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EX-32.1 - VIPER POWERSPORTS INCv181170_ex32-1.htm
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EX-31.1 - VIPER POWERSPORTS INCv181170_ex31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-K
 


x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the Year Ended December 31, 2009.

o TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
 


VIPER POWERSPORTS INC.
(Name of Small Business Issuer in its charter)
 
Nevada
41-1200215
(State or other jurisdiction of
Incorporation or organization)
(IRS Employer ID Number)

10895 Excelsior Blvd., Suite 203
Hopkins, MN
55343
(Address of principal executive offices)
(Zip Code)

(952) 938-2481
(Issuer’s Telephone Number)

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act:

Common Stock, $0.001 par value (Title of class.)
 

 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 o

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  o     Smaller reporting company x 
 
State issuer’s revenue for its most recent fiscal year: 342,282

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of a specified date within the past 60 days. $10,582,833 as of March 31, 2010.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. 13,588,962 Common Shares as of March 31, 2010

Transitional Small Business Disclosure Format (check one): YES o NO x
 


TABLE OF CONTENTS
 
       
Page
 
           
           
 
PART I
       
           
Item 1.
Description of Business
   
1
 
           
Item 2.
Description of Property
   
8
 
           
Item 3.
Legal Proceedings
   
9
 
           
Item 4.
Submission of Matters to a Vote of Security Holders
   
9
 
           
 
PART II
       
           
Item 5.
Market for Common Equity and Related Stockholder Matters
   
9
 
           
Item 6.
Management’s Discussion and Analysis and Plan of Operation
   
11
 
           
Item 7.
Financial Statements
   
21
 
           
Item 8.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
   
21
 
           
Item 8A.
Controls and Procedures
   
21
 
           
Item 8B.
Other Information
   
21
 
           
 
PART III
       
           
Item 9.
Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act
   
21
 
           
Item 10.
Executive Compensation
   
22
 
           
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   
23
 
           
Item 12.
Certain Relationships and Related Transactions
   
25
 
           
Item 13.
Exhibits
   
25
 
           
Item 14.
Principal Accountant Fees and Services
   
26
 
           
 
Signature Page
   
27
 
           
 
Index to Financial Statements
   
F-1
 
           
 
Index to Exhibits
       
 



Item 1.  Description of Business

BUSINESS DEVELOPMENT

Viper Powersports Inc. is the successor to ECCO Capital Corporation (“ECCO”) which was incorporated in Nevada in 1980 under a former name.  ECCO ceased all active operations in 2001 and remained inactive until its 2005 reverse acquisition through a stock exchange of Viper Motorcycle Company, a Minnesota corporation, when ECCO changed its name to Viper Powersports Inc.   Viper Powersports Inc. acquired all of the outstanding capital stock of Viper Motorcycle Company, resulting in Viper Motorcycle Company becoming a wholly-owned subsidiary of Viper Powersports Inc.  This reverse acquisition resulted in the former shareholders of Viper Motorcycle Company acquiring approximately 94% of the combined entity.
 
Viper Performance Inc., also a wholly-owned subsidiary of Viper Powersports Inc., was incorporated in Minnesota in 2005 for the purpose of receiving and holding engine development technology also acquired by Viper Powersports Inc. in 2005.
 
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, we have been engaged in designing, developing and commencing commercial marketing and production of premium custom heavyweight V-Twin motorcycles popularly known as “cruisers”, as well as a premium innovative proprietary V-Twin engine to power our Viper cruisers.  Viper motorcycles are being 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 consistent demand for upscale or luxury motorcycle products like our American-styled classic Viper cruisers and our premium Viper engines.  For example, the prestigious upscale Robb Report magazine publishes a Robb Report Motorcycling magazine which is devoted primarily toward luxury motorcycle products.

We have completed development and extensive testing of our proprietary V-Twin engines including substantial performance use of these engines with our Viper motorcycle models, and we have been very satisfied with their performance while powering our cruisers in 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 in 2009, our proprietary V-Twin engines 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, very limited production and commercial shipment of Viper motorcycles in 2009, and we currently hold material orders from our Viper dealer base of fifteen first class motorcycle dealers. Our current firm orders from Viper dealers exceed our remaining available production capacity for 2010.

Strategic Engine Development Joint Venture
 
In January 2010, the Company’s subsidiary, Viper Motorcycle Company, entered into a three-year Motorcycle Engine Manufacture and Supply Agreement with Ilmor Engineering Inc. (the “Ilmor/Viper Contract”).  Ilmor Engineering Inc. (“Ilmor”) has been engaged for over 20 years in the design, development and manufacture of high-performance engines, and Ilmor’s extensive precision engineering and manufacturing facilities are located in suburban Detroit, Michigan.  The Company is very pleased to have completed this strategic and valuable Ilmor/Viper Contract, since Ilmor is widely recognized as one of the most successful race-engine design and manufacturers.
 
Under a previous written contract entered into by Ilmor and Viper in May 2009, Ilmor began assembling all V-Twin engines used by Viper, and since then Ilmor has conducted all of the Company’s engine product assembly. The initial May 2009 contract also contained a product development segment whereby Ilmor evaluated our V-Twin engine to determine whether the parties should engage in a future joint venture to develop and produce an upgraded model of the Viper engine.  Ilmor’s evaluation of our V-Twin engine through the initial contract was favorable, and accordingly resulted in the current Ilmor/Viper Contract, which provides for the exclusive manufacture and supply by Ilmor of a Viper engine designed by Ilmor.
 
Under the  Ilmor/Viper Contract, Ilmor has assumed all design, development, testing, quality control and manufacturing with respect to an upgraded Ilmor-designed Viper V-Twin engine. Ilmor has completed design and development operations and is now producing prototype models of this engine based on specifications jointly developed by Ilmor and Viper. Under a payment schedule extending through November 2012, the Company will pay Ilmor a total of $745,000 for the design, development and testing of this V-Twin engine.  Ilmor will be paid upon reaching certain milestones and successful first article testing at each phase.  The Company is current on all payments to Ilmor under this contract based on their performance.
 
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The Company has approved and is well satisfied with the most recent prototype of the Ilmor-designed Viper engine, and accordingly has ordered an initial commercial shipment of these engines to be delivered in April-May 2010.  Ilmor agrees to manufacture and supply all V-Twin requirements of Viper and in turn Viper must purchase all its engines exclusively from Ilmor. Ilmor will bear the cost and expense of all tooling, parts and components to manufacture and supply Viper engines until finished engines are invoiced and shipped to the Company. So long as Viper satisfies certain minimum annual engine purchase requirements, Ilmor shall not develop, manufacture or sell a similar V-Twin engine for itself or any third party.
 
