x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
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 offices)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
(Do
not check if a smaller reporting company)
|
PART
I
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements
|
1
|
|
Item
2.
|
Management's
Discussion and Analysis or Plan of Operation
|
24
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
|
Item
4T.
|
Controls
and Procedures
|
26
|
|
PART
II
|
|||
Item
5.
|
Other
Information
|
27
|
|
Item
6.
|
Exhibits
|
28
|
|
EXHIBIT
INDEX
|
28
|
Page No.
|
|
Consolidated
Balance Sheets as at March 31, 2009 and December 31, 2008
(Unaudited)
|
2
|
Consolidated
Statements of Operations Three Months Ended March 31, 2009 and 2008
(Unaudited)
|
3
|
Consolidated
Statements of Stockholders' Deficiency For the Period Ended March 31, 2009
(Unaudited)
|
4
|
Consolidated
Statements of Cash Flows For the Three Months Ended March 31, 2009 and
2008 (Unaudited)
|
5-6
|
Notes
to Unaudited Consolidated Financial Statements
|
7
|
POWER
SPORTS FACTORY, INC.
|
|||||
CONSOLIDATED
BALANCE SHEETS
|
|||||
(Unaudited)
|
March
31,
2009
|
December
31,
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 111 | $ | 117 | ||||
Accounts
receivable
|
51,845 | 67,749 | ||||||
Inventory
|
1,630,612 | 1,735,181 | ||||||
Prepaid
expenses
|
92,527 | 97,363 | ||||||
Total
Current Assets
|
1,775,095 | 1,900,410 | ||||||
Property
and equipment-net
|
22,891 | 25,135 | ||||||
Other
assets
|
11,100 | 9,876 | ||||||
TOTAL
ASSETS
|
$ | 1,809,086 | $ | 1,935,421 | ||||
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 3,740,254 | $ | 3,554,654 | ||||
Accounts
payable to related party
|
50,007 | 28,383 | ||||||
Notes
payable to related party
|
15,863 | 22,863 | ||||||
Current
portion of long-term debt
|
883,532 | 387,882 | ||||||
Convertible
debt
|
340,979 | 501,356 | ||||||
Accrued
expenses
|
1,452,935 | 1,226,211 | ||||||
Dividends
Payable
|
673,176 | 673,176 | ||||||
Customer
deposit payable
|
51,628 | 52,774 | ||||||
Total
Current Liabilities
|
7,208,374 | 6,447,299 | ||||||
Long
term liabilites:
|
||||||||
Long-term
debt - less current portion
|
- | 7,370 | ||||||
Convertible
debt - less current portion
|
12,010 | 24,323 | ||||||
Total
Long-Term Liabilities
|
12,010 | 31,693 | ||||||
TOTAL
LIABILITIES
|
7,220,384 | 6,478,992 | ||||||
Stockholders'
Deficiency:
|
||||||||
Preferred
stock; no value - authorized
|
||||||||
50,000,000
shares, Series B Convertible Preferred
|
||||||||
Stock
- outstanding -0- shares at March 31, 2009
|
- | - | ||||||
and
-0- shares at December 31, 2008
|
||||||||
Common
stock, no par value - authorized
|
||||||||
100,000,000
shares
|
||||||||
outstanding 39,327,854
shares at March 31, 2009 and
|
||||||||
31,375,188 shares
at December 31, 2008
|
5,679,549 | 5,476,228 | ||||||
Additional
paid-in capital
|
456,000 | 456,000 | ||||||
Deficit
|
(11,546,848 | ) | (10,475,799 | ) | ||||
Total
Stockholders' Deficiency
|
(5,411,299 | ) | (4,543,571 | ) | ||||
TOTAL
LIABILITIES AND
|
||||||||
STOCKHOLDERS'
DEFICIENCY
|
$ | 1,809,086 | $ | 1,935,421 |
POWER
SPORTS FACTORY, INC.
