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EX-32.1 - VIPER POWERSPORTS INC | v167437_ex32-1.htm |
EX-31.2 - VIPER POWERSPORTS INC | v167437_ex31-2.htm |
EX-31.1 - VIPER POWERSPORTS INC | v167437_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
1O-Q
x QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2009
Commission
File No. 000-51632
VIPER
POWERSPORTS INC.
(Exact
name of small business issuer as specified in Its charter)
Nevada
|
41-1200215
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
10895
Excelsior Blvd, Ste. 203, Hopkins, Minnesota
|
55343
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(952)
938-2481
(Issuer’s
telephone number)
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 x No
¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
l2b-2 of the Exchange Act). Yes ¨ No
x
The
number of shares of common stock outstanding was 11,803,013 as of October 31,
2009.
Transitional
Smaller Business Disclosure Format (check one): Yes ¨ No
x
TABLE
OF CONTENTS
PART
I: FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
2
|
Item
2.
|
Management’s
Discussion and Analysis
|
6
|
Item
3.
|
Controls
and Procedures
|
17
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PART
II: OTHER INFORMATION
|
||
Item
6.
|
Exhibits
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18
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SIGNATURE:
|
||
INDEX
TO EXHIBITS
|
||
Exhibit
31.1
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||
Exhibit
31.2
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||
Exhibit
32.1
|
PART
1: FINANCIAL INFORMATION
Item 1: Financial
Statements
Viper
Powersports Inc.
(A
Development Stage Company)
Consolidated
Balance Sheets
September 30, 2009
|
December 31, 2008
|
|||||||
|
(Unaudited)
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
|
$ | 34,420 | $ | 368 | ||||
Accounts
receivable
|
262,467 | - | ||||||
Inventory
and supplies
|
704,003 | 756,600 | ||||||
Prepaid
expenses and other assets
|
58,968 | 18,648 | ||||||
Total
current assets
|
1,059,858 | 775,616 | ||||||
Fixed
assets:
|
||||||||
Office
and computer equipment
|
120,766 | 119,835 | ||||||
Manufacturing
and development equipment
|
274,693 | 273,759 | ||||||
Vehicles
|
101,799 | 101,799 | ||||||
Leasehold
improvements
|
90,446 | 90,446 | ||||||
Subtotal
|
587,704 | 585,839 | ||||||
Accumulated
depreciation
|
(504,540 | ) | (430,709 | ) | ||||
Total
fixed assets
|
83,164 | 155,130 | ||||||
Rental
deposit and other assets
|
4,010 | 4,010 | ||||||
Total
assets
|
$ | 1,147,032 | $ | 934,756 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 397,283 | $ | 209,313 | ||||
Accrued
liabilities
|
109,155 | 51,781 | ||||||
Shareholder
note
|
452,535 | 76,601 | ||||||
Other
notes payable
|
225,357 | 275,357 | ||||||
Current
portion of capital leases
|
4,360 | 4,360 | ||||||
Total
current liabilities
|
1,188,690 | 617,412 | ||||||
Long-term
liabilities
|
||||||||
Capital
leases, less current portion
|
1,920 | 4,219 | ||||||
Total
long-term liabilities
|
1,920 | 4,219 | ||||||
Total
liabilities
|
1,190,610 | 621,631 | ||||||
Stockholders'
equity
|
||||||||
Preferred
stock; $0.001 par value; 20,000,000 shares authorized, 0 issued
and outstanding for both years
|
- | - | ||||||
Common
stock; $0.001 par value; 25,000,000 shares authorized,
11,414,163 and 7,721,163 issued and outstanding,
respectively
|
11,414 | 7,721 | ||||||
Additional
paid-in capital
|
31,498,359 | 30,133,157 | ||||||
Accumulated
deficit
|
(31,553,351 | ) | (29,827,753 | ) | ||||
Total
Stockholders' Equity
|
(43,578 | ) | 313,125 | |||||
Total
liabilities and stockholders' equity
|
$ | 1,147,032 | $ | 934,756 |
See
accompanying notes to the unaudited consolidated financial
statements
2
Viper
Powersports Inc.
(A
Development Stage Company)
Consolidated
Statements of Operations
(Unaudited)
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
Cumulative from
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
November 18, 2002 (Date
of Inception) through
Sept. 30, 2009
|
||||||||||||||||
Revenues
(net of returns)
|
$ | 141,039 | $ | 1,629 | $ | 373,669 | $ | 4,371 | $ | 1,085,481 | ||||||||||
Cost
of revenues
|
140,618 | 688 | 280,149 | 1,376 | 859,837 | |||||||||||||||
Gross
profit
|
421 | 941 | 93,520 | 2,995 | 225,644 | |||||||||||||||
Operating
expenses
|
||||||||||||||||||||
Research
and development costs
|
114,049 | 35,382 | 183,136 | 134,915 | 5,102,379 | |||||||||||||||
Selling,
general and administrative
|
343,760 | 59,141 | 1,577,332 | 917,920 | 18,418,859 | |||||||||||||||
Loss
on impairment of assets
|
- | - | - | - | 7,371,689 | |||||||||||||||
Total
operating expenses
|
457,809 | 94,523 | 1,760,468 | 1,052,835 | 30,892,927 | |||||||||||||||
Loss
from operations
|
(457,388 | ) | (93,582 | ) | (1,666,948 | ) | (1,049,840 | ) | (30,667,283 | ) | ||||||||||
Other
income (expense)
|
||||||||||||||||||||
Interest
expense
|
(28,705 | ) | (19,049 | ) | (61,085 | ) | (120,970 | ) | (1,212,125 | ) | ||||||||||
Loss
on sale of asset
|
- | - | - | - | (18,994 | ) | ||||||||||||||
Other
income
|
- | - | 2,435 | 29,792 | 345,051 | |||||||||||||||
Total
other income (expense)
|
(28,705 | ) | (19,049 | ) | (58,650 | ) | (91,178 | ) | (886,068 | ) | ||||||||||
Net
loss
|
$ | (486,093 | ) | $ | (112,631 | ) | $ | (1,725,598 | ) | $ | (1,141,018 | ) | $ | (31,553,351 | ) | |||||
Loss
per common share - basic
|
$ | (0.04 | ) | $ | (0.02 | ) | $ | (0.18 | ) | $ | (0.24 | ) | ||||||||
Weigthed
average common shares outstanding - basic
|
11,091,404 | 5,194,600 | 9,395,078 | 4,778,981 |
See
accompanying notes to the unaudited consolidated financial
statements.