These Ilmor-designed Viper engines will be labeled with an Ilmor brand, for which the Company has been granted a non-exclusive paid-up license to use the Ilmor Mark in connection with sale and distribution of Viper engines.  All intellectual property rights related to any Ilmor Marks, however, continue to be owned exclusively by Ilmor.  Engine pricing to be paid to Ilmor by Viper will be determined annually based on the actual Bill of Materials for components, labor and assembly costs incurred by Ilmor, plus a reasonable mark-up percentage.
 
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 were converted into one post-split share of common stock of the Company having the same par value of $.001 per share, and the effective date of the reverse stock split was September 15, 2009.  Pursuant to this reverse stock split the authorized common shares of the Company were concurrently reduced to Twenty-five Million (25,000,000) common shares.  All share information has been adjusted to reflect this reverse split.

Corporate Move to Present Facility

In October 2008, we moved all operational and administrative functions from our former Big Lake MN facility to our current facility in suburban Minneapolis.   Because of its location in the main metropolitan area of Minnesota, our new facility is significantly more suitable for our future commercial operations and our ongoing contacts with the investment and financial community than our former Big Lake development facility in rural Minnesota.

Corporate Contact Data

The address of the Company in suburban Minneapolis is 10895 Excelsior Boulevard – Suite 203, Hopkins, MN 55343; its telephone number is (952) 938-2481; and its website address is www.viperpowersports.com.

BUSINESS OF COMPANY

We develop and produce proprietary premium motorcycle products targeted to consumers who can afford to purchase upscale luxury products.  Our current revenues are being generated from the sale of our Diamondback model cruisers.  Additional anticipated sources of future revenues include our Mamba model almost completed, a touring “bagger” model being designed, aftermarket sales of our proprietary V-Twin engines, and sales of ancillary Viper motorcycle products including aftermarket custom parts and accessories and Viper branded apparel and other merchandise.

Our revenue stream will be primarily affected by customer demand for our Viper motorcycle products, our ability to timely provide Viper products in response to dealer orders, recruitment and retention of effective Viper dealers who actively promote and sell our products, and acceptance by our dealers of our floor plan financing facility.

Our Market

Motorcycles are generally characterized in their industry by weight, primarily based on engine displacement size.  Viper cruisers fall within the heavyweight motorcycle category which typically includes models with engine displacement of at least 651cc (cubic centimeters).  There are generally four types of heavyweight motorcycles:
 
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Standard, which emphasize simplicity and low cost (e.g., Harley Davidson Sportster);
 
Performance, which emphasize handling and speed (e.g., Ducati models);
 
Touring, which emphasize rider comfort and distance travel (e.g., Honda Gold Wing); and
 
Cruiser, designed to facilitate customization by owners (e.g., most Harley Davidson models)
 
Our Viper motorcycles are offered in the premium segment of the heavyweight cruiser market which is dominated by Harley Davidson.  We believe that potential customers in this upscale market typically seek motorcycle models having a product and lifestyle appeal associated with the classic American V-Twin cruiser tradition.  Our targeted customer base has expanded significantly for many years due to the growing popularity of motorcycling as well as the maturing of the population bulge from the post- World War II baby boom years.  Many males of the baby boom generation now are in their peak income earning years, making them good prospects for luxury goods.  Harley Davidson has reported that the typical consumer of its heavyweight motorcycles is a married man in his mid-forties having an income in excess of $80,000.  We believe that premium heavy-weight motorcycles have become popular and well-accepted luxury recreational products.

Our Motorcycles

Viper Diamondback

The Viper Diamondback has been designed and developed with many styling and performance features and components distinguishing it from cruisers of our competitors. Our development efforts have focused substantially on providing enough signature styling and component features for the Diamondback to compare favorably to other premium cruisers.

Premium components and distinctive features of the Diamondback include:

 
a powerful, billet-cut proprietary 152” V-Twin engine;

 
our unique right-side drive train providing maximum rider balance;

 
premium HID headlights and LED display functions;

 
a 6-speed transmission;

 
adjustable “on-the-fly” rear end air suspension system and front-end adjustable Marzocchi forks;

 
a proprietary handlebar vibration dampening system; and

 
wide high-quality Metzeler tires and premium billet wheels.
 
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The outward appearance of the Diamondback includes distinctive styling features such as:

 
substantial use of billet-cut components including the V-Twin engine, primary drive, controls and wheels;

 
a low, streamlined look;

 
oil storage in the frame, enabling a sleeker and more naked appearance due to absence of an under-seat oil tank;

 
a unique swingarm design; and

 
rear light and LED turn signals built into the fender.

Basic specifications of the Diamondback cruiser are as follows:

 
Wheelbase length and rake:
71 inches, 34 degrees, 5 degree trees
 
Weight:
610 pounds
 
Seat height::
24 inches, adjustable
 
Engine type:
45° V-Twin, air cooled
 
Engine displacement:
152 cubic inches
 
Fuel distribution:
Mikuni carburetion
 
Frame:
1 ½” tubular steel
 
Transmission/drive train:
6-speed, Viper right-side drive
 
Final drive:
Belt
 
Rear-end suspension:
Adjustable air-ride system
 
Front-end suspension:
Marzocchi inverted adjusted forks
 
Tires:
Metzeler – 120/70-21 front and 260/40-18 rear
 
Brakes:
4-piston caliper both front and rear
 
Power rating ranges:
144 ft lbs torque at 3,000 rpm

Viper Mamba

We have almost completed development of the Viper “Mamba,” a sleek and low-slung pro-street model with unique and aggressive styling features. We believe the Mamba will appeal to motorcyclists desiring an aggressive 21st century look.  We anticipate commencing commercial production and marketing of our Mamba model during late 2010.

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Viper Proprietary Engines

We have completed development and commercial production of our innovative proprietary engine technology. All viper motorcycles feature this proprietary 152 cubic inch V-Twin engine.  We believe that having our own proprietary engines will distinguish us clearly and favorably from other upscale custom V-Twin competitors.  Our proprietary V-Twin engines feature an all-billet aluminum construction including cases, heads, cylinders, rocker boxes and covers, and oil pump components.
 
Sales and Marketing

We sell our motorcycles directly to our authorized Viper dealers. Our dealer network includes well-established, independent full-service dealers offering more than one motorcycle brand. We currently have 15 Viper dealers located nationwide, all of which are experienced in selling and servicing premium heavyweight V-Twin motorcycles. We will continue to recruit additional qualified Viper dealers to attain our goal of having a nationwide distribution network. Our near-term marketing focus will emphasize dealer recruitment in regions of the country where we lack dealer representation.

