(1)
The
issuances to 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
5.02 Departure of
Directors or Principal Officers; Election of Directors; Appointment of
Principal
Officers
Appointment
of Officers and Election of Directors
On
September 5, 2007, the Board of Directors of the Company amended our
By-Laws to
provide that the number of directors constituting the entire Board be
fixed at
five, appointed Stanislav Rubakh as our President and Acting Chief Financial
Officer, and elected Mr. Rubakh as a director of the Company to fill
one of the
two newly-created directorships. At this Board meeting, Steven
Kempenich was also appointed as our Chief Executive Officer and Acting
Secretary
and was elected to the second newly-created directorship.
Stanislav
Rubakh Founder and President
Steve
Rubakh, age 46, founded Power Sports Factory, Inc., in June, 2003 and
currently serves as the President. Prior to founding Power Sports Factory,
Mr.
Rubakh was the founder of International Parking Concepts specializing
in
providing services to the hospitality industry. From 1987 to 1992 Mr.
Rubakh was
the owner and operator of Gold Connection, a fine gem retail operation
in
Atlantic City. Mr. Rubakh attended both Community College of Philadelphia
and Temple University majoring in business administration.
Steven
A. Kempenich – Chief Executive Officer
Steven
A.
Kempenich, age 36, joined Power Sports Factory On June 4, 2007. Prior
to joining
Power Sports Factory, Mr. Kempenich was the Vice President of Business
Development and Finance for ICON International, Inc. from July of 2002
until
June of 2007. From 1999 until joining ICON International, Mr. Kempenich
was the
Portfolio Manager and Managing Partner for Gentex Asset Management and
SAK
Capital, LLC. Mr. Kempenich received a Bachelor of Science in Finance,
Investments and Entrepreneurial Studies from Babson College in 1992 and
a
Masters in Business Administration from Harvard University Graduate School
of
Business Administration in 1996. On February 25, 2004, Mr. Kempenich
consented
without admitting or denying guilt to a NYSE hearing panel finding that
he
accepted a post-execution trade into a firm account that was deemed by
the NYSE
panel as improper. As a result, the NYSE imposed, which Mr. Kempenich
consented
to, a penalty of a censure, two-month bar and an undertaking to cooperate
with
the NYSE in connection with any disciplinary proceeding arising from
this
matter. The SEC and the NASD did not pursue any action regarding this
matter.
ITEM
5.03 Amendments to
Articles of Incorporation or ByLaws; Change in Fiscal Year
Series
B Convertible Preferred Stock
On
September 4, 2007, we amended our Articles of Incorporation through action
by
our Board of Directors to designate a new class of 3,000,000 shares of
Series B
Convertible Preferred Stock, no par value. The Preferred Stock is
automatically converted into Common Stock of the Company at the rate
of 10
shares of Common Stock for each share of Preferred Stock on and after
the
effective date of the 1-for-20 reverse split of our Common Stock detailed
in our
Preliminary Information Statement filings with the Securities and Exchange
Commission.
Increase
in the Number of Directors
Effective
September 5, 2007, we amended our By-Laws to provide that the number
of
directors constituting the entire Board of Directors be fixed at
five. Prior to this amendment, the Board consisted of three
directors.
FOR
THE
FULL TERMS OF THE STATEMENT OF DESIGNATIONS FOR THE SERIES B CONVERTIBLE
PREFERRED STOCK AND THE AMENDMENT TO OUR BY-LAWS, PLEASE REFER TO THE
COPIES OF
THESE DOCUMENTS FILED AS EXHIBITS 3(a)(2) AND 3(b)(2), RESPECTIVELY,
TO THIS
REPORT.
ITEM
7.01 Regulation FD
Disclosure
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
Throughout
this report, we make statements that may be deemed "forward-looking"
statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts, that
address
activities, events, outcomes and other matters that we plan, expects,
intend,
assume, believe, budget, predict, forecast, project, estimate or anticipate
(and
other similar expressions) will, should or may occur in the future are
forward-looking statements. These forward-looking statements are based
on
management's current belief, based on currently available information,
as to the
outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this report.