3
Viper
Powersports Inc.
(A
Development Stage Company)
Statements
of Cash Flows
(Unaudited)
For the Nine Months Ended September 30,
|
Cumulative from
|
|||||||||||
2009
|
2008
|
November 18, 2002 (Date
of Inception) through
September 30, 2009
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (1,725,598 | ) | $ | (1,141,018 | ) | $ | (31,553,351 | ) | |||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||||||
Depreciation
|
73,831 | 68,648 | 574,152 | |||||||||
Common
stock and warrants issued for compensation and services
|
683,698 | 73,133 | 8,255,056 | |||||||||
Impairment
loss
|
- | - | 7,371,689 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Decrease
(increase) in accounts receivable
|
(262,467 | ) | - | (263,734 | ) | |||||||
Decrease
(increase) in supplies and inventory
|
77,597 | (110,256 | ) | (709,227 | ) | |||||||
Decrease
(increase) in prepaid expenses
|
(40,320 | ) | (3,456 | ) | (99,931 | ) | ||||||
Increase
(decrease) in accounts payable
|
187,970 | (67,468 | ) | 522,289 | ||||||||
Increase
(decrease) in accrued liabilities
|
57,374 | 86,767 | 144,884 | |||||||||
Net
cash provided by (used in) operating activities
|
(947,915 | ) | (1,093,650 | ) | (15,758,173 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Proceeds
from sale of fixed asses
|
- | - | 18,994 | |||||||||
Funding
from Thor Performance for engine development
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- | - | 150,000 | |||||||||
Purchase
of intellectual property
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- | - | (35,251 | ) | ||||||||
Purchase
of fixed assets
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(1,865 | ) | (1,472 | ) | (825,790 | ) | ||||||
Net
cash provided by (used in) investing activities
|
(1,865 | ) | (1,472 | ) | (692,047 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Net
proceeds from sale of stock
|
660,197 | 961,867 | 10,298,301 | |||||||||
Proceeds
from note payable
|
- | 87,084 | 250,000 | |||||||||
Payments
on stockholder loans and capital leases
|
(52,299 | ) | (210,978 | ) | (653,935 | ) | ||||||
Proceeds
from loans from stockholders
|
375,934 | 417,000 | 6,590,274 | |||||||||
Net
cash provided by (used in) financing activities
|
983,832 | 1,254,973 | 16,484,640 | |||||||||
Net
change in cash and cash equivalents
|
34,052 | 159,851 | 34,420 | |||||||||
Cash,
beginning of period
|
368 | 2,110 | - | |||||||||
Cash,
end of period
|
$ | 34,420 | $ | 161,961 | $ | 34,420 | ||||||
Supplemental
Non-Cash Financing Activities and Cash Flow Information:
|
||||||||||||
Common
Stock issued for accounts payable (expenses)
|
$ | - | $ | 350,000 | $ | 1,323,698 | ||||||
Common
stock issued for accrued liabilities (expenses)
|
$ | - | $ | - | $ | 553,521 | ||||||
Preferred
stock issued for debt
|
$ | - | $ | - | $ | 1,957,500 | ||||||
Common
stock issued for debt
|
$ | - | $ | - | $ | 4,382,020 | ||||||
Common
stock issued for inventory
|
$ | 25,000 | $ | - | $ | 25,000 | ||||||
Common
stock issued for software (assets)
|
$ | - | $ | - | $ | 50,000 | ||||||
Common
stock issued for engine development technology and engine development
obligation of $150,000
|
$ | - | $ | - | $ | 7,341,437 | ||||||
Equipment
acquired via capital lease
|
$ | - | $ | - | $ | 304,740 | ||||||
Stock
warrants issued with convertible debt
|
$ | - | $ | - | $ | 132,201 | ||||||
Interest
paid
|
$ | 61,085 | $ | 120,970 | $ | 720,132 | ||||||
Income
taxes paid
|
$ | - | $ | - | $ | - |
See accompanying notes to the unaudited
consolidated financial statements
4
Viper
Powersports Inc.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis
of Presentation
The
consolidated balance sheet as of September 30, 2009, the consolidated statements
of operations for the three and nine month periods ended September 30, 2009 and
2008 and the consolidated statements of cash flows for the nine month periods
ended September 30, 2009 and 2008 have been prepared by Viper Powersports Inc. ,
(the ‘Company”) without audit. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position, the consolidated balance sheet as of September 30, 2009 and
results of operations and cash flows for the three and nine month periods ended
September 30, 2009 and 2008 presented herein have been made.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. These financial
statements should be read in conjunction with the Company’s financial statements
and notes thereto included in the Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 2008.
B. Going
Concern
The
accompanying unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has current
revenues of $373,669 for the nine months ended September 30, 2009 and has a
negative working capital position of $128,833 as of September 30,
2009. Current cash and cash available is not sufficient to fund
operations beyond a short period of time. These conditions create uncertainty as
to 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.