|
|||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|||||
(Unaudited)
|
Three
Months Ended
|
||||||||
March
31, 2009
|
March
31, 2008
|
|||||||
Net
sales
|
$ | 132,189 | $ | 493,088 | ||||
Costs
and Expenses:
|
||||||||
Cost
of sales
|
151,593 | 435,172 | ||||||
Selling,
general and administrative expenses
|
886,388 | 1,394,965 | ||||||
Non-cash
compensation
|
73,321 | - | ||||||
Bad
debt expense
|
7,871 | - | ||||||
1,119,173 | 1,830,137 | |||||||
Loss
from operations
|
(986,983 | ) | (1,337,049 | ) | ||||
Other
income and expenses:
|
||||||||
Acretion
of beneficial conversion feature
|
(12,313 | ) | - | |||||
Interest
expense
|
(71,753 | ) | (28,431 | ) | ||||
Interest
income
|
- | 10 | ||||||
(84,066 | ) | (28,421 | ) | |||||
Loss
before benefit from income taxes
|
(1,071,049 | ) | (1,365,470 | ) | ||||
Income
tax benefit
|
- | - | ||||||
Net loss
|
$ | (1,071,049 | ) | $ | (1,365,470 | ) | ||
Loss
per common share - basic and diluted
|
$ | (0.03 | ) | $ | (0.05 | ) | ||
Weighted
average common shares - Basic and
diluted
|
37,531,818 | 28,133,247 |
Common
Stock
|
Additional
|
|||||||||||||||||||||||||||
Preferred
|
Stated
|
Stated
|
Paid-In
|
|||||||||||||||||||||||||
Stock
|
Value
|
Shares
|
Value
|
Capital
|
(Deficit)
|
Total
|
||||||||||||||||||||||
Balance
at January1, 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 split
|
- | |||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||
Issuance
of common stock for fees (valued at $.02 to $.05 per
share)
|
260,000 | 12,800 | 12,800 | |||||||||||||||||||||||||
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 $.03 per
share)
|
6,166,666 | 130,000 | 130,000 | |||||||||||||||||||||||||
Net
loss for the three months ended March 31, 2009
|
(1,071,049 | ) | (1,071,049 | ) | ||||||||||||||||||||||||
Balance
at March 31, 2009
|
- | $ | - | 39,327,854 | $ | 5,679,549 | $ | 456,000 | $ | (11,546,848 | ) | $ | (5,411,299 | ) |
POWER
SPORTS FACTORY, INC.
|
|||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||
(Unaudited)
|
Three
Months Ended
|
||||||||
March
31, 2009
|
March
31, 2008
|
|||||||
CASH
FLOW FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (1,071,049 | ) | (1,365,470 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
2,244 | 2,471 | ||||||
Non
cash compensation
|
73,321 | 125,462 | ||||||
Accretion
of beneficial conversion feature
|
12,313 | 50,542 | ||||||
Changes
in operating assets and liabilities
|
688,110 | 919,328 | ||||||
Net
cash used in operating activities
|
(295,061 | ) | (267,667 | ) | ||||
CASH
FLOW FROM INVESTING ACTIVITIES:
|
||||||||
Securiy
deposit
|
(1,224 | ) | ||||||
Purchase
of equipment
|
- | (1,312 | ) | |||||
Net
cash provided by investing activities
|
(1,224 | ) | (1,312 | ) | ||||
CASH
FLOW FROM FINANCING ACTIVITIES:
|
||||||||
Payment
to note payable related party
|
(7,000 | ) | - | |||||
Proceeds
from loan payable
|
522,500 | 81,667 | ||||||
Payments
on loan
|
(219,221 | ) | (56,534 | ) | ||||
Proceeds
from convertible debt
|
250,000 | |||||||
Net
cash provided by financing activities
|
296,279 | 275,133 |
POWER
SPORTS FACTORY, INC.