Power
Sports Factory, Inc., is a Delaware corporation formed in June, 2003,
that
imports, markets, distributes and sells motorcycles and scooters. The
Company’s
product has been marketed mainly under the “Strada” and “Yamati” brands and is
imported from China. The majority of the scooters range in size from 50cc
to 200cc. On May 15, 2007, PSF signed an exclusive licensing agreement
with Andretti IV, LLC. This agreement allows PSF to use the Andretti name
to brand scooters for the next 10 years.
Risk
Factors
The
Company’s products are subject to extensive international, federal, state and
local safety, environmental and other government regulation that may
require the
Company to incur expenses, modify product offerings or cease all or portions
of
its business in order to maintain compliance with the actions of
regulators.
Power
Sports Factory must comply with numerous federal and state regulations
governing
environmental and safety factors with respect to its products and their
use.
These various governmental regulations generally relate to air, water
and noise
pollution, as well as safety standards. If Power Sports Factory is unable
to
obtain the necessary certifications or authorizations required by government
standards, or fail to maintain them, business and future operations would
be
harmed seriously.
Use
of
motorcycles and scooters in the United States is subject to rigorous
regulation
by the Environmental Protection Agency (“EPA”), and by state pollution control
agencies. Any failure by the Company to comply with applicable environmental
requirements of the EPA or state agencies could subject the Company to
administratively or judicially imposed sanctions such as civil penalties,
criminal prosecution, injunctions, product recalls or suspension of production.
Additionally, the Consumer Product Safety Commission exercises jurisdiction
when
applicable over the Company’s product categories.
The
Company’s business and facilities also are subject to regulation under various
federal, state and local regulations relating to the sale of its products,
operations, occupational safety, environmental protection, hazardous
substance
control and product advertising and promotion. Failure to comply with
any of
these regulations in the operation of the business could subject the
Company to
administrative or legal action resulting in fines or other monetary penalties
or
require the Company to change or cease business.
A
significant adverse determination in any material product liability claim
against the Company could adversely affect its operating results or financial
condition.
Accidents
involving personal injury and property damage occur in the use of the
Company‘s
products. It is the Company’s policy to vigorously defend against
these actions. Product liability insurance is presently maintained by
the
Company on a “claims made” basis in the amount of $1,000,000 per occurrence and
$2,000,000 in the general aggregate. While Power Sports Factory does
not have
any significant pending product liability litigation, no assurance can
be given
that material product liability claims against Power Sports Factory will
not be
made in the future. Adverse determination of material product liability
claims
made against Power Sports Factory or a lapse in coverage could adversely
affect
its operating results or financial condition.
Significant
repair and/or replacement with respect to product warranty claims or
product
recalls could have a material adverse impact on the results of
operations.
The
Company provides a limited warranty for its products for a period of
twelve
months. The Company may provide longer warranties in certain
geographical markets as determined by local regulations and market
conditions. Although
the Company requires that its manufacturing partners employ quality control
procedures, sometimes a product is distributed which needs repair or
replacement. The Company’s standard warranties require the Company or its
dealers to repair or replace defective products during such warranty
periods at
no cost to the consumer.
The
Company’s business is subject to seasonality and weather conditions that may
cause quarterly operating results to fluctuate materially.
Motorcycle
and scooter sales in general are seasonal in nature since consumer demand
is
substantially lower during the colder season in North America. Power
Sports
Factory may endure periods of reduced revenues and cash flows during
off-season
months and be required to lay off or terminate some employees from time
to time.
Building inventory during the off-season period could harm financial
results if
anticipated sales are not realized. Further, if a significant number
of dealers
are concentrated in locations with longer or more intense cold seasons,
or
suffer other weather conditions, such as Katrina on the Gulf Coast, a
lack of
consumer demand may impact adversely the Company’s financial
results.