C. Recent
Financing
During
the third quarter of 2009 the company sold to accredited investors 2,975,000
shares of common stock at $.10 per share for a net total of
$297,500.
D. Prior
Period Restatement
During
the review of third quarter’s financial statements, the Company became aware
that the second quarter financial statements were materially misstated. The
misstatement was the result of certain equity transactions, of stock issued for
services, and warrant agreements not being correctly recorded during second
quarter. A restatement of financial statements for the period ending June 30,
2009 will be filed subsequent to the filing of the current period ending
September 30, 2009. The numbers for third quarter have been adjusted to
correctly reflect the misstatement in second quarter. The impact on
common stock was an increase of 1,645,500 (6,582,000 pre-stock split shares)
shares issued. Common stock increased by $6,582 and additional paid
in capital increased by $520,753 and retained earning reflected an increased
loss of $527,335 to account for the increased expense for
services.
5
Item
2: Management’s Discussion and Analysis
The
following discussion should be read and considered along with our consolidated
financial statements and related notes included in this 1O-Q. These financial
statements were prepared in accordance with United States Generally Accepted
Accounting Principles (U.S. GAAP). This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ substantially from those anticipated in these
forward-looking statements as a result of various factors including those set
forth in the “Risk Factors” section of our Form 10-K filing for December 31,
2008.
Business
Development Overview
Viper
Powersports Inc., formerly ECCO Capital Corporation (“ECCO”), was incorporated
in Nevada in 1980 under a former name. ECCO ceased all active
operation in 2001 and remained inactive until its stock exchange acquisition of
Viper Motorcycle Company in early 2005, incident to which it changed it name to
Viper Powersports Inc.
Effective
March 31, 2005, Viper Powersports Inc. acquired all of the outstanding capital
stock of Viper Motorcycle Company, a Minnesota corporation, resulting in Viper
Motorcycle Company becoming a wholly-owned subsidiary of Viper Powersports Inc.
For accounting and operational purposes, this acquisition was a recapitalization
conducted as a reverse acquisition of Viper Powersports Inc. with Viper
Motorcycle Company being regarded as the acquirer. Consistent with
reverse acquisition accounting, all of the assets, liabilities and accumulated
deficit of Viper Motorcycle Company are retained on our financial statement as
the accounting acquirer. Since Viper Powersports Inc. had no assets or
liabilities at the time of this acquisition, its book value has been stated as
zero on the recapitalized balance sheet. The stock exchange for this
reverse acquisition was affected on a one-for-one basis, resulting in the
stockholders of Viper Motorcycle Company exchanging all of their outstanding
capital stock for an equal and like amount of capital stock of Viper Powersports
Inc. This resulted in the former shareholders of Viper Motorcycle Company
acquiring approximately 94% of the resulting combined entity.
Viper
Performance Inc. was incorporated by us in March 2005 as a wholly-owned
Minnesota corporation. We organized and incorporated Viper Performance Inc. for
the purpose of receiving and holding the engine development technology and
related assets which we acquired from Thor Performance Inc.
As used
herein, the terms “we”, “us”, “our”, and “the Company” refer to Viper
Powersports Inc. and its two wholly-owned subsidiaries, unless the context
indicates otherwise.
Since our
inception in late 2002, we have been in the business of designing, developing
and commencing commercial marketing and production of premium custom V-Twin
motorcycles popularly known as “cruisers.” Our motorcycles will be
distributed and sold under our Viper brand through a nationwide network of
independent motorcycle dealers. Marketing of our motorcycles is
targeted toward the upscale market niche of motorcycle enthusiasts who prefer
luxury products and are willing to pay a higher price for enhanced performance,
innovative styling and a distinctive brand. We believe there is a
consistently strong demand for upscale or luxury motorcycle products like our
American-styled classic Viper cruisers and our premium V-Twin
engines. For example, the prestigious upscale Robb Report magazine
publishes a Robb Report Motorcycling magazine bi-monthly, which is targeted
exclusively to luxury motorcycle products.
We have
completed the development and extensive testing of proprietary V-Twin engines
including actual performance testing of the engines on our various motorcycles
models, and we have been very satisfied with their performance while powering
our cruisers during all kinds of street and highway running
conditions. Our proprietary V-Twin engines were designed and
developed by Melling Consultancy Design (MCD), a leading professional engine
design and development firm based in England.
After
undergoing an extensive engine emissions testing program for an entire year
conducted by a leading independent test laboratory, our proprietary V-Twin
engines recently satisfactorily passed and complied with all noise
and pollution emissions requirements of both the federal
Environmental Protection Agency (EPA) and the more stringent
emissions requirements of the California Air Resources Board
(CARB). Satisfying these standards constitutes a touchstone
achievement for the Company that we believe places us in a commanding
competitive position in the upscale custom motorcycle market.
We
commenced commercial marketing and production of Viper motorcycles in 2008, and
we currently hold material orders from our Viper dealer base of ten first class
motorcycle dealers. Our initial material commercial shipment of Viper
cruisers to our dealers took place in April 2009 in which we shipped three
motorcycles to our dealers. During the 3rd quarter
the company shipped another seven motorcycles to the dealer
network.
6
Operational
Overview
We are a
motorcycle company in the business of designing, developing, producing and
marketing a line of premium custom V-Twin motorcycles popularly known as
“cruisers.” Our motorcycles will be distributed and sold under our Viper brand
through a nationwide network of independent motorcycle dealers. Marketing of our
motorcycles is targeted toward the upscale market niche of motorcycle
enthusiasts who prefer luxury products and are willing to pays higher price for
enhanced performance, innovative styling and a distinctive brand. We believe
there is a consistently strong demand for upscale or luxury products like our
American-styled classic Viper cruisers and our premium V-Twin
engines.