Our dealers must maintain full-service departments capable of providing quality V-Twin engine and drive train maintenance and repair. They also must be able to perform custom upgrade work on cruisers. Viper dealers enter into a written dealer agreement with us granting them a designated, non-exclusive location to sell Viper motorcycle products. Dealers have the exclusive right to use and display our Viper brand in their respective locations in connection with the sale of our products. They must be responsible for warranty services and general repair and maintenance services, maintain adequate working capital, and conduct material efforts toward promoting and selling Viper products. Dealer agreements are for a one-year term, and expire automatically unless renewed by us and consented to by the dealer.

We will conduct substantial ongoing marketing activities to support our dealer network and promote Viper products and brands to our customer base and to the general public. Our marketing and promotional efforts will include advertising in selected trade publications and motorcycle magazines, production and publication of sales brochures, technical product documentation, and providing service and operational manuals for dealers and their customers. We also will participate in direct mail promotions to prospective customers, attend leading motorcycle trade shows and conventions including the Viper Motorcycle sponsored Rick Fairless Bike show, and appear at popular motorcycle rallies such as Daytona, Sturgis and other leading rallies. We also intend to institute material public relations efforts directed toward obtaining publication of articles on our company and its products in industry magazines and in newspapers and other publications available to the general public.

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Dealer Floor Plan Financing

We have established a limited floor plan financing facility which we provide to our Viper Motorcycle dealers.  Our dealer floor planning is self-financed by our Company through a bank line-of-credit guaranteed by a principal shareholder of the Company.  All of our current dealers are qualified to utilize this floor plan financing to purchase Viper motorcycles products, and we expect that most of our sales to dealers will be supported through financing provided to Viper dealers from our floor plan facility.  We will hold a UCC Financing Statement evidencing title in and to us for motorcycle products shipped under our floor plan facility, which will certify and cover our ownership of such products until sold to consumers by our dealers.

Design and Development

We are committed to a substantial ongoing design and development program to:

 
introduce improved and enhanced Viper motorcycle models on an annual basis;

 
develop and produce or outsource production of ancillary Viper components and accessories for sale in the large custom cruiser aftermarket.

We believe our established design and development systems, our professional and motivated in-house and outsourced personnel, and other development equipment and capabilities will enable us to timely design and develop new Viper products as needed to satisfy the changing needs and tastes of the custom cruiser market. Our design and development operations are conducted both through our in-house development department located in our Hopkins, MN facility along with selected professional independent designers and developers.

Manufacturing and Suppliers

Our manufacturing operations consist of in-house production of certain components and parts, assembly and polishing components, and conducting quality control of in-process and finished motorcycles. Motorcycle body, engine and electrical components and parts are outsourced for production to our specifications to various experienced manufacturers of motorcycle components, including engine components, fenders, gas tanks and electrical harnesses and wiring. Other key components are purchased off-the-shelf from various independent manufacturers and distributors mostly located in the United States, including brake and suspension systems, handlebars, transmissions and clutches, drive belts, ignition starters, seats, tires and wheels, panel indicators, lights and batteries. Components manufactured by us in-house include motorcycle frames. Painting of our motorcycles is outsourced to local painting companies skilled in custom motorcycle painting.

We have designed our quality control procedures and standards to include inspection of incoming components and adherence to specific work-in-process standards during motorcycle assembly. Periodic quality control inspections will be conducted at various stages of our assembly operations. Finished motorcycles will be subjected to performance testing under running conditions and to final quality inspection, including starting and operating each motorcycle by a dedicated test foreman.

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Warranty Policy

We provide a standard limited warranty for Viper products primarily covering parts and labor to repair or replace defective motorcycle components. Our warranty will cover unlimited mileage during an effective one-year term. Under our Viper dealer agreements, our dealers will conduct repairs on Viper products under warranty, for which we will reimburse dealers. Warranty repairs and replacements will be provided at no cost to the consumer.

Competition

The heavyweight motorcycle market is highly competitive, and most of our competitors have substantially greater financial, personnel, development, marketing and other resources than us, which puts us at a competitive disadvantage. Our major competitors have substantially larger sales volumes than we expect to ever realize and in most cases have greater business diversification. 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 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 and other 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.   We believe that the principal competitive factors in our industry are styling, performance, quality, product pricing, durability, consumer preferences, marketing and distribution, brand awareness and the availability of support services. We cannot assure anyone that we will be able to compete successfully against current or future competitors or that the competitive pressures faced by us will not materially harm our operations, business and financial condition.

Intellectual Property

We hold a registered trademark for our Viper logo and for the use of the term Viper in connection with motorcycles and motorcycle products.

We regard our development technology and proprietary know-how and assets as being very valuable to us, but we have no patent protection to date. We have filed certain patents relating to our V-Twin engines and certain other Viper motorcycle components with the U.S. Patent and Trademark Office. There is no assurance we will obtain any significant patent protection, however, and we intend to rely primarily upon a combination of trade secrets and confidentiality agreements to protect our intellectual property.

There is no assurance that any measures taken by us to protect our intellectual property will be sufficient or that such property will provide us with any competitive advantage. Competitors may be able to copy valuable features of our products or to obtain information we regard as a trade secret. We are currently not aware of any claims of patent infringement against us regarding our products.

7

 
Government Regulation

Motorcycles sold in the United States, European Union countries, Canada and other countries are subject to established environmental emissions regulations and safety standards. Viper motorcycles must be certified by the Environmental Protection Agency (EPA) for compliance with applicable emissions and noise standards and by the California Air Resources Board (CARB) with respect to California’s more stringent emissions regulations. Motorcycles sold in California also are subject to certain tailpipe and evaporative emission requirements unique to California.

Motorcycles sold in the United States are also subject to the National Traffic and Motor Vehicle Safety Act and its rules promulgated and enforced by the National Highway Traffic Safety Administration (NHTSA). This safety act prohibits sale of any new motorcycle failing to conform to NHTSA safety standards, and also provides for remedying safety defects through product recalls. We are also required to recall motorcycles voluntarily if we determine a safety defect exists regarding Viper motorcycles. If the NHTSA or we determine a defect exists requiring a recall, the costs to us of such an event could be very substantial.

We have submitted our Viper cruisers and their V-Twin engines to the various applicable governmental agencies and have satisfied their certification requirements and standards.  For this purpose, we retained a leading certified motorcycle testing lab.  We expect to incur ongoing costs to continue complying with motorcycle safety and emissions requirements. As new laws and regulations are adopted, we will assess their effects on current and future Viper motorcycle products.  Effective December 2008 the Company received the Certificate of Conformity with the Clean Air Act of 1990 from the U.S. Environmental Protection Agency.

Employees

We currently employ 6 persons including our management, development, marketing and administrative personnel.  We expect to hire 3 to 6 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.


The Company currently does not own any real estate. All development, production, marketing and administrative operations of the Company are conducted from its Hopkins, MN leased facilities.

