements of Stockholders' Deficiency For the Period Ended September 30, 2009 (Unaudited)	5
Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2009 and 2008 (Unaudited)	6-7
Notes to Unaudited Consolidated Financial Statements	8

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ending December 31, 2008.

The results of operations for the nine months ended September 30, 2009 and 2008 are not necessarily indicative of the results for the entire fiscal year or for any other period.

POWER SPORTS FACTORY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)


	September 30,				December 31,
	2009				2008
ASSETS
Current Assets:
Cash	$	1,722			$	117
Accounts receivable		63,273				67,749
Inventory		1,459,186				1,735,181
Prepaid expenses		18,084				97,363
Total Current Assets		1,542,265				1,900,410
Property and equipment-net		18,904				25,135
Other assets		9,118				9,876
TOTAL ASSETS	$	1,570,287			$	1,935,421

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Accounts payable	$		3,720,428		$	3,554,654
Accounts payable to related party			35,539			28,383
Notes payable to related party			10,208			22,863
Current portion of long-term debt			548,997			387,882
Convertible debt			300,000			501,356
Accrued expenses			1,063,356			1,226,211
Dividends Payable			673,176			673,176
Customer deposit payable			37,048			52,774
Total Current Liabilities			6,388,752			6,447,299
Long term liabilites:
Long-term debt - less current portion			––			7,370
Convertible debt - less current portion			––			24,323
Total Long-Term Liabilities			––			31,693
TOTAL LIABILITIES			6,388,752			6,478,992

Stockholders' Deficiency:
Preferred stock; no value – authorized 50,000,000 shares, Series B Convertible Preferred Stock - outstanding -0- shares at September 30, 2009 and -0- shares at December 31, 2008			––			––
Common stock, no par value - authorized 100,000,000 shares outstanding 56,852,359 shares at September 30, 2009 and 31,375,188 shares at December 31, 2008			6,697,021			5,476,228
Additional paid-in capital			456,000			456,000
Deposits on common stock to be issued			21,711			––
Deficit			(11,993,197	)		(10,475,799	)

Total Stockholders' Deficiency			(4,818,465	)		(4,543,571	)

TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY	$		1,570,287		$	1,935,421

See Notes to Unaudited Consolidated Financial Statements

POWER SPORTS FACTORY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Net sales	$	507,705		$	2,081,750		$	157,338		$	671,616

Costs and Expenses:
Cost of sales		506,702			1,650,120			183,959			658,601
Selling, general and administrative
expenses		1,318,513			2,921,994			41,310			809,198
Non-cash compensation		100,821			––			––			––
Bad debt expense		33,621			5,000			12,220			3,501
		1,959,657			4,577,114			237,489			1,471,300

Loss from operations		(1,451,952	)		(2,495,364	)		(80,150	)		(799,684	)

Other income and expenses:
Forgiveness of debt		133,223			––			133,223			––
Interest expense		(198,669	)		(108,996	)		(76,439	)		(39,436	)
Interest income		––			2,196			––			1,394
		(65,446	)		(106,800	)		56,784			(38,042	)

Loss before benefit
from income taxes		(1,517,398	)		(2,602,164	)		(23,366	)		(837,726	)

Income tax benefit		––			––			––			––

Net loss	$	(1,517,398	)	$	(2,602,164	)	$	(23,366	)	$	(837,726	)

Loss per common share - basic and diluted	$	(0.03	)	$	(0.11	)	$	—		$	(0.03	)

Weighted average common shares -Basic and diluted		53,088,326			22,906,529			53,088,326			28,839,513

See Notes to Unaudited Consolidated Financial Statements

POWER SPORTS FACTORY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

(Unaudited)