In 2004,
we produced and sold to our initial dealer base a preliminary production run of
our first cruiser model which was powered by a non-proprietary engine. These
2004 sales consisted of 25 motorcycles which generated revenues of approximately
$600,000. We then discontinued any further production operations in order to
concentrate on obtaining proprietary V-Twin engine technology as well as to
complete certain other planned enhancements to our initial model. In early 2005,
we completed the acquisition of our engine development technology to allow us to
have our own V-Twin engines to power all Viper motorcycles. We completed
extensive testing of our proprietary V-Twin engines and we have been very
satisfied with their performance while powering our cruisers during all kinds of
street and highway running conditions.
In
February 2008, we attended and displayed our motorcycles at the leading annual
dealer show for cruiser motorcycles in Cincinnati as well as the shows in
Daytona and Myrtle Beach. We have been and are currently devoting
considerable marketing efforts toward recruiting and retaining additional
independent dealers for our distribution network. Regarding commercial
production, we have limited our production schedule to building sub-assemblies
as we pursue additional funding to finalize procurement of the necessary
production parts.
During
2007 the company commenced limited commercial marketing and production of its
motorcycles. Incident thereto, in November 2007 the Company retained
a licensed emissions certification laboratory to test its motorcycles and
engines and certify its test results for compliance with the emission standards
promulgated by the Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB). This independent test process was
successfully completed in July 2008, and the Company received its official
certification from the Environmental Protection Agency on December 4,
2008.
In
October 2008, we relocated all of our operations and administration functions
from Big Lake, MN to Hopkins, MN, a suburb of Minneapolis. We lease
our current Hopkins facility under a written 3 year lease at a monthly rental of
$7,400 not including utilities. The facility occupies 9,000 square
feet in a modern one-story light industrial building. We believe our
Hopkins facility is adequate to support all our administrative, development,
production assembly and warehousing needs for the foreseeable
future.
Recent
Restructuring
The
company, on September 3, 2009, declared a reverse 1-for-4 stock split whereby
each currently outstanding four shares of common stock of the company shall be
converted into one post-split share of common stock of the company having the
same par value of $.001 per share, and that both the record date and the
effective date of the reverse stock split shall be September 15, 2009, and
further that there shall be no fractional shares issued incident to this reverse
stock split, but rather any fractional shares shall be rounded up to the next
full common share, all pursuant to Nevada revised statutes
78.207. Per the effective date of this reverse stock split the
authorized common shares of the company shall concurrently be reduced to
Twenty-five Million (25,000,000) common shares.
7
Results
of Operations
Revenues
Since our
2002 inception, we have generated total revenues of $1,085,481 most of which
occurred in 2004 before we discontinued offering a motorcycle with a
non-proprietary engine. We anticipate that our future revenues for the next 12
months will be primarily from sale of Viper cruisers, although we expect to
begin obtaining sales of our proprietary engines in the aftermarket by the
second quarter of 2010. We anticipate receiving additional revenues from our
planned line of custom parts and accessories for the motorcycle aftermarket as
well as our Viper branded apparel and other merchandise.
We
believe our future revenue stream will be most significantly affected by
customer demand for Viper cruisers, performance of our proprietary V-Twin
engines, our ability to timely manufacture our motorcycle products in response
to dealer and customer orders, recruitment and retention of dealers who actively
promote and sell our products, and dealer acceptance of our floor plan financing
facility.
Operating
Expenses
From our
inception in November 2002 through September 30, 2009, we have incurred total
operating expenses of $30,892,927 including $5,102,379 of research and
development expenses and $18,418,859 of selling, general and administrative
expenses.
Research
and development expenses consist primarily of salaries and other compensation
for development personnel, contract engineering costs for outsourced design or
development, supplies and equipment related to design and prototype development
activities, and costs of regulatory compliance or certifications.
Selling,
general and administrative expenses consist primarily of salaries and other
compensation for our management, marketing and administrative personnel,
facility rent and maintenance, advertising and promotional costs including trade
shows and motorcycle rallies, sales brochures and other marketing materials,
dealer recruitment and support costs, development of accounting systems,
consulting and professional fees, financing costs, public relations efforts and
administrative overhead costs.
Comparison
of Quarter and Nine months ended September 30, 2009 to Quarter and Nine months
ended September 30, 2008.
Revenues
and Gross Profit
Revenue
for the three and nine month periods ending September 30, 2009 was $141,039 and
$373,669 respectively as compared to $1,629 and $4,371 respectively in revenue
for the three and nine month periods ending September 30,
2008. This was due to the production and sale of seven
motorcycles into the dealer network. Last year at this time the
company had not been able, due to cash flow, to produce any
motorcycles
Research and Development
Expenses
Research
and development increased by $78,667 to $114,049 for the three
month period ending September 30, 2009 from $35,382 for the three
month period ending September 30, 2008. This increase was due to development
expense on the improvement to our engines by Ilmor engineering. For
the nine month period ending September 30, 2009,.research
and development expense was $183,136 compared to $134,915 for the nine month
period ending September 30, 2008. The development expense began in
the second quarter of 2009.
Selling,
general and administrative expenses
Selling,
general and administrative expenses increased to $343,760 for the three
month period ending September 30, 2009 from $59,141 for the three
month period ending September 30, 2008. The increase was due to increased
expenses for a variety of expenses as we moved into sales, marketing and
production of the motorcycles. For the nine month period ending September 30,
2009 general and administrative expense was $1,577,332 as compared to $917,920
for the nine month period ending September 30, 2008.