Power
Sports Factory faces intense competition, including competition from
companies
with significantly greater resources, and if Power Sports Factory is
unable to
compete effectively with these companies, market share may decline and
business
could be harmed.
The
motorcycle and scooter industry is highly competitive. The Company’s competitors
include specialty companies as well as large motor vehicle companies
with
diversified product lines. Competitors of the company in the motorcycle
and
scooter category include Honda, Yamaha, Piaggio/Vespa, Keeway, Segway
and Vento.
A number of our competitors have significantly greater financial, technological,
engineering, manufacturing, sales, marketing and distribution resources
than
Power Sports Factory. Their greater capabilities in these areas may enable
them
to better withstand periodic downturns in the recreational vehicle industry,
compete more effectively on the basis of price and production and more
quickly
develop new products. In addition, new companies may enter the markets
in which
Power Sports Factory competes, further increasing competition. Power
Sports
Factory believes its ability to compete successfully depends on a number
of
factors including the strength of licensed brand names, effective advertising
and marketing, impressive design, high quality, and value. In addition,
Power
Sports Factory’s products compete with many other products for the discretionary
spending of consumers.
Additionally,
our manufacturers may have relationships with our competitors in some
or all
markets or product lines. Pricing and supply commitments may be more
favorable to our competitors. Power Sports Factory may not be able to
compete successfully in the future, and increased competition may adversely
affect our financial results.
Termination
or interruption of informal supply arrangements could have a material
adverse
effect on the Company’s business or results of
operations.
We
have
formal and informal manufacturing and supply relationships with firms
domestically and internationally. If any of these relationships were
terminated, Power Sports Factory could experience an interruption in
the supply
of products that would adversely affect Power Sports Factory’s ability to
deliver goods to the market in a timely fashion or not at all. Profitable
alternatives may be delayed or not possible. In some or all of our
product lines, we have single source supply relationships. Strikes,
technology
failures, subcontractors issues, lapses in quality control, extreme
weather and
other acts of God, fuel shortages, customs delays, homeland security
issues, terrorism, war and other factors can interrupt our supply
chain. Power Sports Factory has experienced delays in its supply
chain in the past.
We
may have exclusive manufacturing relationships that could materially
affect our
costs and manner in which we operate.
We
are
currently negotiating for exclusive design and products from manufacturers
that,
in addition to other terms, will require us to make minimum purchase
commitments. If we do not make the minimum amount of purchases under
the agreement, we may lose our exclusive rights to certain products and
designs. Additionally we may have to agree to offer reciprocal
purchasing exclusivity which could increase risks associated with single
source
supplying such as pricing, quality control, timely delivery and market
acceptance of designs.
We
have an exclusive licensing arrangement for a significant portion of
our product
offering.
Our
exclusive marketing arrangement with Andretti IV, LLC., requires us to
sell a
minimum amount of units per year. If we do not sell the minimum
amount required under the agreement, we may lose our exclusive
license. Our licensing fee is a fixed cost according to the agreement
which may cause us to be inflexible in our pricing structure.
Our
business is subject to risks associated with offshore
manufacturing.
We
import
motorcycles and scooters into the United States from China for resale.
All of
our import operations are subject to tariffs and quotas set by the U.S.
and
Chinese governments through mutual agreements or bilateral actions. In
addition,
China, where our products are manufactured may from time to time impose
additional new quotas, duties, tariffs or other restrictions on our imports
or
exports, or adversely modify existing restrictions. Adverse changes in
these
import costs and restrictions, or on our suppliers’ failure to comply with
customs regulations or similar laws, could harm our business.
Our
operations are also subject to the effects of international trade agreements
and
regulations such as the North American Free Trade Agreement, the Caribbean
Basin
Initiative and the European Economic Area Agreement, and the activities
and
regulations of the World Trade Organization. Trade agreements can also
impose
requirements that adversely affect our business, such as setting quotas
on
products that may be imported from a particular country into our key
market, the
United States. In fact, some trade agreements can provide our competitors
with
an advantage over us, or increase our costs, either of which could have
an
adverse effect on our business and financial condition.