						Common Stock					Additional Paid-In Capital		Deposits on Common Stock To Be Issued
	Preferred Stock			Stated Value			Shares		Stated Value		Additional Paid-In Capital				(Deficit)			Total
Balance at January 1, 2008	2,303,216		$	2,687,450			4,925,213	$	2,216,485	$	355,000			$	(6,605,465	)	$	(1,346,530	)
Issuance of preferred stock for services (valued at $2.50 to $7.00 per share)	39,103			63,543														63,543
Issuance of 200,000 warrants									80,000									80,000
Conversion of preferred stock into common stock	(2,342,319	)		(2,750,993	)		23,423,190		2,750,993
Issuance of common stock for debt (valued at $.08 per share)							1,262,500				101,000							101,000
Issuance of common stock for services (valued at $.10 to $.70)							1,214,285		178,750									178,750
Conversion of debt for common stock) (valued at $.08 to $.45							550,000		250,000									250,000
Net loss for the twelve months ended December 31, 2008															(3,870,334	)		(3,870,334	)
Balance at December 31, 2008	—			—			31,375,188		5,476,228		456,000		—		(10,475,799	)		(4,543,571	)
Sale of common stock (valued at $.04 to $.10 per share)							6,956,590		363,542									363,542
Deposit on stock to be issued													21,711					21,711
Issuance of common stock for fees (valued at $.03 to $.05 per share)							810,000		40,300									40,300
Issuance of common stock for expenses (valued at $.02 per share)							526,000		10,521									10,521
Issuance of common stock for incentives (valued at $.05 per share)							1,000,000		50,000									50,000
Conversion of debt for common stock (valued at $.02 to $.08 per share)							16,184,581		756,430									756,430
Net loss for the nine months ended September 30, 2009															(1,517,398	)		(1,517,398	)
Balance at September 30, 2009	—		$	—			56,852,359	$	6,697,021	$	456,000	$	21,711	$	(11,993,197	)	$	(4,818,465	)

See Notes to Unaudited Consolidated Financial Statements

POWER SPORTS FACTORY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months
	Ended September 30,
	2009			2008
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(1,517,398	)	$	(2,602,164	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,231			7,271
Non cash compensation		100,821			179,793
Non-cash fair value of warrants		––			80,000
Accretion of beneficial conversion feature		24,323			76,752

Changes in operating assets and liabilities		870,527			1,693,115

Net cash (used in) operating activities		(515,496	)		(565,233	)

CASH FLOW FROM INVESTING ACTIVITIES:
Security deposit		758			––
Return of Equipment		––			36,254
Net cash provided by investing activities		758			36,254


CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from notes payable related party		5,000			22,247
Payment to note payable related party		(17,655	)		(25,350	)
Proceeds from loan payable		563,478			357,420
Payments on loan		(419,733	)		(85,504	)
Deposits on common stock to be issued		21,711			—
Proceeds from sale of common stock		363,542			––
Proceeds from convertible debt		––			250,000

Net cash provided by financing activities		516,343			518,813

See Notes to Unaudited Consolidated Financial Statements

POWER SPORTS FACTORY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)


	For the Nine Months
	Ended September 30, 2009
	2009			2008
Net increase (decrease) in cash		1,605			(10,166	)

Cash - beginning of year		117			11,146

Cash - end of year	$	1,722		$	980


Changes in operating assets and liabilities consists of:
Decrease (increase) in accounts receivable	$	4,475		$	(75,237	)
Decrease (increase) in inventory		275,995			(807,426	)
Decrease (increase) in prepaid expenses		79,279			(1,959	)
Increase in accounts payable		622,929			2,096,432
(Decrease) increase in accrued expenses		(96,426	)		415,824
(Decrease) increase in customer deposits		(15,726	)		65,481
	$	870,527		$	1,693,115

Supplementary information:
Cash paid during the year for:
Income taxes	$	––		$	––
Interest	$	37,924		$	17,499


Non-cash financing activities
Issuance of preferred stock for services	$	––		$	63,543
Beneficial Conversion Feature	$	––		$	––
Issuance of preferred stock for debt	$	––		$	––
Issuance of warrants for services	$	––		$	80,000
Issuance of common stock for services	$	100,821		$	116,250
Issuance of common stock for debt	$	756,430		$	351,000

See Notes to Unaudited Consolidated Financial Statements

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Description of Business and Summary of Significant Accounting Policies

ORGANIZATION

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

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

BASIS OF PRESENTATION

On August 31, 2007, the Company entered into an amendment to 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.

GOING CONCERN

The Company’s consolidated financial statements for the nine months ended September 30, 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.