8
Loss
from operations
Operational
loss for the three month period ending September 30, 2009 was $457,388 compared
to $93,582 for the three month period ending September 30, 2008. This increased
loss in the 3rd quarter of 2009 was due to increased expenses for manpower,
sales and marketing our motorcycles into the dealer network as well as
engineering cost on the engine platform. The operational loss for the
nine month period ending September 30, 2009 was $,1,666,948 compared to
$1,049,840 for the nine month period ending September 30, 2008.
Interest
expense
Interest
expense for the three
month period ending September 30, 2009 was $28,705 compared to $19,049 for
the three
month period ending September 30, 2008. This increase during the 3rd
quarter of 2009 was due to increased cost on our inventory line of
credit. Interest for the nine month period ending September 30, 2009
was $61,085 as compared to $120,970 for the nine month period ending September
30, 2008.
No income
tax benefit was recorded regarding our net loss for the 3rd
quarters of 2009 and 2008; since we could not determine that it was more likely
than not that any tax benefit would be realized in the future.
Since we
are just beginning commercial operations, our operations are subject to all of
the risks inherent in the development of a new business enterprise, including
the ultimate risk that we may never commence full-scale operations or that we
may never become profitable. We do not expect to make material shipments of our
motorcycles to dealers until spring of 2010. Our historic spending levels are
not indicative of future spending levels since we are entering a period
requiring increased spending for commercial operations including significant
inventory purchases, increased marketing and dealer network costs, and
additional general operating expenses. Accordingly, our losses could increase
until we succeed in generating substantial product sales, which may never
happen.
We
currently employ 8 persons including our management, development, marketing and
administrative personnel. We expect to hire 2-3 assembly and
administrative personnel during 2010 to support our anticipated commercial
production and sales of Viper cruisers. Other than these additional anticipated
personnel, we do not anticipate needing any additional personnel during the next
twelve months. None of our employees belongs to a labor union, and we consider
our relationship with our employees to be good.
Liquidity
and Capital Resources
Since our
inception, we have financed our development, capital expenditures, and working
capital needs through sale of our common stock to investors in private
placements and substantial loans from our principal shareholders. We raised a
total of approximately $10.1 million through the sale of our common stock in
private placements, and in excess of $6.3 million through loans from our
principal shareholders.
As of
September 30, 2009, we had cash resources of $34,420, total liabilities of
$1,190,611, and a negative working capital position of
$128,833.
9
Future
Liquidity
Based on
our current cash position, we have concerns about our ability to fund our
ongoing operations. We anticipate obtaining additional needed financing through
the proceeds from additional private placement of equity
securities.
If we are
unable to complete the proposed private placements or to obtain substantial
additional funding through another source, we most likely would need to curtail
significantly, or even cease, our ongoing and planned operations. Our future
liquidity and capital requirements will be influenced materially by various
factors including the extent and duration of our future losses, the level and
timing of future sales and expenses, market acceptance of our motorcycle
products, regulatory and market developments in our industry, and general
economic conditions.
The
report of our independent registered accounting firm for our audited financial
statement ended December 31, 2008 states that there is substantial doubt about
the ability of our business to continue as a going concern. Accordingly, our
ability to continue our business as a going concern is in question.
Cash
Flow Information
Net cash
consumed by operating activities was $947,915 during the nine months ended
September 30, 2009 compared to consuming cash in the amount of $1,093,650 for
the Nine months ended September 30, 2008. Net cash used in investing
activities during the nine months ended September 30, 2009 was $1,865 compared
to net cash used during the nine months ended September 30, 2008 of
$1,472. Cash generated from financing activities for the nine months
ended September 30, 2009 was $983,832 compared to $1,254,973 for the nine months
ended September 30, 2008.
Business
Seasonality
Sales of
motorcycles in the United States are affected materially by a pattern of
seasonality experienced in the industry which results in lower sales during
winter months in colder regions of the country. Accordingly, we anticipate that
our sales will be greater during spring, summer and early fall months than
during late fall and winter periods. We also expect our revenues and operating
results could vary materially from quarter to quarter due to industry
seasonality.
10
Recent
Accounting Pronouncements
In June
2009 the FASB established the Accounting Standards Codification ("Codification"
or "ASC") as the source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of financial
statements in accordance with generally accepted accounting principles in the
United States ("GAAP"). Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") issued under authority of federal securities laws
are also sources of GAAP for SEC registrants. Existing GAAP was not intended to
be changed as a result of the Codification, and accordingly the change did not
impact our financial statements. The ASC does change the way the guidance is
organized and presented.
Statement
of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855),
"Subsequent Events", SFAS No. 166 (ASC Topic 810), "Accounting for Transfers of
Financial Assets-an Amendment of FASB Statement No. 140", SFAS No. 167 (ASC
Topic 810), "Amendments to FASB Interpretation No. 46(R)", and SFAS No. 168 (ASC
Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles-a replacement of FASB Statement No.
162" were recently issued. SFAS No. 165, 166, 167, and 168 have no current
applicability to the Company or their effect on the financial statements would
not have been significant.
Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
MultipleDeliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
Risk
Factors
Our
business and any related investment in our common stock or other securities
involves many significant risks. Any person evaluating our company and its
business should carefully consider the following risks and uncertainties in
addition to other information in this registration statement. Our business,
operating results and financial condition could be seriously harmed due to one
or more of the following risks.
Because
of our early stage commercial status and the nature of our business, our
securities are highly speculative.