Hopkins Facility

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 $7,600 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.

The Company owns development and production equipment, computer and office equipment, and business vehicles, all of which have cost it approximately $509,715 since its inception in November 2002.

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The Company is not a party to any material or administrative lawsuit, action or other legal proceeding, and the Company is not aware of any such threatened legal proceeding. Moreover, none of the property of the Company is subject to any pending or threatened legal proceeding. No director, officer, affiliate or shareholder of the Company is a party to any pending or threatened legal proceeding adverse to the Company, nor do any of these persons hold any material interest adverse to the Company.


No matters were submitted to a vote of security holders of the registrant during the fourth quarter of the past fiscal year ended December 31, 2009.

PART II


Market Information

The Company’s common stock is traded in the over-the-counter (OTC) market and is quoted on the OTC Bulletin Board under the symbol “VPWI” The range of high and low bid prices of the Company’s common stock, as reported by the Bulletin Board quotation systems, are as follows. These quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions, and are adjusted to reflect the 1 for 4 reverse stock split of September 2009.
 
Period
 
High Price(Bid)
   
Low Price(Bid)
 
April – June, 2008
  $ 4.00     $ 1.12  
July – September, 2008
  $ 1.60     $ .80  
October – December, 2008
  $ 1.52     $ .60  
January – March , 2009
  $ 1.52     $ .52  
April – June, 2009     $ 2.00     $ .60  
July – September 2009        $ 1.90     $ .62  
October – December 2009    $ 2.02     $ 1.00  
January – March, 2010    $ 1.40     $ 1.07  
                                     
The closing sales price of our common stock on April 5, 2010 was $1.13 per share.

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Reverse Stock Split

In September 2009, the Company affected a 1-for-4 reverse stock split whereby one post split common share was issued for each four shares of common stock outstanding prior to the reverse split.  All common share references in this annual report have been adjusted to reflect this reverse stock split.

Shareholders

As of March 31, 2010, there were 429 shareholders of record holding common stock of the Company.

Dividends

The Company has never declared or paid any cash dividends on its common stock, and does not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

The Company has no established equity compensation plans for the issuance of common stock as payment for employees, consultants or other parties. The Company has utilized its common stock for equity compensation from time to time on a transactional basis. In the future, the Company may establish some type of an equity compensation plan to provide incentive to current or future employees and others material to the Company’s business.

There were no issuer repurchases by the registrant during the fiscal year ended December 31, 2009.

Equity Securities Sold by the Registrant

Following are all equity security transactions during the fiscal quarter ended December 31, 2009 involving sales not registered under the Securities Act of 1933:

During the fourth quarter of 2009, the company sold a total 1,075,000 unregistered shares of common stock of the company in private placements to various accredited investors at $.40 per share, for total consideration of $430,000.
 
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Based on the manner of issuance of all the foregoing equity security transactions, they were private placements and not in the nature of a public offering, and the Company believe they were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. All of the persons receiving securities of the Company in the foregoing transactions received legended certificates for such securities which clearly stated the securities could not be resold, transferred or otherwise disposed of unless registered under applicable securities laws or exempt from registration under a satisfactory securities exemption.


Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements sometimes include the words “may,” “will,” “estimate,” “intend,” “continue,” “expect,” “anticipate” or other similar words. 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.

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes included in this registration statement. These financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP).

Results of Operations for the Fiscal Year Ended December 31, 2009 Compared to the Fiscal Year Ended December 31, 2008.

Revenues.    We reported revenue of $342,282 in 2009 compared to negative revenue of $(60,283) in 2008 represented by the sale of motorcycles and motorcycle parts.  The returns in 2008 were due related to sales of product discontinued in 2004.

Gross Profit.   Gross profit in 2009 was a negative $(89,587) representing the sale of motorcycles and increases cost associated with production.  The gross profit for 2008 was a negative $(61,702) representing the return of the product discontinued in 2004.
 
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        Research and Development.   Research and development costs were $353,449 in 2009 compared to $165,496 in 2008.  The increases R&D costs in 2009 were due primarily to re-engineering expenses related to our contract with Ilmor Engineering to improve our V-Twin engine.

        Selling, General and Administrative Expenses.   Selling, general and administrative costs increased $222,676 to $1,904,686 in 2009 from $1,682,010 in 2008, due primarily to bringing on additional personnel and higher administrative expenses.
 
        Loss from Impairment of Assets.   The company did not experience any impairment losses during 2008 or 2009.

        Loss from Operations.   Operational losses were $2,347,722 in 2009 compared to $1,909,208, for 2008. This increase in 2009 of $438,514 was due primarily to increased R&D expenditures related to our engine development joint venture with Ilmor Engineering.

        Interest Expense.   Interest expense decreased by $38,112 to $99,091in 2009 compared to $137,203 in 2008. The decrease was due to decreased reliance on loans in order to provide funding for inventory and operations as we secured additional equity financing.
 
12


Plan of Operation

        Our long-term business strategy or goal is to become a leading developer and supplier of premium V-Twin heavyweight motorcycles, V-Twin engines, and ancillary motorcycle aftermarket products. In implementing this strategy, we intend to execute the following matters for the next twelve months:

        Continue commercializing the Diamondback & Mamba – Our primary focus during 2010 will be to complete implementing and improving production operations for our motorcycle products to be manufactured by us effectively on a commercial scale. We have completed a production assembly line including shelving, railings and individual station equipment necessary for efficient factory production operations. We also have obtained all vendors, suppliers or subcontract third parties needed for obtaining components, parts and raw materials for our motorcycles and having them painted after assembly, and we will continue to identify and obtain alternate sources for material components.

        Continue Design and Development – We will complete development and testing of our Mamba model to offer the Mamba commercially as soon as possible in 2010.

        Expansion of Distribution Network – We will continue to identify and recruit qualified independent motorcycle dealers to become Viper dealers until we achieve our goal of having a nationwide network of Viper dealers. We will only select full-service dealers which we determine possess a successful V-Twin motorcycle sales history, a solid financial condition, a good reputation in the industry, and a definite desire to sell and promote Viper products. We also intend to commence initial efforts to enter overseas foreign markets including identifying effective overseas motorcycle distributors and attracting them to our products and Viper brand.

        Expansion of Sales and Marketing Activities – We will continue and expand upon our marketing activities which are primarily focused toward supporting our dealer network and building Viper brand awareness. We will participate in leading consumer and dealer trade shows, rallies and other motorcycle events. We also will engage in ongoing advertising and promotional activities to develop and enhance the visibility of our Viper brand image.