In
addition, the recent elimination of quotas on World Trade Organization
member
countries by 2005 could result in increased competition from developing
countries which historically have lower labor costs, including China.
This
increased competition, including from competitors who can quickly create
cost
and sourcing advantages from these changes in trade arrangements, could
have an
adverse effect on our business and financial condition.
Our
ability to import products in a timely and cost-effective manner may
also be
affected by problems at ports or issues that otherwise affect transportation
and
warehousing providers, such as labor disputes or increased U.S. homeland
security requirements. These issues could delay importation of products
or
require us to locate alternative ports or warehousing providers to avoid
disruption to our customers. These alternatives may not be available
on short
notice or could result in higher transit costs, which could have an adverse
impact on our business and financial condition.
Our
international operations expose us to political, economic and currency
risks.
All
of
our products came from sources outside of the United States. As a result,
we are
subject to the risks of doing business abroad, including:
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•
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changes
in tariffs and taxes;
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political
and economic instability; and
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•
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disruptions
or delays in shipments.
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Changes
in currency exchange rates may affect the relative prices at which we
are able
to manufacture products and may affect the cost of certain items required
in our
operation, thus possibly adversely affecting our profitability.
There are inherent risks of conducting business internationally.
Language
barriers, foreign laws and customs and duties issues
all have a potential
negative effect on our ability to
transact business by importation of textile products into the United
States. We may be subject to the jurisdiction
of the government and/or private litigants in foreign countries where
we
transact business, and we may be forced to expend funds to
contest legal matters in those countries in disputes
with those governments or with customers or suppliers.
We
may suffer from infringements or piracy on our trademarks, designs, brands
or
products.
We
may
suffer from infringements or piracy on our trademarks, designs, brands
or
products in the US or globally. Some jurisdictions may not honor our
claims to our intellectual properties. In additional, we may not have
sufficient
legal resources to police or enforce our rights in such
circumstances.
Unfair
trade practices or government subsidization may impact our ability to
compete
profitably.
In
an
effort to penetrate markets in which the Company competes, some competitors
may
sell products at very low margins, or below cost, for sustained periods
of time
in order to gain market share and sales. Additionally, some
competitors may enjoy certain governmental subsidations that allow them
to compete at substantially lower prices. These events
could substantially impact our ability to sell our product at profitable
prices.
If
Power Sports Factory markets and sells its products in international
markets,
Power Sports Factory will be subject to additional regulations relating
to
export requirements, environmental and safety matters, and marketing
of the
products and distributorships, and Power Sports Factory will be subject
to the
effect of currency fluctuations in those markets, all of which could
increase
the cost of selling products and substantially impair the ability to
achieve profitability in foreign markets.
As
a part
of the Company’s marketing strategy, Power Sports Factory markets and sells its
products internationally. In addition to regulation by the U.S. government,
those products will be subject to environmental and safety regulations
in each
country in which Power Sports Factory markets and sells. Regulations
will vary
from country to country and will vary from those of the United States.
The
difference in regulations under U.S. law and the laws of foreign countries
may
be significant and, in order to comply with the laws of these foreign
countries,
Power Sports Factory may have to implement manufacturing changes or alter
product design or marketing efforts. Any changes in Power Sports Factory’s
business practices or products will require response to the laws of foreign
countries and will result in additional expense to the Company.
Additionally,
Power Sports Factory may be required to obtain certifications or approvals
by
foreign governments to market and sell the products in foreign countries.
Power
Sports Factory may also be required to obtain approval from the U.S.
government
to export the products. If Power Sports Factory is delayed in receiving,
or is
unable to obtain import or export clearances, or if Power Sports Factory
is
unable to comply with foreign regulatory requirements, Power Sports
Factory will
be unable to execute its complete marketing strategy.