Our
securities are speculative and involve a high degree of risk and there is no
assurance we will ever generate any material commercial revenues from our
operations. Moreover, we do not expect to realize any material profits from our
operations in the short term. Any profitability in the future from our business
will be dependent upon realizing production and sales of our motorcycle products
in material commercial quantities, which there is no assurance will ever
happen.
We
have a limited operating history primarily involved in product development, and
we have only generated limited commercial revenues to date.
From our
inception in late 2002 through September 30, 2009, we have experienced
cumulative losses of approximately $31 Million, and we will continue to
incur losses until we produce and sell our motorcycle products in sufficient
volume to attain profitability, which there is no assurance will ever happen.
Our operations are particularly subject to the many risks inherent in the early
stages of a business enterprise and the uncertainties arising from the lack of a
commercial operating history. There can be no assurance that our business plan
will prove successful.
Our
business plan will encounter serious delays or even result in failure if we are
unable to obtain significant additional financing when needed, since we are
required to make significant and continuing expenditures to satisfy our future
business plan.
Our
ability to become commercially successful will depend largely on our being able
to continue raising significant additional financing. If we are unable to obtain
additional financing through equity or debt sources as needed, we would not be
able to succeed in our commercial operations which eventually would result in a
failure of our business.
11
Our
ability to generate future revenues will depend upon a number of factors, some
of which are beyond our control.
These
factors include the rate of acceptance of our motorcycle products, competitive
pressures in our industry, effectiveness of our independent dealer network,
adapting to changes in the motorcycle industry, and general economic trends. We
cannot forecast accurately what our revenues will be in future
periods.
We
have very limited experience in commercial production or sales of our
products.
Our
operations have been limited primarily to designing and developing our products,
testing them after development, establishing our initial distribution network of
independent dealers, obtaining suppliers for our components, outsourcing future
production of certain components, and reorganizing our company. These past
activities only provide a limited basis to assess our ability to commercialize
our motorcycle products successfully.
We
have limited experience in manufacturing motorcycle products.
Our
motorcycles must be designed and manufactured to meet high quality standards in
a cost-effective manner. Because of our lack of experience in manufacturing
operations, we may have difficulty in timely producing or outsourcing motorcycle
products in a volume sufficient to cover orders from our dealers. Any material
manufacturing delays could frustrate dealers and their customers and lead to a
negative perception of Viper products or our company. If we are unable to
manufacture effectively in terms of quality, timing and cost, our ability to
generate revenues and profits will be impaired.
We
depend upon a limited number of outside suppliers for our key motorcycle parts
and components.
Our heavy
reliance upon outside vendors and suppliers for our components involves risk
factors such as limited control over prices, timely delivery and quality
control. We have no written agreements to ensure continued supply of parts and
components. Although alternate suppliers are available for our key components,
any material changes in our suppliers could cause material delays in production
and increase production costs. We are unable to determine whether our suppliers
will be able to timely supply us with commercial production needs. There is no
assurance that any of our vendors or suppliers will be able to meet our future
commercial production demands as to volume, quality or timeliness.
We
will be highly dependent upon our Viper distribution network of independent
motorcycle dealers.
We depend
upon our Viper dealers to sell our products and promote our brand image. If our
dealers are unable to sell and promote our products effectively, our business
will be harmed seriously. We currently have agreements with only seven dealers.
We must continue to recruit and expand our dealer base to satisfy our projected
revenues. If we fail to timely obtain new dealers or maintain our relationship
with existing dealers effectively, we could be unable to achieve sufficient
sales to support our operations.
Our
dealers are not required to sell our products on an exclusive basis and also are
not required to purchase any minimum quantity of Viper products. The failure of
dealers to generate sales of our products effectively would impair our
operations seriously and could cause our business to fail.
We also
depend upon our dealers to service Viper motorcycles. Any failure of our dealers
to provide satisfactory repair services to purchasers of Viper products could
lead to a negative perception of the quality and reliability of our
products.
Sales
of Viper motorcycles are substantially dependent upon our ability to provide and
maintain a source of reliable "floor plan" financing to our
dealers.
We have a
significant agreement with a leading financial institution to provide floor plan
financing to our dealers for their purchase of Viper products. Under this floor
plan facility, we will receive payment for our motorcycles upon their shipment
to our dealers. If we are unable to continue effective floor plan financing for
our dealers, they would have to pay cash or obtain other financing to purchase
Viper products, which most likely would result in substantially lower sales of
our products, and lack of sufficient cash flow to support our
business.
We
will face significant challenges in obtaining market acceptance of Viper
products and establishing our Viper brand.
Our
success depends primarily on the acceptance of our products and the Viper brand
by motorcycle purchasers and enthusiasts. Virtually all potential customers are
not familiar with or have not seen or driven Viper motorcycles. Acceptance of
our products by motorcyclists will depend on many factors including price,
reliability, styling, performance, uniqueness, service accessibility, and our
ability to overcome existing loyalties to competing products.
12
Our
business model of selling Viper motorcycles to upscale purchasers at premium
prices may not be successful.
Sales of
our premium motorcycle products are targeted toward a limited number of upscale
purchasers willing to pay a higher price for Viper products. Suggested retail
prices of our motorcycles will be considerably higher than most premium models
of our competitors. If we are unable to attract and obtain sufficient
motorcyclists willing to pay the higher prices of our products, our business
model would not succeed and our business would likely fail.
We may experience significant
returns or warranty claims.
Since we
have a minimal history of commercial sales of our products, we have no material
data regarding the performance or maintenance requirements of Viper products.
Accordingly, we have no basis on which we can currently predict warranty costs.
If we experience significant warranty service requirements or product recalls,
potential customers may not purchase our products. Any significant warranty
service requirements or product recalls would increase our costs substantially
and likely reduce the value of our brand.