        Market and Sell Ancillary Viper Products – In 2010, we intend to commence marketing and sales of a variety of ancillary products under our Viper brand, particularly in the large custom cruiser aftermarket. We expect our primary aftermarket sales will be our line of powerful Viper V-Twin engines, and by 2011 we anticipate obtaining substantial revenues from Viper engine sales in this active aftermarket.  We also will outsource production of ancillary Viper items from third-party suppliers including various motorcycle parts and accessories, apparel, and other Viper branded merchandise. For example, we have obtained a source to provide us with a line of Viper branded apparel. Our ancillary Viper products will be sold through multiple marketing channels including Viper dealers, independent aftermarket catalogs and our website.

13


Liquidity and Capital Resources

        Since our inception, we have financed our development, capital expenditures and working capital needs primarily through the sale and issuance of our capital stock or through loans from our principal shareholders. Financing through issuance of our common or preferred stock has included private placements for cash, common stock issued to satisfy accounts payable, and common and preferred stock issued to convert outstanding loans and other liabilities into capital stock of our company. We have raised a total of approximately $10.8 Million through the sale of our common stock in private placements, and at least $6.6 Million in loans from our management or principal shareholders.

        We have also relied on satisfying substantial employee compensation, consulting fees, product development, marketing, administrative expenses and shareholder notes directly through issuance of our common stock. From inception through the end of 2009, we paid a total of approximately $8.0 Million for such expenses with our capital stock.

Future Liquidity

        Based on our current cash position, private placement subscriptions and anticipated revenues from product sales, we believe we will be able to fund our ongoing operations until at least the summer of 2010. To provide working capital and funding for increased motorcycle engine and component inventories to support anticipated growth thereafter, however, we will need to obtain substantial additional financing through loans and/or sales of our equity securities. Although we believe such additional financing will be available to us as needed, there is no assurance we will raise any such additional funds on terms acceptable to us, or at all, or that any future financing transactions will not be dilutive to our stockholders.

        If we are unable to raise additional funds as needed, we will be required to curtail significantly, or may 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 operating 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 statements included in this Form 10-K filing 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.

Critical Accounting Policies

        The preparation of our financial statements requires us to make estimates and judgments affecting our reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing basis, we will evaluate these estimates and judgments, which are based on historical experience, observance of industry trends, information from dealers and motorcycle enthusiasts, and certain assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.


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        Our management believes the following accounting policies affect its more significant judgments and estimates used in the preparation of our financial statements.

        Revenue Recognition – Our sales since inception have all been to dealers. We recognize revenue for sales to dealers when the following has occurred:
 
 
 
motorcycle products are delivered, which is upon shipment;

 
 
title to products passes to the dealer, also upon shipment;

 
 
collection is reasonably assured; and

 
 
the sales price is fixed or determinable.

       We also account for expenses of shipping costs, rebates and sales incentive costs when our products are shipped, resulting in our revenue recognition being net of such expenses.

        We provide a floor plan financing program to our dealers, which is self financed by the company. Regarding revenue recognition for dealers who take advantage of our dealer floor plan facility, we have established a reserve allowance for the estimated liability related to any repossessions. We will review this repurchase allowance on a quarterly basis, and to the extent current experience differs materially with previous allowance estimates, we will make appropriate adjustments. Our dealer agreement provides the dealer has no right of return unless the return is authorized by us.

        Product Warranties – We account for estimated warranty costs at the time of product shipments based on our best estimate using historical data and trends, and we have established a warranty liability reserve account for our estimated warranty costs. We will make subsequent adjustments to our warranty estimates as actual claims become known or the amounts are determinable. Our warranty obligation is affected by various factors such as product failure rates, service costs incurred to correct product failures and defects, and any recalls of our motorcycles. Current estimates of warranty costs could differ materially from what will actually transpire in the future.

        Valuation and Control of Inventory – Our inventory is valued at the lower of cost, determined on a first-in, first-out basis (FIFO), or market. We analyze the cost and market value of inventory items on a quarterly basis in order to maintain and update our inventory valuation reserve for obsolete, discontinued or excess inventory. Our inventory reserve will be based on historical experience and current product demand, and will be increased as necessary to reflect any slow moving, discontinued or obsolete inventory. We do not believe our inventories will be subject to rapid obsolescence.

        Inventories of motorcycle engines and components represent a large percentage of our tangible assets, and we expect this percentage to increase substantially in the future.  We employ an inventory control manager dedicated to and responsible for safeguarding, monitoring and recording our inventory assets.

        Stock-Based Compensation – We expense stock-based compensation issued to our employees, contractors, consultants or others providing goods and services to us. The fair value of our securities issued for goods or services are expensed over the period in which we receive the related goods or services. Equity instruments which have been issued by us for goods and services have been for common shares or common stock purchase warrants. These securities are fully vested, non-forfeitable, and fully paid or exercisable at the date of grant. Regarding our option and warrant grants, their fair values have been determined by us using the Black-Scholes model of valuation.

15


        For the purpose of determining issuances of our common stock for goods and services we have based the value of our common stock primarily on the offering price used in our most recent private placement to the grant date of such securities. Offering prices with respect to our private placements have been based on various factors including arms’ length negotiations with unaffiliated representatives of private investors or independent placement agents and our valuation beliefs based on the development of our company and motorcycle products at the respective times of the private placements.

        Impairment – Soon after the end of each fiscal year and each interim quarter, we conduct a thorough impairment evaluation of our engine development technology and any other material intangible assets. If the results of any such impairment analysis indicate our recorded values for any such assets have declined a material amount, we will adjust our recorded valuations on a discounted cash flow basis to reflect any such decline in value in all our financial statements.

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.

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 December 31, 2009, we have experienced cumulative losses of approximately $32 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.

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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.

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 ten 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.

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        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 currently provide limited floor plan financing to our dealers for their purchase of Viper products which is self-financed by the company. If we are unable to increase the amount of floor plan financing available to 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.

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.

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        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 our brand, Viper Motorcycle Company.

        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 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 and other 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.

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 powersport 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 lay off 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.

19


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.

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 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 25, 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.

20


        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.


        Financial statements are included following the Signature page and commencing on page F-1.


        None.

Item 9A(T).   Controls and Procedures.

        As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by Viper Powersports Inc. in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There was no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s Annual Report on Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining financial control over financial reporting as defined under the Exchange Act.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Because of inherent limitations, a system of internal control over financial reporting may not detect or prevent misstatements, no matter how well conceived and operated.  Moreover, any projections of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009.  Based on this assessment, our management believes that the Company has maintained effective control over financial reporting as of December 31, 2009. This annual report on Form 10-K does not include an attestation report from our registered public accounting firm regarding internal control over financial reporting, since our report was not subject to attestation by our public accounting firm pursuant to temporary rules of the SEC which permit us to provide only our management’s report.