|
|||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)
|
|||||
(Unaudited)
|
Three
Months Ended
|
||||||||
March
31, 2009
|
March
31, 2008
|
|||||||
Net
increase (decrease) in cash
|
(6 | ) | 6,154 | |||||
Cash
- beginning of period
|
117 | 11,146 | ||||||
Cash
- end of period
|
$ | 111 | $ | 17,300 | ||||
Changes
in operating assets and liabilities consists
of:
|
||||||||
Decrease
(increase) in accounts receivable
|
$ | 15,903 | $ | (49,128 | ) | |||
Decrease
(increase) in inventory
|
104,569 | 48,670 | ||||||
Decrease
(increase) in prepaid expenses
|
4,836 | (100,582 | ) | |||||
Increase
in accounts payable
|
207,224 | 871,768 | ||||||
Increase
in accrued expenses
|
356,724 | 148,600 | ||||||
(
Decrease) increase in customer deposits
|
(1,146 | ) | - | |||||
$ | 688,110 | $ | 919,328 | |||||
Supplementary
information:
|
||||||||
Cash
paid during the year for:
|
||||||||
Income
taxes
|
$ | - | $ | - | ||||
Interest
|
$ | 37,924 | $ | 10,503 | ||||
Non-cash
financing activities
|
||||||||
Issuance
of preferred stock for services
|
$ | - | $ | 45,462 | ||||
Issuance
of warrants for services
|
$ | - | $ | 80,000 | ||||
Issuance
of common stock for services
|
$ | 73,321 | - | |||||
Issuance
of common stock for debt
|
$ | 130,000 | - |
1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
2.
|
Inventories
|
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Motor
bikes
|
$ | 1,237,795 | $ | 1,339,802 | ||||
Parts
|
142,818 | 145,379 | ||||||
Deposits
on Inventory
|
250,000 | 250,000 | ||||||
$ | 1,630,613 | $ | 1,735,181 |
3.
|
Property
and Equipment
|
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Equipment
|
$ | 41,898 | $ | 41,898 | ||||
Signs
|
7,040 | 7,040 | ||||||
Software
|
- | - | ||||||
48,938 | 48,938 | |||||||
Less:
accumulated depreciation
|
26,047 | 23,803 | ||||||
$ | 22,891 | $ | 25,135 |
4.
|
Long-term
debt
|
March
31,
|
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 April 30, 2008;
|
||||||||
interest
at 10% payable at
|
||||||||
maturity
(1)
|
68,645 | 68,645 | ||||||
Note
payable to Cananwill, Inc due
|
||||||||
August
1, 2009, interest at 8.84%;
|
||||||||
monthly
payments of $7,027
|
54,393 | 54,393 | ||||||
Note
payable to Cananwill, Inc. due
|
||||||||
August
1, 2009, interest at 8.59%
|
||||||||
monthly
payments of $2,807
|
21,753 | 21,753 | ||||||
Note
payable to BankDirect
|
||||||||
due
January 12, 2010; interest at 8%
|
||||||||
Monthly
payments of $2,333
|
22,500 | - | ||||||
Note
payable to Crossroads Financial due
|
||||||||
January
9, 2010, interest 21% plus fees,
|
||||||||
monthly
payments variable
|
476,240 | - | ||||||
Note
payable due June 15, 2008;
|
||||||||
interest
at 20.0% simple interest with a
|
||||||||
private
investor(s) (5)
|
240,000 | 240,000 | ||||||
883,532 | 395,252 | |||||||
Less
amounts due within one year
|
883,532 | 387,882 | ||||||
$ | - | $ | 7,370 |
1)
|
On
July 31, 2007, the Company borrowed $80,000 from an
investor. The note matured on April 30, 2008 at which time
the principal amount plus ten percent interest was due. The maturity
date was extended to May 30, 2008 and then extended to October 1, 2008.
The Company issued 10,000 shares of the Company’s common stock valued at
$3,000, as additional consideration with the loan, subsequent to March 31,
2008. On March 31, 2009 the balance on this note is $68,645. This note is
currently in default.
|
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. 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,
1009.
|
3)
|
On
August 12, 2008, the Company entered into an interim inventory funding
arrangement with a distributor whereby the distributor has agreed to
acquire inventory of makes and models from the Company’s manufacturers
under the Andretti brand and finance them exclusively for the Company over
a ninety day period for and average cost of 3.333% per
month. On August 26, 2008, the parties modified the agreement
to four percent fixed plus interest of one and one-tenth percent per month
after ninety days plus fees up to one hundred and eighty
days. The Company also issued the distributor 250,000 shares of
its common stock valued at $62,500 as an additional
incentive. The Company may utilize this arrangement up to one
million two hundred thousand dollars. The distributor has the
right to acquire inventory at substantially favorable pricing if it
desires to sell the product in territories that the Company has no
dealers. These transactions must be approved by the
Company. The Company maintains product liability and warranty
responsibility on the entire inventory, as well as financing costs and
warehousing costs. If the Company does not take possession of
the inventory at the end of any ninety day period, the distributor has the
right to sell them at cost. The agreement is personally
guaranteed by a current officer of the Company and a former officer of the
Company.