Our
exposure to product liability claims could harm us seriously.
Given the
nature of motorcycle products, we expect to encounter product liability claims
against us from time to time for personal injury or property damage. If such
claims become substantial, our brand and reputation would be harmed seriously.
These claims also could require us to pay substantial damage
awards.
Although
we intend to obtain adequate product liability insurance, we may be unable to
obtain coverage at a reasonable cost or in a sufficient amount to cover future
losses from product liability claims. Any successful claim against us for
uninsured liabilities or in excess of insured liabilities would most likely harm
our business seriously.
Our
success will be substantially dependent upon our current key employees and our
ability to attract, recruit and retain additional key employees.
Our
success depends upon the efforts of our current executive officers and other key
employees, and the loss of the services of one or more of them could impair our
growth materially. If we are unable to retain current key employees, or to hire
and retain additional qualified key personnel when needed, our business and
operations would be adversely affected substantially. We do not have "key
person" insurance covering any of our employees, and we have no written
employment agreement with a key employee.
Our
success depends substantially on our ability to protect our intellectual
property rights, and any failure to protect these rights would be harmful to
us.
The
future growth and success of our business will depend materially on our ability
to protect our trademarks, trade names and any future patent rights, and to
preserve our trade secrets. We hold trademark rights for our logo design and we
have applied for certain additional trademark protection. There is no assurance,
however, that any future or current trademark registrations will result in a
registered and protectable trademark. Moreover, there is no assurance that
challenges to our brands and marks will not be successful. If one or more
challenges against us are successful, we could be forced to discontinue use of
our motorcycle brands, which would cause serious harm to our business and brand
image.
We have
applied for various patents covering unique features of both our motorcycles and
our V-Twin engines, but we do not expect to obtain any significant patent
protection. We will rely mainly upon trade secrets, proprietary know-how, and
continuing technological innovation to compete in our market. There is no
assurance that our competitors will not independently develop technologies equal
to or similar to ours, or otherwise obtain access to our technology or trade
secrets. Our competitors also could obtain patent rights that could prevent,
limit or interfere with our ability to manufacture and market our products.
Third parties also may assert infringement claims against us, which could cause
us to incur costly litigation to protect and defend our intellectual property
rights. Moreover, if we are judged to have infringed rights of others, we may
have to pay substantial damages and discontinue use of the infringing product or
process unless they are re-designed to avoid the infringement. Any claim of
infringement against us would involve substantial expenditures and divert the
time and effort of our management materially.
We
will face intense competition from existing motorcycle manufacturers already
well established and having much greater customer loyalty and financial,
marketing, manufacturing and personnel resources than us.
In our
premium heavyweight motorcycle market, our main competitor is Harley-Davidson
Inc. which dominates the market for V-Twin cruiser motorcycles. Other
significant competitors include Suzuki, Honda, Yamaha, Kawasaki, Ducati,
Triumph, BMW, Moto Guzzi and Polaris with its Victory motorcycle line. We also
face particularly direct competition from a number of V-Twin custom cruiser
manufacturers concentrating on the same upscale market niche where we are
situated, including Big Dog, American IronHorse, Bourget’s Bike Works and
others. Additional competition exists from the numerous small companies and
individuals throughout the country which build "one-off" custom cruisers from
non-branded parts and components available from third parties. We also expect
additional competitors to emerge from time to time in the future. There is no
assurance that we will be able to compete successfully against current and
future competitors.
13
Introduction
of new models of motorcycles by our competitors could materially reduce demand
for our products.
Products
offered in our industry often change significantly due to product design and
performance advances, safety and environmental factors, or changing tastes of
motorcyclists. Our future success will depend materially on our ability to
anticipate and respond to these changes. If we cannot introduce acceptable new
models on a regular basis or if our new models fail to compete effectively with
those of our competitors, our ability to generate revenues or achieve
profitability would be impaired substantially.
Purchase
of recreational motorcycles is discretionary for consumers, and market demand
for them is influenced by factors beyond our control.
Viper
motorcycles represent luxury consumer products and accordingly market demand for
them depends on a number of economic factors affecting discretionary consumer
income. These factors are beyond our control and include employment levels,
interest rates, taxation rates, consumer confidence levels, and general economic
conditions. Adverse changes in one or more of these factors may restrict
discretionary consumer spending for our products and thus harm our growth and
profitability.
Viper
motorcycles also must compete with other power sport and recreational products
for the discretionary spending of consumers.
Our
business is subject to seasonality which may cause our quarterly operating
results to fluctuate materially.
Motorcycle
sales generally are seasonal in nature since consumer demand is substantially
lower during colder seasons in North America. We may endure periods of reduced
revenues and cash flows during off-season periods, requiring us to layoff or
terminate employees from time to time. Seasonal fluctuations in our business
could cause material volatility in the public market price of our common
stock.
When
we sell our products in international markets, we will encounter additional
factors which could increase our cost of selling our products and impair our
ability to achieve profitability from foreign business.
Our
marketing strategy includes future sales of Viper products internationally,
which will subject our business to additional regulations and other factors
varying from country to country. These matters include export requirement
regulations, foreign environmental and safety requirements, marketing and
distribution factors, and the effect of currency fluctuations. We also will be
affected by local economic condition in international markets as well as the
difficulties related to managing operations from long distances. There is no
assurance we will be able to successfully market and sell Viper products in
foreign countries.
We
must comply with numerous environmental and safety regulations.
Our
business is governed by numerous federal and state regulations governing
environmental and safety matters with respect to motorcycle products and their
use. These many regulations generally relate to air, water and noise pollution
and to motorcycle safety matters. Compliance with these regulations could
increase our production costs, delay introduction of our products and
substantially impair our ability to generate revenues and achieve
profitability.