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 and majority-owned subsidiaries. All inter-company transactions and balances have been eliminated.

USE OF ESTIMATES

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

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

CONCENTRATION OF CREDIT RISK

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

INVENTORIES

Inventories are stated at the lower of cost or market.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with the guidance contained in 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.

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 September 30, 2009 and 2008 which include stock purchase warrants and convertible debt, are convertible into 1,000,000 and 1,000,000 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 nine months ended September 30, 2009 and 2008, the Company issued -0- and 200,000 warrants and recorded consulting expense of $-0- and $200,000, respectively, the fair value of the warrants at the time of issuance.

For the nine months ended September 30, 2009 and 2008, the Company issued 2,336,000 and -0- shares of its common stock and recorded consulting expenses of $100,821 and $-0- respectively, fair value of the shares at the time of issuance.

For the nine months ended September 30, 2009 and 2008, the Company issued -0- and 39,103 shares of preferred stock and recorded consulting expenses of $-0- and $63,543, respectively, the fair value of the shares at the time of issuance.

INCOME TAXES

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

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

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 September 30, 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 value 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 Level 3 and there were no transfers in or out of Level 2 or Level 3 during the nine months ended September 30, 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 September 30, 2009.


			Assets at Fair Value as of September 30, 2009 Using
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	1,722		$	1,722	$	––	$	––

The Company had no financial assets accounted for on a non-recurring basis as of September 30, 2009.

There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the nine months ended September 30, 2009 and the Company did not have any financial liabilities as of September 30, 2009.

The Company has other financial instruments, such as accounts receivables, accounts payable, notes payable, convertible debt and customer deposits which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of accounts receivables, accounts payable, notes payable, convertible debt and customer deposits approximate their fair values.

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

RECLASSIFICATIONS

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

NEW FINANCIAL ACCOUNTING STANDARDS

During the second quarter of 2009, the Company implemented additional interim disclosures about fair value of financial instruments, as required by FASB ASC Paragraph 825-10-65-1. Prior to implementation, disclosures about fair values of financial instruments were only required to be disclosed annually. As the required modifications only related to additional disclosures of fair values of financial instruments in interim financial statements, the adoption did not affect the Company’s financial position or results of operations.

Beginning in the second quarter of 2009, the Company must disclose the date through which subsequent events have been evaluated, in accordance with the requirements in FASB ASC Paragraph 855-10-50-1. With regards to the condensed consolidated financial statements and notes to those financial statements contained in this Form 10-Q, the Company has evaluated all subsequent events through November 18, 2009 (the date the Company’s financial statement are issued).

In September 2009, the FASB implemented certain modifications to FASB ASC Topic 860, Transfers and Servicing, as a means to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets, the effects of a transfer on its financial position, financial performance, and cash flows, and a transferor’s continuing involvement, if any, in transferred financial assets. These modifications must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of this standard to have an impact on the Company’s results of operations, financial condition or cash flows.

During the third quarter of 2009, the Company adopted the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles in accordance with FASB ASC Topic 105, “Generally Accepted Accounting Principles” (the “Codification”). The Codification has become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Effective with the Company’s adoption on July 1, 2009, the Codification has superseded all prior non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. As the adoption of the Codification only affected how specific references to GAAP literature have been disclosed in the notes to the Company’s condensed consolidated financial statements, it did not result in any impact on the Company’s results of operations, financial condition or cash flows.

Updates to the FASB Codification Applicable to the Company

The FASB has published FASB Accounting Standards Update No. 2009-12, Fair Value Measurements and Disclosures (Topic 820)—Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This Update amends Subtopic 820-10, Fair Value Measurements and Disclosures—Overall, to permit 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 an impact on the Company’s results of operations, financial condition or cash flows.

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Inventories

The components of inventories are as follows:


	September 30,		December 31,
	2009		2008
Motor bikes	$	1,083,449	$	1,339,802
Parts		125,737		145,379
Deposits on Inventory		250,000		250,000
	$	1,459,186	$	1,735,181

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

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.

