I figured it out using an example from this page..

http://thefirstsql.com/2010/06/09/using-sqlcmd-from-powershell/

Here is my example that worked...

#Powershell script

#Parameters that must be set:

$DBServer = "localhost"

$database = "DB_POWERSHELL"

$CITY = "KANSAS CITY"

$STATE = "MO"

$COUNTRY = "USA"

$DBScriptFile = "C:\Users\Administrator\Downloads\DATABASE\INSTALL\XX\AddCity.sql"

[System.Reflection.Assembly]::LoadWithPartialName("Microsoft.SqlServer.Smo") | out-null

$sqlSrv = New-Object 'Microsoft.SqlServer.Management.Smo.Server' ($server)

$DBParam1 = "CITY=" + $CITY

$DBParam2 = "STATE=" + $STATE

$DBParam3 = "COUNTRY=" + $COUNTRY

$DBParams = $DBParam1, $DBParam2, $DBParam3

Invoke-Sqlcmd -InputFile $DBScriptFile -Variable $DBParams -Serverinstance $DBServer -Database "$database"

#SMALL SECTION OF CODE FROM ADDCITY.SQL

INSERT #CITY VALUES

('$(CITY)', '$(STATE)', '$(COUNTRY)');

Thanks for your help!