|
4)
|
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.
|
5)
|
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 three hundred and fifty
thousand dollars and an early termination fee of seven thousand five
hundred dollars per month for every month still outstanding in the
term. The 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 March
31, 2009, the outstanding balance on this line of
$476,240.
|
2009
|
$ | 883,532 | ||
2010
|
- | |||
2011
|
- | |||
883,532 | ||||
Current
portion
|
883,532 | |||
$ | - |
5.
|
Convertible
Debt
|
6.
|
Note
Receivable/Note Payable - Related
Party
|
a)
|
During
2008 and 2007, certain officers of the Company made advances to the
Company. After repayment to the officers, the balance due the
officers as of March 31, 2009, and December 2008, were $15,863 and
$22,863, respectively. Two of the advances are interest free
and all are due upon demand. Interest expense for the three
months ended March 31, 2009, and 2008 were $133 and $118
respectively.
|
7.
|
Accrued
Expenses
|
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Payroll
expense
|
$ | 207,003 | $ | 167,902 | ||||
Payroll
tax expense
|
417,978 | 379,572 | ||||||
Penalties
|
643,647 | 486,903 | ||||||
Professional
fees
|
11,000 | 50,438 | ||||||
Interest
expense
|
172,883 | 141,296 | ||||||
Other
|
424 | |||||||
$ | 1,452,935 | $ | 1,226,111 |
8.
|
Stockholders’
Equity
|
a)
|
On
August 6, 2008, the Company converted a $250,000 note payable and accrued
interest of $25,000 into 550,000 common
shares.
|
b)
|
On
August 20, 2008, the company retained a consultant to provide equity
research services. The Consultant was compensated 75,000 common
shares for these services valued at
$18,750.
|
c)
|
On
August 26, 2008, the Company issued a distributor 250,000 shares of common
stock valued at $62,500.
|
d)
|
On
August 28,2008, the Company paid compensation to a staffing company for
providing sales personnel for a total of $20,000, which was paid $10,000
in cash and 14,285 shares of common stock valued at
$10,000.
|
e)
|
On
September 25, 2008, the Company retained a consultant to provide long
range investor relations planning. The consultant was
compensated 250,000 shares of common stock valued at $25,000 for these
services.
|
f)
|
On
September 29, 2008, an officer and director of the company, converted
$40,000 of debt into 500,000 shares of common
stock.
|
g)
|
On
September 29, 2008, an officer and director of the company, converted
$21,000 of debt into 262,500 shares of common
stock.
|
h)
|
On
September 29, 2008, a consultant of the Company converted $40,000 of debt
into 500,000 shares of common
stock.
|
|
i)
|
On
October 1, 2008, the Company issued 125,000 shares of common stock to a
lender valued at $22,500.
|
|
j)
|
On
October 21, 2008, the Company entered into an agreement with a firm to
provide the Company with capital restructuring and corporate financing
advise. Te firm was compensated 500,000 shares of common stock
valued at $40,000.
|
k)
|
On
January 7, 2009, a creditor converted $90,000 of debt into 4,500,000
shares of common stock.
|
|
l)
|
On
January 7, 2009, an officer and director converted $10,520 into 526,000
shares of common stock.
|
m)
|
On
January 7, 2009, a creditor converted $20,000 of debt into 1,000,000
shares of common stock.
|
n)
|
On
February 12, 2009, an officer converted $21,000 into 666,666 shares of
common stock.
|
o)
|
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.
|
|
a)
|
During
2007, the Company sold 54,000 shares of Series B Convertible Preferred
Stock and received proceeds of
$270,000.
|
|
b)
|
During
2007, the Company issued 333,316 shares of Series B Convertible Preferred
Stock in exchange for the liquidation of $1,663,000 of Company
debt.
|
|
c)
|
During
2007, the Company issued 265,900 shares of Series B Convertible Preferred
Stock for services with a fair value of
$726,950.