Property and Equipment


	September 30,		December 31,
	2009		2008
Equipment	$	41,898	$	41,898
Signs		7,040		7,040
Software		––		––
		48,938		48,938
Less: accumulated depreciation		30,034		23,803
	$	18,904	$	25,135

Depreciation expense for the nine and three months ended September 30, 2009 and 2008 amounted to $6,231 and $7,271 and $1,994 and $2,386, respectively.

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Long-term debt

Long-term debt consists of the following:


	September 30,		December 31,
	2009		2008
Note payable to Five Point
Capital Inc. due May 2011;
interest at 18.45%; monthly
payments of $397	$	––	$	10,461

Note payable due October 1, 2009;
interest at 10% payable at
maturity (1)		68,645		68,645

Note payable due May 1, 2009;
interest at15% (7)		65,000		––

Note payable to Cananwill, Inc due
August 1, 2009, interest at 8.84%;
monthly payments of $7,027		––		54,393

Note payable to Cananwill, Inc. due
August 1, 2009, interest at 8.59%
monthly payments of $2,807		––		21,753

Note payable to BankDirect
due January 12, 2010; interest at 8%
Monthly payments of $2,333(3)		11,437		––

Note payable to Crossroads Financial due
January 9, 2010, interest 21% plus fees,
monthly payments variable(4)		377,214		––

Note payable due July 1, 2009;
interest at 20.0% simple interest with a
private investor(s) (2)		––		240,000

Note payable due May 24, 2009, 10%
simple interest with a private investor (5)		25,000		––


Note payable to Guard Insurance due
December 10, 2009. Monthly payments
of $854. (6)		1,701		––

		548,997		395,252
Less amounts due within one year		548,997		387,882
	$	––	$	7,370

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

For the nine and three months ended September 30, 2009 and 2008, the Company recorded interest expense of $187,579 and $108,996, and $65,349 and $39,436, respectively.

On July 31, 2007, the Company borrowed $80,000 from an investor. The note matured on April 30, 2008 at which time the principal amount plus ten percent interest was due. The maturity date was extended to May 30, 2008 and then extended to October 1, 2008. The Company issued 10,000 shares of the Company’s common stock valued at $3,000, as additional consideration with the loan, subsequent to March 31, 2008. On September 30, 2009 the balance on this note is $68,645. This note is currently in default.

On April 15, 2008, the Company entered into a short term promissory note with a private investor in the amount of $300,000. The interest rate is a simple twenty percent and the note matures on June 15, 2008. The balance on this note is $240,000. On March 12, 2009, the Company issued 250,000 shares to the investor as compensation valued at $12,500 for an extension on this loan until July 1, 2009. On May 11, the $240,000 balance of the note and the accrued interest in the amount of $46,430 was converted into 4,163,487 shares of common stock.

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.

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”). 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. As of September 30, 2009, the outstanding balance on this line is $377,214.

On April 24, 2009, the Company borrowed $25,000 from an investor on a short term basis. The interest rate is ten percent. The loan was due on May 24, 2009. This loan is in default and the lender has instituted legal action. The loan is personally guaranteed by an officer and director of the Company.

On August 10, 2009, the Company entered into a premium finance agreement with Guard Insurance for the purchase of insurance. The total amount financed was $3,410, with monthly payments of $854.

On October 1, 2008, the Company borrowed $150,000 on a short term basis at fifteen percent interest compounded monthly and 125,000 shares of common stock valued at $22,500. The note and interest were due on November 30, 2008. An Officer of the Company guaranteed the loan. The loan is currently in default. Principal payments of $85,000 have been made and the outstanding principal balance is $65,000.

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



2009	$	548,997
2010		––
2011		––
		548,997
Current portion		548,997
	$	––

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Convertible Debt

On September 7, 2007, the Company issued four convertible promissory notes for a total of $150,000 with interest at twelve (12.0%) percent. The notes mature October 1, 2009. The notes are convertible, at the option of the holders, into 300,000 shares of the Company’s common stock. Quarterly interest and principal payments are $5,812.50 per note. Total interest due September 30, 2009 is $40,725. Payments due under the note for January 1, April 1, July 1, and October 1, 2008 are currently in default.