Power
Sports Factory plans to significantly increase operating expenses related
to
advertising and the expansion of sales and support
departments.
Because
of our intent to launch the Andretti brand, we expect to spend significant
dollars in advertising and promotions introducing and maintaining visibility
of
the brand in the marketplace assuming that the financial resources are
available
to do so. We also intend to add significant personnel to our sales
and support departments. In the event that our advertising campaigns
are not successful, and we do not realize significant increases in revenues,
our
corresponding S,G&A costs may result in operating losses.
Power
Sports Factory will require additional financing to sustain operations
and
without it, Power Sports Factory may not be able to continue
operations.
The
inability to raise additional working capital at all or to raise it in
a timely
manner may negatively impact the ability to fund the operations, to generate
revenues, and to otherwise execute the business plan, leading to the
reduction
or suspension of the operations and ultimately termination of the business.
If
capital resources are insufficient, Power Sports Factory will have to
raise
additional funds. Power Sports Factory may need additional funds to continue
operations, pursue business opportunities, to react to unforeseen difficulties
or to respond to competitive pressures. Power Sports Factory cannot assure
you
that any financing arrangements will be available in adequate amounts
or on
acceptable terms, if at all. If additional financing is not available
when
required or is not available on acceptable terms, Power Sports Factory
may be
unable to fund its business needs, which could have a material
adverse effect on the business. If Power Sports Factory chooses to
raise additional funds through the issuance of equity securities, you
may
experience significant dilution of your ownership interest, and holders
of the
additional equity securities may have rights senior to those of the holders
of
the common stock. If Power Sports Factory obtains additional financing
by
issuing debt securities, the terms of these securities could restrict
or prevent
the Company from paying dividends and could limit flexibility in making
business
decisions.
Power
Sports Factory’s plan to grow will place strains on the management team and
other Company resources to both implement more sophisticated managerial,
operational, technological and financial systems, procedures and controls
and to
train and manage the personnel necessary to implement those functions.
The
inability to manage growth could impede the ability to generate revenues
and
profits and to otherwise implement the business plan and growth strategies,
which would have a negative impact on business.
If
Power
Sports Factory fails to effectively manage growth, the financial results
could
be adversely affected. Growth may place a strain on the management systems
and
resources. Power Sports Factory must continue to refine and expand the
business
development capabilities. This growth will require the Company to significantly
improve and/or replace the existing managerial, operational and financial
systems, procedures and controls, to improve the coordination between
various
corporate functions, and to manage, train, motivate and maintain a growing
employee base. The Company’s performance and profitability will depend on the
ability of the officers and key employees to: manage the business as
a cohesive
enterprise; manage expansion through the timely implementation and maintenance
of appropriate administrative, operational, financial and management
information
systems, controls and procedures; add internal capacity, facilities and
third-party sourcing arrangements as and when needed;
maintain quality controls; and attract, train, retain, motivate and
effectively manage employees. The time and costs to implement these steps
may
place a significant strain on management personnel, systems and resources,
particularly given the limited amount of financial resources and skilled
employees that may be available at the time. Power Sports Factory may
not be
able to successfully integrate and manage new systems, controls and procedures
for the business, or even if Power Sports Factory successfully integrates
systems, controls, procedures, facilities and personnel, such improvements
may
not be adequate to support projected future operations. Power Sports
Factory may
never recoup expenditures incurred during its growth. Any failure to
implement
and maintain such changes could have a material adverse effect on the
business,
financial condition and results of operations.
Power
Sports Factory may make acquisitions which could divert management’s attention,
cause ownership dilution to stockholders and be difficult to
integrate.
Given
that the Company’s strategy envisions growing its business, Power Sports Factory
may decide that it is in the best interest of the Company to identify,
structure
and integrate acquisitions that are complementary to, or accretive with,
its
current business model. Acquisitions, strategic relationships and investments
often involve a high degree of risk. Acquisitions can place a substantial
strain
on current operations, financial resources and personnel. Successful
integrations may not be achieved, or customers may become dissatisfied
with the
Company. Power Sports Factory may also be unable to find a sufficient
number of
attractive opportunities, if any, to meet its objectives.