|
|
d)
|
On
January 18, 2008, the Company retained a firm to provide management
consulting, business advisory, shareholder information and public relation
services. The term of the agreement is one year. The Company issued 35,000
Series B Convertible shares for services to be performed with a fair value
$43,750 and pays $2,500 per month as compensation under the
agreement.
|
|
e)
|
On
March 24, 2008, the Company issued 389 shares of Series B Convertible
Preferred Stock for services valued at
$1,712.
|
|
f)
|
On
April 1, 2008, the Company retained a marketing consultant for
$15,000. On April 21, 2008, the consultant agreed to convert
his payable into 3,000 shares of Series B Convertible
Shares.
|
|
g)
|
On
April 24, 2008, the Company paid compensation to staffing company for
providing permanent accounting personnel for a total of $10,272, which was
paid $7,191 in cash and 514 shares of Series B Convertible Preferred
Shares.
|
|
h)
|
On
May 16, 2008, the Company issued MCMC, LLC. 200 shares of Series B
Convertible Preferred Shares.
|
|
i)
|
On
March 30, 2009, the Company sold 428,750 shares of common stock to an
investor for $15,000.
|
9.
|
Income
Taxes
|
11.
|
Warrants
|
Weighted
|
||||||||||||||||
Weighted
|
Average
|
Aggregate
|
||||||||||||||
Average
|
Remaining
|
Intrinsic
|
||||||||||||||
Warrants
|
Shares
|
Exercise Price
|
Contractual Term
|
Value
|
||||||||||||
Outstanding
at January 1, 2009
|
200,000 | $ | 0.01 | 9.5 | ||||||||||||
Granted
|
- | - | $ | - | ||||||||||||
Exercised
|
- | - | ||||||||||||||
Forfeited,
expired or cancelled
|
- | - | $ | - | ||||||||||||
Outstanding
at March 31, 2009
|
200,000 | $ | 0.01 | 9.5 | ||||||||||||
Exercisable
at March 31, 2009
|
200,000 | $ | 0.01 | 9.5 |
a.
|
Dividend
Payable
|
13.
|
Commitments
and Contingencies
|
|
a)
|
On
April 1, 2007, the Company hired two consultants to provide transition
management services, business planning, managerial systems analysis, sales
and distribution assistance and inventory management systems
services. Both contracts are each $15,000 per month and can be
terminated at will when the Company decides that the services have been
completed and/or are no longer necessary. One contract ceased
on May 15, 2008. The other contract ceased on August 15
2008.
|
|
b)
|
On
May 15, 2007, the Company entered into an exclusive licensing agreement
with Andretti IV, LLC, a Pennsylvanian limited liability company to brand
motorcycles and scooters. The term of the agreement is through
December 31, 2017. Royalties under the agreement are tied to
motorcycle and scooter sales branded under the “Andretti
line”. 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 is also due on July 31,
2008. These two payments totaling $500,000 represent the minimum
annual guarantee owed to Andretti IV LLC for 2008. In addition,
after certain volume targets are met, Andretti IV LLC receives a per bike
fee. A consultant working for the Company co-guaranteed the minimum
annual guarantee for the first two years and receives a 4.1667% of the
license fees as a fee throughout the life of the license related to that
work. The consultant subsequently became an officer and director of the
Company. On January 1, 2008, the Company issued a warrant to
Andretti IV, LLC, pursuant to their May 15, 2007 agreement, to purchase
200,000 common shares following the effectiveness of the Reverse Split at
an exercise price equal to $.01 per share. The warrant expires
December 31, 2017. The Company issued the warrant as part of the
consideration to Andretti IV LLC in connection with the original license
agreement signed in May 2007. The Company paid $50,000 as a
licensing fee in 2007. The Company has paid $50,000 in 2008. The
warrant has been accounted for in the financial
statements.
|
c)
|
On
June 1, 2007, the Company hired Steven A. Kempenich as its Chief Executive
Officer and a director of the Company. His contract is a
two-year agreement at $16,666 per month. On August 14, 2008, he
was terminated for cause.