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

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

The Company has evaluated the conversion feature under applicable accounting literature, including FASB ASC 815 “Derivatives 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 nine months ended September 30, 2009 amounted to $24,323. For the nine months ended September 30, 2009, and 2008, the Company recorded interest expense of $37,972 and $67,973 respectively on the convertible notes of which $87,659 is included in accrued expenses on the Company’s balance sheet.

Note Receivable/Note Payable - Related Party

During 2008 and 2007, certain officers of the Company made advances to the Company. After repayment to the officers, the balance due the officers as of September 30, 2009, and December 2008, were $10,208 and $22,863, respectively. Two of the advances are interest free and all are due upon demand. Interest expense for the nine months ended September 30, 2009, and 2008 were $411 and $365, respectively.

Accrued Expenses

Accrued expenses consist of the following:


	September 30,		December 31,
	2009		2008
Payroll expense	$	275,751	$	167,902
Payroll tax expense		450,411		379,572
Penalties		133,310		486,903
Professional fees		11,000		50,438
Interest expense		190,351		141,296
Other		2,532		—
	$	1,063,355	$	1,226,111

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Stockholders’ Equity

Common Stock

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On January 7, 2009, an officer and director was issued 526,000 shares of common stock for $10,521 of expenses.

On January 7, 2009, a creditor converted $20,000 of debt into 1,000,000 shares of common stock.

On February 12, 2009, an officer converted $20,000 of debt into 666,666 shares of common stock.

On February 18, 2009, the company issued 10,000 shares of common stock to an investor for a loan extension fee of $300.

On March 9, 2009, the company issued 1,000,000 shares of common stock to a senior sales executive as a retention incentive package valued at $50,000.

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

On March 30, 2009, the Company sold 428,570 shares of common stock to an investor for $15,000.

On April 6, 2009, the Company sold 2,000,000 shares of common stock to an investor for $100,000.

On April 24, 2009, the Company sold 1,000,000 shares of common stock to an investor for $50,000.

On April 28, 2009, the Company converted $90,000 of debt into 1,250,000 shares of common stock.

On May 11, 2009, the Company converted $286,430 of debt comprised of $240,000 in principal and $46,430 in accrued interest into 4,163,487 shares of common stock.

On May 11, 2009, the company converted $250,000 of accounts payable due to its manufacturing supplier into 4,604,428 shares of common stock.

On July 23, 2009, the Company sold 828,800 shares of common stock for $41,440.

On July 24, 2009, the Company sold 830,000 shares of common stock for $41,500.

On July 28, 2009, the Company sold 828,000 shares of common stock for $41,480.

On August 24, 2009, the Company issued 250,000 shares of common stock for $12,500 of consulting fees.

aa)

On August 14, 2009, the company entered into a consulting agreement and issued 300,000 shares of common stock for services in the amount of $15,000.

bb)

On August 24, 2009, the Company sold 441,220 shares of common stock to an investor for $44,122.

cc)

On September 4, 2009, the Company sold 600,000 shares of common stock for $30,000.

dd)

On September 30, 2009, the Company issued Crossroads’ Financial 250,000 shares of common stock as additional compensation per our current inventory financing line.

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.

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

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

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

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

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

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

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

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

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

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.

Income Taxes

The Company adopted the provisions of FASB ASC 740, “Income Taxes” (ASC 740”) on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.

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 September 30, 2009 and the changes during the nine months ended September 30, 2009:

Weighted

Average

Remaining

Aggregate

Warrants

Shares

Exercise
Price

Contractual Term

Intrinsic
Value

Outstanding at January 1, 2009

200,000

0.01

9.5

Granted

––

Exercised

––

Forfeited, expired or cancelled

––

Outstanding at September 30, 2009

200,000

0.01

9.5

Exercisable at September 30, 2009

200,000

0.01

9.5

Dividend Payable

In September 2007, the Company entered into a share exchange agreement with the shareholders of PSF. Following the share exchange, the Company would transfer its existing business relating to the development of lastword® to its subsidiary, The Last Word Inc. To distribute the existing business of the Company to the shareholders, the Board of Directors of PPMC declared a dividend, payable in common stock of our subsidiary holding the 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, our subsidiary holding the lastword® technology will have to file a registration statement under the Securities Act of 1933 with, and have the filing declared effective by, the SEC. As of December 31, 2008 and December 31, 2007, the dividend payable in the amount of $673,176 represents the net liabilities that would be assumed by The Last Word Inc.