21


PART III


        The directors of the Company serve until their successors are elected and shall qualify. Executive officers are elected by the Board of Directors and serve at the discretion of the directors. There are no family relationships among our directors and executive officers.
 
Name
 
Age
 
Position
John R. Silseth II
     
46
 
Chief Executive Officer and Co-founder
   
Robert O. Knutson
     
73
 
Director and Secretary
   
Jerome Posey
     
61
 
Chief Financial Officer and Treasurer
   
Terry L. Nesbitt
     
60
 
Director and President of Viper Motorcycle Company
   
Robert Van Den Berg
     
75
 
Director
   
Duane Peterson
     
60
 
Director
   
James G. Kelly        
55
  Director    

JOHN R. SILSETH II is a co-founder and Chief Executive Officer of the Company. Through his wholly-owned company, Racing Partners Management Inc., Mr. Silseth has provided consulting and financing services to the Company since its 2002 inception, and he also is a principal shareholder of the Company. Through Racing Partners Management Inc., Mr. Silseth also has provided consulting services to various early-stage or start-up businesses during the past ten years.

ROBERT O. KNUTSON has been a director of the Company since February 2005, and he has been Secretary of the Company since its 2002 inception. Mr. Knutson has practiced law in the Minneapolis metropolitan area as a sole practitioner since 1971, and prior thereto he was an associate attorney with the Minneapolis law firm of Dorsey & Whitney.

JEROME POSEY has been the Chief Financial Officer of the company since November 2005. From December 2001 until October 2005, Mr. Posey was Vice President/ Finance & Chief Financial Officer of Intravantage Inc., which manufactured a drug delivery device for the dental industry. From 1997 to November 2001, he was the Chief Financial Officer and Shareholder of Robin Lee’s, Inc., a retailer of collectibles, home decor and greeting cards.

TERRY L. NESBITT has been a director of the Company since February 2005, and he recently became President of Viper Motorcycle Company, our subsidiary.  Until January 2007, Mr. Nesbitt was our Executive Vice President of Sales and Marketing of the Company, since our inception in 2002. During 2001 and most of 2002, Mr. Nesbitt was an independent consultant in the motorcycle industry. Prior to 2001, he served in several key sales management positions over a fifteen-year period with Polaris Industries Inc., including national sales manager for Polaris’ line of Victory V-Twin cruiser motorcycles.

ROBERT VAN DEN BERG has been a director of the Company since January 2007. Since 1969 he was the principal owner and Chief Executive Officer of Comstrand Inc. until its sale in 2006 when it had attained annual sales of $50 million. Mr. Van Den Berg also has owned and sold several other successful companies over the past years, and he currently is engaged in certain real estate development activities.

DUANE PETERSON has been a director of the Company since January 2007.  He is a founder of Peterson, Beyenhof & Zahler, Ltd. and has been a principal CPA with this accounting firm since 1978. Mr. Peterson has extensive experience in business and financial consulting, complex tax accounting, and tax and financial planning for many corporate and individual clients.
JAMES G. KELLY is a District manager for Terminal Supply Co. of Troy, Michigan, and he has served in various key marketing positions with Terminal Supply since 1990.  Mr. Kelly has been instrumental in generating over $1.5 million in annual product sales for Terminal Supply from a broad base of approximately 750 customers developed by him, including the Minnesota Dept. of Transportation (DOT), the City of St. Paul, and the counties of Ramsey and Anoka.  In his current position, Mr. Kelly has received a “District Manager of the Year” award as well as numerous sales performance awards for consistently exceeding sales goals of Terminal Supply.  Mr. Kelly’s long and profession experience as a marketing professional will be a valuable contribution to the Board of Directors of the company.

JAMES G. KELLY is a District Sales Manager for Terminal Supply Co. of Troy, Michigan, and he has served in various key marketing positions with Terminal Supply since 1990. Mr. Kelly has been instrumental in generating over $l.5 Million in annual product sales for Terminal Supply from a broad base of approximately 750 customers developed by him, including the Minnesota Dept. of Transportation (DOT), the City of St. Paul, and the counties of Directors of the Company. The Company is very pleased to have retained Mr. Kelly to serve on its Board of Directors.
 
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Audit Committee

        We do not have a separately designated audit committee, but rather our entire Board of Directors serves as our audit committee.

Section 16(a) Beneficial Ownership Reporting Compliance

        Based upon a review of copies of reports furnished to us during our fiscal year ended December 31, 2009, which are required to be filed under Section 16(a) of the Securities Exchange Act of 1934, we know of no director, officer, or beneficial owner of more than 10% of our common stock who failed to file on a timely basis any report required by Section 16(a).

Code of Ethics

        We have adopted a Code of Ethics that applies to our principal executive officer, our principal financial and accounting officer, or persons performing similar functions. We will provide any person without charge who requests, a copy of our Code of Ethics. Any copy requests may be directed to Viper Powersports Inc., 10895 Excelsior Blvd., Suite 203, Hopkins, MN 55343 in care of John Silseth.


        The following table sets forth the executive compensation of the executive officers of the Company during the two fiscal years ended December 31, 2008 and 2009.

SUMMARY COMPENSATION TABLE
 
Name and Position
 
Year
   
Salary ($)
   
Stock
Awards (#)
 
John Silseth  Chief Executive Officer 
   
2009
    $ 93,500       1  
     
2008
    $ 103,935          
Terry Nesbitt, President - Viper Motorcycle Co.
   
2009
    $ 57,000          
     
2008
    $ 4,000       75,000  
                       


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Options/SAR Grants

        The Company did not issue any stock options or SAR grants in fiscal 2009. None of the stock options issued by the Company since its inception have been exercised. The following tables contain certain information relating to unexercised options.
 
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
 
           
Number of Securities Underlying Unexercised Options/SARs at FY-End (#)
 
Value of Unexercised In-the-Money Options/SARs at FY-End ($)
 
Name
 
Shares Acquired
 
Value Realized ($)
 
Exercisable/Unexercisable
 
Exercisable/Unexercisable
 
Terry Nesbitt
 
-0-
 
-0-
 
31,250/0
 
$ 0/0
 

Compensation of Directors

       No compensation was paid by the company to its directors for their services as a director during 2009.

Employment Contracts and Change-in-Control Arrangements

        The Company currently has no written employment contracts with its management or other employees. The Company also does not have any change-in-control arrangements with any person. The Company also does not have any plans, arrangements or understandings to pay any accrued earnings in the future.
 
24



The following table sets forth as of December 31, 2009 certain information regarding beneficial ownership of the common stock of the Company by (a) each person or group known by the Company to be the beneficial owner of more than 5% of the outstanding common stock of the Company, (b) each director and executive officer of the Company, and (c) all directors and executive officers of the Company as a group. Each shareholder named in the below table has sole voting and investment power with respect to shares of common stock shown in the table. Shares underlying any options or warrants included in the table are all currently exercisable. Unless otherwise indicated, the address of each listed shareholder is 10895 Excelsior Blvd., Suite 203, Hopkins, MN 55343.
 