|
d)
|
On
October 11, 2007, the Company retained a firm to provide corporate
communications and investor relations. The agreement is for one
year which automatically renews unless either party elects to terminate
the agreement with a notice of termination no later than sixty days prior
to the end of the term. Fees for these services are $5,000 per
month and 20,000 shares of common stock. Fees are earned but
deferred until the seventh month at which time the deferred fees are paid
in equal amounts along with the current fees as they are
incurred. The Company paid $24,000 as consulting fees in 2007
of which $14,000 was paid with 1,000 shares of preferred
stock.
|
e)
|
Effective
January 1, 2008, the Company entered into a monthly agency retainer
agreement with a marketing and advertising firm to provide the company
with services at a fee of $25,000 per month. This agreement ceased at the
end of May, 2008.
|
|
f)
|
On
January 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.
|
g)
|
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 ovners. 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.
|
|
h)
|
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.
|
|
i)
|
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.
|
|
j)
|
On
August 15, 2008, the Company hired Shawn Landgraf as the chief executive
officer. His salary is $156,000 per year. He does
not have a contract at this time. Landgraf is also the
president of Magnus Partners, Inc., which has provided services to the
Company in the past and is currently owed
$115,342.
|
|
k)
|
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 67500, 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.
|
|
l)
|
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 $27000, 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.
|
|
m)
|
On
October 23, 2008, the Company entered into an exclusive distribution
agreement with Eurospeed, Inc., to distribute its Andretti product line to
new and used automotive dealers in the U. S. and Canada. The
agreement calls for an initial purchase of six hundred units before
November 30, 2008 and a minimum of seventy-five hundred units over the
first twelve months of the agreement. The Company’s
manufacturer has agreed to supply Eurospeed with product in the event that
the Company defaults under its manufacturing agreement. The
initial purchase date had been extended to December 30,
2008. As of April, 2009 Eurospeed has not placed an initial
order due to financing constraints. This agreement has
expired.
|
|
n)
|
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. The balance of
the agreement
is pending.
|
|
o)
|
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.
|
14.
|
Subsequent
Events
|
a)
|
On
April 6, the Company sold 2,000,000 shares of common stock to an investor
for $100,000.
|
b)
|
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 is personally guaranteed by an officer and director of the company
and is due May 24, 2009.
|
c)
|
On
April 24, 2009, the Company sold 1,000,000 shares of common stock to an
investor for $50,000.
|
d)
|
On
April 28, 2009, the Company converted $90,000 of debt into 1,250,000
shares of common stock.
|
e)
|
On
May 11, 2009, the Company converted $292,049 comprised of $240,000 in
principal and $52,049 in accrued interest into 4,163,487 shares of common
stock.
|
|
f)
|
On
May 11, 2009, the company converted $252,310 of accounts payable due to
its manufacturing supplier into 4,604,428 shares of common
stock.
|
Date
|
Title
and Amount (1)
|
Purchaser
|
|
Principal
Underwriter
|
Total
Offering Price/
Underwriting
Discounts
|
|||
January
7, 2009
|
4,500,000
shares of common stock issued in conversion of $90,000 of
debt.
|
Private
investor.
|
NA
|
$90,000/NA
|
||||
January
7, 2009
|
526,000
shares of common stock issued in conversion of $10,520 of
debt.
|
Corporate
officer
|
NA
|
$10,520/NA
|
||||
January
7, 2009
|
1,000,000
shares of common stock issued in conversion of $20,000 of
debt.
|
Private
investor.
|
NA
|
$20,000/NA
|
||||
February
12, 2009
|
666,666
shares of common stock
|
Corporate
officer.
|
NA
|
$21,000/NA
|
||||
March
9, 2009
|
1,000,000
shares of common stock issued to employee as a retention
incentive.
|
Employee.
|
NA
|
$50,000/NA
|
||||
March
30, 2009
|
428,750
shares of common stock.
|
Private
investor.
|
NA
|
$15,000/NA
|
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
|
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.
|
POWER
SPORTS FACTORY, INC.
(Registrant)
|
|||
Dated:
May 20, 2009
|
By:
|
/s/ Shawn Landgraf | |
Shawn Landgraf, Chief Executive Officer |
Exhibit
Number
|
Description
|
|
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
|
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.
|