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

13.

Commitments and Contingencies

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

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. A consultant working for the Company co-guaranteed the minimum annual guarantee for the first two years and receives a 4.1667% of the license fees as a fee throughout the life of the license related to that work. The consultant subsequently became an officer and director of the Company. On January 1, 2008, the Company issued a warrant to Andretti IV, LLC, pursuant to their May 15, 2007 agreement, to purchase 200,000 common shares following the effectiveness of the Reverse Split at an exercise price equal to $.01 per share. The warrant expires December 31, 2017. The Company issued the warrant as part of the consideration to Andretti IV LLC in connection with the original license agreement signed in May 2007. The Company paid $50,000 as a licensing fee in 2007. The Company has paid $50,000 in 2008. The warrant has been accounted for in the financial statements.

On June 1, 2007, the Company hired Steven A. Kempenich as its Chief Executive Officer and a director of the Company. His contract is a two-year agreement at $16,666 per month. In March, 2009, Mr. Kempenich sued the Company, and our directors and executives, Shawn Landgraf and Steven Rubakh, for, inter alia, breach of contract and the covenant of good faith and fair dealing, unjust enrichment, promissory estoppel, tortious interference with contract, trade libel, and violation of the New Jersey Wage Act. On July 24, 2009 (the “Settlement Date”), we agreed to settle all matters involved in this case on the following basis: we would pay to Mr. Kempenich $10,000 within 30 days of the Settlement Date and would deliver to Mr. Kempenich shares of the Company’s common stock from certificates issued to an existing shareholder in September 2007 worth $15,000, the number of shares to be calculated by averaging the market prices of our common stock over the 30 days prior to the Settlement Date; Mr. Kempenich would be removed as a guarantor on two corporate loans, and the Defendants jointly and severally agreed to indemnify Mr. Kempenich against any liability under these loans; the parties agreed to mutual non-disparagement and non-defamation and that any public representations would be consistent therewith.

In accordance with the settlement agreement with Mr. Kempenich, on September 1st, 2009, we completed payment of $10,000 and transfer by an existing shareholder of 258,621 shares of our common stock to Mr. Kempenich (the number of shares being calculated to be worth $15,000 based on the 30 day average price of 5.8 cents for our common stock). Power Sports Factory was able write off $133,223 in debt as a result of this settlement.

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

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

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

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

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.

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

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

On August 15, 2008, the Company hired Shawn Landgraf as the chief executive officer. His salary is $120,000 per year. He does not have a contract at this time.

On October 1, 2008, the Company entered into a premium finance agreement with Cananwill Inc., for the purchase of additional insurance. The total amount financed was $67,500, with an annual percentage rate of 8.84% and monthly payments of $7,026.50. This contract was terminated on March 1, 2009. There is an outstanding balance of $54,393.

On October 1, 2008, the Company entered into a premium finance agreement with Cananwill Inc., for the purchase of additional insurance. The total amount financed was $27,000, with an annual percentage rate of 8.59% and monthly payments of $2,807.44. This contract was terminated on March 1, 2009. There is an outstanding balance of $21,753.

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 had not placed an initial order due to financing constraints. This agreement has expired.

On January 20, 2009, the Company entered into a modification of its licensing agreement with Andretti IV, LLC, for payments due for the year 2008. As of December 31, 2008, PSF had a balance of $540,000 due to Andretti IV, LLC. Under the restructuring agreement, PSF made a commitment to pay $250,000 by February 6, 2009, agreed to execute a note for $87,000 due March 30, 2009, and convert $58,000 into 1,000,000 shares of common stock. Upon receipt of the payments, and payment in full of the note, Andretti IV, LLC, agreed to forgive the remaining balance due for 2008. On April 24, 2009, the Company made a $50,000 payment towards this agreement.