Shareholder
 
Shares Owned
Beneficially
   
Percent of
Class
 
Title of Class – Common Stock
               
Terry L. Nesbitt  1
    182,500       1.5 %
Robert O. Knutson
    122,356       1.0 %
John R. Silseth II
    1,175,757       9.9 %
Robert Van Den Berg
    133,843       1.1 %
Duane Peterson
    12,500       .1 %
David Palmlund III  2
    1,214,432       10.2 %
5323 Swiss Avenue
               
Dallas, TX 75214
               
James G. Kelly
    258,375       2.2 %
Jerome L. Posey
    6,250       -  
All directors and officers
    1,891,581       16.0 %
as a group (5 persons)
               
 

1  Includes 31,250 share of underlying options 
2  Includes an aggregate of 83,750 shares underlying warrants and an option


Following are certain material transactions during the past two years between the Company and any of its directors, executive officers, and principal shareholders:

In connection with certain private placements of our common stock, Robert Van Den Berg, a director of the company, participated on the same terms as unrelated parties, including purchasing: 2,500 shares at $1.00 per share in 2008 and 6,250 shares at $.40 per share in 2009 and David Palmlund purchased 6,250 shares at $1.00 per share in 2008.
       David Palmlund III, a principal shareholder, guarantees a bank inventory line of credit which is to be used for dealer floor plan financing, for which he is paid $7,000 monthly.

In 2009, we satisfied substantial outstanding liabilities through the issuance of restricted common stock based on $.40 per share, which included issuance of 50,000 shares to Robert O. Knutson, 37,500 shares to Terry L. Nesbitt, 25,000 shares to Robert Van Den Berg, 12,500 shares to Duane Peterson, and 687,500 shares to a wholly-owned corporation of John Silseth.

In 2009, James G. Kelly, a director of the Company, purchased a total of 46,875 shares of restricted common stock of the Company at $.40 per share in private placements in which he participated on the same terms as unrelated parties.

25


We also have issued warrants to David Palmlund III for providing us with financing services, which warrants have granted him the right to purchase a total of 56,250 of our common shares exercisable at $.625 per share for a five-year term expiring in 2012 .

Robert Van Den Berg, a director of the Company, guarantees a $250,000 credit facility we obtained from a banking institution, which was established in order to purchase inventory parts and components for upcoming commercial production of Viper motorcycles. In consideration for Mr. Van Den Berg providing this guaranty, we issued him 25,000 shares of our common stock. This line continues today but has been paid down to $150,000.


Pre-Approval of Audit Fees

Our Board of Directors is responsible for pre-approving all audit and permitted non-audited services to be performed for us by our independent registered public accounting firm or any other auditing or accounting firm.

Auditor Fees
 
Child, Van Wagoner & Bradshaw, PLLC acted as our independent accounting firm for the fiscal years ended December 31, 2009 and 2008, including performing our audits for these two fiscal years and reviews of our quarterly financial statements for this two-year period.  The aggregate fees billed by Child, Van Wagner & Bradshaw, PLLC for such services are as follows:
 
   
Fiscal 2009
   
Fiscal 2008
 
Audit and review fees
  $
39,592
    $ 27,245  
Tax fees
  $ 0     $ 0  
All other fees
  $ 0     $ 0  

Item 15.   Exhibits.

See the “Exhibit Index” following the financial statements of this Form 10-K for a listing and description of the documents that are incorporated by reference or filed as exhibits to this Annual Report.

26


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
VIPER POWERSPORTS INC.
(Registrant)
     
   
By:   
/s/ John Silseth
   

John Silseth - CEO
   
Date:   
April 15, 2010

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

   
By:   
/s/   John R. Silseth
   

John R. Silseth – Director
   
Date:   
April 15, 2010
     
     
 
By:
/s/   Terry Nesbitt
 
 
 

Terry Nesbitt – Director
 
Date:
April 15, 2010
     
     
   
By:   
/s/   Robert Van Den Berg
   

Robert Van Den Berg – Director
   
Date:   
April 15, 2010
     
     
  By:        /s/ Robert O. Knutson
   
Robert O. Knutson – Director
  Date:     April 15, 2010
    

27


Viper Powersports, Inc.
(A Development Stage Company)

Consolidated Financial Statements

For the Years Ended December 31, 2009
and 2008
 


Viper Powersports, Inc.
(A Development Stage Company)

 
PAGE
 
       
Report of Independent Registered Public Accounting Firm
 
F-2
 
       
Consolidated Balance Sheets
 
F-3
 
       
Consolidated Statements of Operations
 
F-4
 
       
Consolidated Statements of Stockholders’ Equity (Deficit)
 
F-5
 
       
Consolidated Statements of Cash Flows
 
F-6
 
       
Notes to Consolidated Financial Statements
 
F-7
 
 
F-1

 

 
 
Douglas W. Child, CPA
Marty D. Van Wagoner, CPA
J. Russ Bradshaw, CPA
William R. Denney, CPA
Roger B. Kennard, CPA
Russell E. Anderson, CPA
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To The Board of Directors
Viper Powersports, Inc.
Big Lake, Minnesota 55309
 
We have audited the accompanying consolidated balance sheets of Viper Powersports, Inc. (a development stage company) and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the period from November 18, 2002 (inception) to December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Viper Powersports, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, and the period from November 18, 2002 (inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and net cash outflows from operations since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
Child, Van Wagoner & Bradshaw, PLLC
Salt Lake City, Utah
April 15, 2010
 
1284 W. Flint Meadow Dr. #D
Kaysville, Utah 84037
Telephone 801.927.1377
Facsimile 801.927.1344
 
 
 
5296 S. Commerce Dr. #300
Salt Lake City, Utah 84107
Telephone 801.281.4700
Facsimile 801.281.4701
 
 
 
Suite B, 4F
North Cape Commercial Bldg.
388 King’s Road
North Point, Hong Kong
 
 
F-2

 
Viper Powersports, Inc.
(A Development Stage Company)
 
Consolidated Balance Sheets
 
   
December 31, 2009
   
December 31, 2008
 
 ASSETS
           
Current assets
           
Cash
  $ 100,162     $ 368  
Accounts receivable
    212,675       -  
Inventory and supplies
    540,969       756,600  
Prepaid expenses and other assets
    61,570       18,648  
Total current assets
    915,376       775,616  
                 
Fixed assets:
               