The
Company’s future success depends on the ability to respond to changing consumer
demands, identify and interpret trends in the industry and successfully
market
new products.
The
motor
scooter industry is subject to rapidly changing consumer demands, technological
improvements and industry standards. Accordingly, Power Sports Factory
must
identify and interpret vehicle trends and respond in a timely manner.
Demand for
and market acceptance of new products are uncertain and achieving market
acceptance for new products generally requires substantial product development
and marketing efforts and expenditures. If Power Sports Factory does
not
continue to meet changing consumer demands and develop successful product
lines
in the future, the Company’s growth and profitability will be negatively
impacted. If radical changes in transportation technology occur, it
could significantly deminish demand for our products. If Power Sports
Factory
fails to anticipate, identify or react appropriately to changes in product
style, quality and trends or is not successful in marketing new products,
Power
Sports Factory could experience an inability to profitably sell its products
even at lower cost margins. These risks could have a severe
negative effect on results of operations or financial condition.
The
Company’s product offering is currently heavily
concentrated.
The
Company currently concentrates on the sale of motor scooters. If
consumer demand towards motor scooters in general, or the Company’s offerings
specifically, wanes or fails to grow, our ability to sell motor scooters
may be
significantly impacted.
The
Company’s business and the success of its products could be harmed if Power
Sports Factory is unable to maintain their brand image.
Our
success is heavily dependent upon the market acceptance of our Andretti
and
Yamati branded lines of motor scooters. If Power Sports Factory is
unable to timely and appropriately respond to changing consumer demand,
the
brand names and brand images Power Sports Factory distributes may be
impaired.
Even if Power Sports Factory reacts appropriately to changes in consumer
preferences, consumers may consider those brand images to be outdated
or
associate those brands with styles of vehicles that are no longer
popular. We invest significantly in our branded presentation to the
marketplace. Lack of acceptance of our brands will have a material
impact on the performance of the Company.
The
Company’s business could be harmed if it fails to maintain proper inventory
levels.
Power
Sports Factory places orders with manufacturers for most products prior
to the
time Power Sports Factory receives customers’ orders. Power Sports Factory does
this to minimize purchasing costs, the time necessary to fill customer
orders
and the risk of non-delivery. However, Power Sports Factory may be unable
to
sell the products Power Sports Factory has ordered in advance from manufacturers
or that Power Sports Factory has in inventory. Inventory levels in excess
of
customer demand may result in inventory write-downs, and the sale of
excess
inventory at discounted prices could significantly impair brand image
and have a
material adverse effect on operating results and financial condition.
Conversely, if Power Sports Factory underestimates consumer demand for
its
products or if its manufacturers fail to supply the quality products
that Power
Sports Factory requires at the time Power Sports Factory needs them,
the Company
may experience inventory shortages. Inventory shortages might delay shipments
to
customers, negatively impact retailer and distributor relationships,
and
diminish brand loyalty.
ITEM
9.01 Financial Statements
and Exhibits
(d)
Exhibits.
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EXHIBIT
INDEX
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|
Exhibit
No.
|
Description
|
|
3(a)(2)
|
Statement
of Designations of Convertible Preferred Stock, Series B,
filed September
4, 2007.
|
|
3(b)(2)
|
Amendment
to By-Laws approved August 5, 2007.
|
|
10(g)
|
Share
Exchange and Acquisition Agreement, dated April 24, 2007,
by and among the
Company, Power Sports Factory, Inc., and the shareholders
of Power Sports
Factory, Inc.
|
|
10(h)
|
Amendment,
dated as of August 31, 2007, to Share Exchange and Acquisition
Agreement,
dated April 24, 2007, by and among the Company, Power Sports
Factory,
Inc., and the shareholders of Power Sports Factory,
Inc.
|