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

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

August 1^st, 2009 the signed a letter of intent with Boyesen Engineering. The two companies have agreed to form a new wholly owned subsidiary of Power Sports Factory to design, manufacture and distribute all-new proprietary products and exclusively market all patented engine technologies owned by Boyesen Engineering.

14.

Subsequent Events

On October 23, 2009, the Company entered into a modification of its licensing agreement with Andretti IV, LLC, for payments due for the year 2008 and 2009. As of September 30, 2009, PSF had a balance of $1,340,000 due to Andretti IV, LLC. Under the restructuring agreement, PSF made a commitment to pay $30,000 by October 23, 2009, $60,000 by December 1 and $60,000 by January 1,2010. Upon receipt of the payments, and payment in full of the note, Andretti IV, LLC, agreed to forgive the remaining balance due for 2008 and 2009. On October 23, 2009, the Company made a $30,000 payment towards this agreement. The balance of the agreement is pending.

On October 28 the company issued 500,000 shares of common stock as compensation for consultants that facilitated our letter of intent with Boyeson Engineering.

On October 28, 2009, the Company sold 1,000,000 shares of common stock to an investor for $50,000.

November 1st, 2009, the company retained a consultant to assist in fund raising. The Consultant was compensated 425,000 common shares for these services.

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 7^th, 2009 for $31,592.07. The Company intends to settle this lawsuit.

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

Business Technology Partners, Inc. v. Power Sports Factory, Inc. The plaintiff in this case has sued the Company in the Superior Court of New Jersey, Camden County, for the sum of $134,965.12 for goods and/or services rendered. The parties to this case have reached the following settlement. PSF will pay defendant $75,000 on the following dates: $25,000 on November 5, 2009, $25,000 on December 5, 2009, $15,000 on January 5, 2010 and $10,000 on April 5, 2010. We did not make the initial payment on November 5^th, 2009.

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 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. The Company intends to settle this lawsuit.

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. The Company intends to settle this lawsuit.

POWER SPORTS FACTORY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Advanstar Commnications, Inc. v. Power Sports Factory, Inc. & Shawn Landgraf Advanstar 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.

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. The Company intends to settle this lawsuit.

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. The Company intends to settle this lawsuit.

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 fight this lawsuit as 5WPR never performed any services under the contract.

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 as Power Sports Factory was never served with a complaint or summons.

ITEM 2.

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.

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.

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.

Through PSF’s manufacturing relationships in China, it began to import and sell Power Sports products in the United States. Our products have been marketed mainly under the “Yamati” and “Andretti”, brands. At the beginning of 2007, we made the determination to focus primarily on the sales and distribution of motor scooters. We now sell the motor scooters that we import primarily to power sports dealers and a small portion through the internet.

Recent Developments

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 intend to plan, develop, distribute and operate 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 car sharing companies to facilitate our bike sharing solution. Our services will include sustained transportation consulting and customized solutions development, software licensing, equipment manufacturing and distribution. In May, 2009, we announced that we entered into a Joint Venture Agreement with CityRyde LLC, the premier Bike Share Consulting Company. CityRyde will provide us with product design, RFP development, and help grow our “Bike Share Source” Division. In August, 2009, we placed an order for Bike Sharing Systems, we will deploy our first installation in Philadelphia in the fourth quarter of 2009 in conjunction with our joint venture with CityRyde LLC.

Results of Operations

Nine Months Ended, September 30, 2009 Compared to Nine Months Ended September 30, 2008

During the nine months ended September 30, 2009, we incurred a net loss of $1,517,398 as compared with a net loss of $2,602,164 for the comparable period in 2008, the decreased loss being primarily attributable to a decrease in our selling, general and administrative costs from $2,921,994 in 2008 to $1,318,513 in 2009, partially attributable to forgiveness of accrued expenses in the amount of $675,000 resulting from a settlement with the Internal Revenue Service, coupled with a decrease in net sales from $2,081,750 in 2008 to $507,705 in 2009, with cost of sales being $1,650,120 and $506,702, respectively, for these periods. Non-cash compensation increased in 2009 to $100,821 from

$-0- in 2008. Interest expense increased from $108,996 for the nine months ended September 30, 2008, to $198,669 for the nine months ended September 30, 2009.