Use of
motorcycles in the United States is subject to rigorous regulation by the
Environmental Protection Agency (EPA), and by state pollution control agencies.
Any failure by us to comply with applicable environmental requirements of the
EPA or relevant state agencies could subject us to administratively or
judicially imposed sanctions including civil penalties, criminal prosecution,
injunctions, product recalls or suspension of production.
Motorcycles
and their use are also subject to safety standards and rules promulgated by the
National Highway Traffic Safety Administration (NHTSA). We could suffer harmful
recalls of our motorcycles if they fail to satisfy applicable safety standards
administered by the NHTSA.
We
do not intend to pay any cash dividends on our common stock.
We have
never declared or paid any cash dividends on our common stock and we do not
anticipate paying any cash dividends in the foreseeable future.
14
The
price of our common stock may be volatile and fluctuate significantly in our
over-the-counter trading market, and an investor’s shares could decline in
value.
Our
common stock trades in the over-the-counter (OTC) market, and has not
experienced a very active trading market. There is no assurance a more active
trading market for our common stock will ever develop, or be sustained if it
emerges. Unless an active trading market is developed for our common stock, it
will be difficult for shareholders to sell our common stock at any particular
price or when they wish to make such sales.
The
market price of our common stock may fluctuate significantly, making it
difficult for any investor to resell our common stock at an attractive price or
on reasonable terms. Market prices for securities of early stage companies such
as us have historically been highly volatile due to many factors not affecting
more established companies. Moreover, any failure by us to meet estimates of
financial analysts is likely to cause a decline in the market price of our
common stock.
Our
current management and principal shareholders control our company, and they may
make material decisions with which other shareholders disagree.
Our
executive officers and directors and principal shareholders affiliated with them
own a substantial majority of our outstanding capital stock. As a result, these
persons acting as a group have the ability to control transactions requiring
stockholder approval, including the election or removal of directors,
significant mergers or other business combinations, changes in control of our
company, and any significant acquisitions or dispositions of
assets.
Additional
shares of our authorized capital stock which are issued in the future will
decrease the percentage equity ownership of existing shareholders, could also be
dilutive to existing shareholders, and could also have the effect of delaying or
preventing a change of control of our company.
Under our
Articles of Incorporation, we are authorized to issue up to 100,000,000 shares
of common stock and 20,000,000 shares of preferred stock. Our board of directors
has the sole authority to issue remaining authorized capital stock without
further shareholder approval. To the extent that additional authorized preferred
or common shares are issued in the future, they will decrease existing
shareholders’ percentage equity ownership and, depending upon the prices at
which they are issued, could be dilutive to existing shareholders.
Issuance
of additional authorized shares of our capital stock also could have the effect
of delaying or preventing a change of control of our company without requiring
any action by our shareholders, particularly if such shares are used to dilute
the stock ownership or voting rights of a person seeking control of our
company.
Off-Balance
Sheet Arrangements
Other
than a guarantee of our floor plan financing by a principal shareholder and
another guaranty of our bank credit facility by one of our directors, we have no
off-balance sheet arrangements.
15
Forward-Looking
Statements
This
quarterly report on Form I0-Q contains “forward-looking statements” within the
meaning of the Securities Act of /933 and the Securities Exchange Act of 1934.
Statements expressing expectations regarding our future and projections we make
relating to products, sales, revenues and earnings are typical of such
statements. All forward-looking statements are subject to the risks and
uncertainties inherent in attempting to predict the future. Our actual results
may differ materially from those projected, stated or implied in our
forward-looking statements as a result of many factors, including, but not
limited to, our overall industry environment, customer and dealer acceptance of
our products, effectiveness of our dealer network, failure to develop or
commercialize new products, delay in the introduction of products, regulatory
certification matters, production and or quality control problems, warranty
and/or product liability matters, competitive pressures, inability to raise
sufficient working capital, general economic conditions and our financial
condition.
Our
forward-looking statements speak only as of the date they are made by us. We
undertake no obligation to update or revise any such statements to reflect new
circumstances or unanticipated events as they occur, and you are urged to review
and consider all disclosures we make in this and other reports that discuss risk
factors germane to our business, including those risk factors in our Form 10-K
for the period ended December 31, 2008
16
Item
3. Controls and Procedures
Evaluation
of disclosure controls and procedures
The
Company’s Chief Executive and Chief Financial Officer, John R. Silseth and
Jerome L. Posey, have reviewed the Company’s disclosure controls and procedures
as of the end of the period covered by this report. Based upon this review,
these two officers believe that the Company’s disclosure controls and procedures
are effective in ensuring that information that is required to be disclosed by
the Company in reports that it files under the Securities Exchange Act of 1934
is recorded, processed and summarized and reported within the time periods
specified in the rules of the Securities and Exchange Commission.
Changes
in internal controls
There
were no changes in the Company’s internal controls over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
17
PART
II - OTHER INFORMATION
Item
6. Exhibits
See Index
of Exhibits.
18
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duty authorized.
VIPER
POWERSPORTS INC.
|
|||
|
By:
|
/s/ Jerome L. Posey | |
Jerome L. Posey | |||
Principal
Financial Officer
|
|||
November
20, 2009
Hopkins,
Minnesota
19
VIPER
POWERSPORTS INC.
INDEX
TO EXHIBITS
Form
10-Q for
Quarter
Ended September 30, 2009
|
Commission
File No. 000-51632
|
Exhibit
|
|
Number
|
Description
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1
|
Certification
of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
32.2
|
Certification
of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
20