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

During the three months ended September 30, 2009, we incurred a net loss of $23,366, as compared with a net loss of $837,726 for the comparable period in 2008, the decreased loss being primarily attributable to a decrease in our selling, general and administrative costs from $809,198 in 2008 to $41,310 in 2009, which is partially attributable to forgiveness of accrued expenses in the amount of approximately $675,000 resulting from a settlement with the Internal Revenue Service, offset by a decrease in net sales from $671,616 in 2008 to $157,338 in 2009, with cost of sales being $658,601 and $183,959, respectively in these periods. Interest expense increased from $39,436 for the three months ended September 30, 2008, to $76,439 for the three months ended September 30, 2009.

Liquidity and Financial Resources

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 September 30, 2009, the Company had $1,722 of cash on hand. The Company has incurred a net loss of $1,517,398 in the nine months ended September 30, 2009, and has working capital and stockholders' deficiencies of $4,818,465 and $1,570,287, respectively, at September 30, 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 nine months ended September 30, 2009, we received proceeds of $363,542 from equity financing and proceeds net of repayments from loans payable of $143,745. We received proceeds of $5,000 from a loan from a related party, and made a payment of $17,655 on a note to a related party. We also had forgiveness of debt in the amount of approximately $133,223 attributable the settlement with Steven Kempenich. We will require substantial additional financing to maintain operations at Power Sports Factory, and to expand our operations to continue the launch of our new Andretti brand.

We are required under our Settlement Agreement with Andretti IV LLC to make two final settlement payments of $60,000 on or before December 1, 2009 and of $60,000 on or before January 1, 2010. We are in the process of liquidating our obligations with Crossroads Financial. The principal balance of this loan was $377,214 September 30, 2009, and $343,088 as November 13, 2009. We expect to have the Crossroads Financial balance paid off by December 31, 2009. We also have approximately $373,474 in collection litigation against us, for which we will require capital in the near term. Our obligations to the Internal Revenue Service total approximately $583,721, including employment taxes through September 30, 2009, which includes interest and penalties.

We expect that sale of our inventory bikes will provide us working capital of approximately $200,000; 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.

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.

CRITICAL ACCOUNTING ISSUES

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

Updates to the FASB Codification Applicable to the Company

is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of this standard to have an impact on the Company’s results of operations, financial condition or cash flows.

ITEM 3.

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.

ITEM 4T.

CONTROLS AND PROCEDURES.

The Company's Chief Executive Officer and its Chief Financial Officer are primarily responsible for the accuracy of the financial information that is presented in this quarterly Report. These officers have as of the close of the period covered by this Quarterly Report, evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-4c and 15d-14c promulgated under the Securities Exchange Act of 1934) and determined that such controls and procedures were effective in ensuring that material information relating to the Company was made known to them during the period covered by this Quarterly Report. In their evaluation, no changes were made to the Company's internal controls in this period that have materially affected, or are reasonably likely materially to affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

The Company is a party to the following lawsuits.

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 fight this as Power Sports Factory was never served with a complaint or summons.

ITEM 1A.

RISK FACTORS.

Not applicable.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth the sales of unregistered securities since the Company’s last report filed under this item.


Date	Title and Amount (1)	Purchaser	Principal Underwriter	Total Offering Price/ Underwriting Discounts
August 14, 2009	300,000 shares of common stock.	Consultant.	NA	$15,000/NA
August 24, 2009	250,000 shares of common stock.	Consultant.	NA	$12,500/NA
August 24, 2009	441,220 shares of common stock.	Private Investor.	NA	$44,122/NA

(1) The issuances to suppliers, lenders, consultants, investors and employees are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D or Rule 701 promulgated by the SEC under the Securities Act.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 5.

OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS.


31.1		Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002
32.2		32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	POWER SPORTS FACTORY, INC.


	By:	/s/ Shawn Landgraf
		Shawn Landgraf Chief Executive Officer
		Shawn Landgraf Chief Executive Officer

Date: November 19, 2009

EXHIBIT INDEX


31.1		Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002
32.2		32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.