Office and computer equipment
    119,835       119,835  
Manufacturing and development equipment
    273,759       273,759  
Vehicles
    101,799       101,799  
Leasehold improvements
    90,446       90,446  
Subtotal
    585,839       585,839  
Accumulated depreciation
    (471,152 )     (430,709 )
Total fixed assets
    114,687       155,130  
                 
Rental deposit and other assets
    4,010       4,010  
                 
Total assets
  $ 1,034,073     $ 934,756  
                 
 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current liabilities
               
Accounts payable
  $ 358,167     $ 209,313  
Accrued liabilities
    125,612       51,781  
Shareholder note
    439,353       76,601  
Other notes payable
    150,000       275,357  
Current portion of capital leases
    4,052       4,360  
Total current liabilities
    1,077,184       617,412  
                 
Long-term liabilities
               
Capital leases, less current portion
    -       4,219  
Note payable
    29,921       -  
Total long-term liabilities
    29,921       4,219  
                 
Total liabilities
    1,107,105       621,631  
                 
Stockholders' equity (deficit)
               
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, 13,408,962 and 7,721,162 issued and outstanding,
respectively
    13,409       7,721  
Additional paid-in capital
    32,185,691       30,133,157  
Accumulated deficit during development stage
    (32,272,132 )     (29,827,753 )
                 
Total Stockholders' Equity (Deficit)
    (73,032 )     313,125  
                 
Total liabilities and stockholders' equity (deficit)
  $ 1,034,073     $ 934,756  
 
See notes to consolidated financial statements.

F-3


Viper Powersports, Inc.
(A Development Stage Company)
 
Consolidated Statements of Operations
 
   
December 31, 2009
   
December 31, 2008
   
Cumulative from November 18, 2002 (Date of Inception) through December 31, 2009
 
                   
Revenues (returns)
  $ 342,282     $ (60,283 )   $ 1,054,094  
Cost of revenues
    431,869       1,419       1,011,557  
Gross profit
    (89,587 )     (61,702 )     42,537  
                         
Operating expenses
                       
Research and development costs
    353,449       165,496       5,272,692  
Selling, general and administrative
    1,904,686       1,682,010       18,746,213  
Loss on impairment of assets
    -       -       7,371,689  
Total operating expenses
    2,258,135       1,847,506       31,390,594  
                         
Loss from operations
    (2,347,722 )     (1,909,208 )     (31,348,057 )
                         
Other income (expense)
                       
Interest expense
    (99,091 )     (137,203 )     (1,250,131 )
Loss on sale of asset
    -       -       (18,994 )
Other income
    2,434       34,917       345,050  
Total other income (expense)
    (96,657 )     (102,286 )     (924,075 )
                         
Net loss
  $ (2,444,379 )   $ (2,011,494 )   $ (32,272,132 )
                         
Loss per common share - basic
  $ (0.23 )   $ (0.36 )        
                         
Weighted average common shares outstanding - basic
    10,444,619       5,527,567          
 
See notes to consolidated financial statements.

F-4


Viper Powersports, Inc.
(A Development Stage Company)
 
Consolidated Statements of Stockholders’ Equity (Deficit)
For the Period from November 18, 2002 (Inception) to December 31, 2009
  
                                       
Total
 
   
Preferred Stock
   
Common Stock
   
Additional
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Paid-in Capital
   
Deficit
   
Equity (Deficit)
 
Balance at November 18, 2002 (Inception)
    -     $ -     $ -     $ -     $ -     $ -     $ -  
Common stock for services and accounts payable - $.40/share
    -       -       106,250       170,000       -       -       170,000  
Common stock for cash at $.40/share
    -       -       73,620       117,791       -       -       117,791  
Net loss from inception through December 31, 2002
    -       -       -       -       -       (344,612 )     (344,612 )
Balances at December 31, 2002
    -       -       179,870       287,791       -       (344,612 )     (56,821 )
Common stock for services at $.40 to $1.00 /share
    -       -       304,813       1,095,500       -       -       1,095,500  
Common stock for cash at $.40/share
    -       -       213,881       342,209       -       -       342,209  
Common stock for services and accounts payable - $2.00/share
    -       -       10,625       85,000       -       -       85,000  
Common stock for cash at $2.00/share net of issuance costs
    -       -       114,350       884,549       -       -       884,549  
Value of warrants issued with convertible debt
    -       -       -       110,168       -       -       110,168  
Net loss for the year ended December 31, 2003
    -       -       -       -       -       (2,999,735 )     (2,999,735 )
Balances at December 31, 2003
    -       -       823,539       2,805,217       -       (3,344,347 )     (539,130 )
Value of warrants issued with convertible debt
    -       -       -       22,033       -       -       22,033  
Common sotck for cash at $2.50/share
    -       -       24,500       245,000       -       -       245,000  
Common stock for services and software at $2.50/share
    -       -       15,250       152,500       -       -       152,500  
Common stock for employment agreement services at $2.50/share
    -       -       43,750       437,500       -       -       437,500  
Common stock issued with May 2004 notes at $2.50/share
    -       -       33,334       333,335       -       -       333,335  
Common stock grants to employees at $2.50/share
    -       -       47,425       474,250       -       -       474,250  
Value of warrants and options issued for services
    -       -       -       175,363       -       -       175,363  
Net loss for the year ended December 31, 2004
    -       -       -       -       -       (5,761,208 )     (5,761,208 )
Balances at December 31, 2004
    -       -       987,798       4,645,198       -       (9,105,555 )     (4,460,357 )
Common stock for cash at $2.50/share
    -       -       76,303       763,030       -       -       763,030  
Common stock for payables and debt converted at $2.50/share
    -       -       281,339       2,813,379       -       -       2,813,379  
Preferred stock for outstanding debt converted at $2.50/share
    195,750       1,957,500       -       -       -       -       1,957,500  
Value of warrants and option issued for services
    -       -       -       497,700       -       -       497,700  
Common stock for engine development technology (Note 3)
    -       -       749,144       7,491,437       -       -       7,491,437  
Recapitalization from March 31, 2005 reverse merger (Note 4)
    -       (1,957,304 )     153,268       (16,208,496 )     18,165,800       -       -  
Common stock for cash at $3.90/share , net of offering costs of $513,124
    -       -       250,010       250       3,386,774       -       3,387,024  
Common stock to Cornell Capital Partners, LP issued for SEDA equity agreement
    -       -       33,730       34       749,966       -       750,000  
Net loss for the year ended December 31, 2005
    -       -       -       -       -       (4,986,019 )     (4,986,019 )
Balances at December 31, 2005
    195,750       196       2,531,592       2,532       22,302,540       (14,091,574 )     8,213,694  
Preferred stock converted to common stock at $1.25/share
    (195,750 )     (196 )     391,500       392       (196 )     -       -  
Common stock for cash at $.75/share
    -       -       43,333       43       129,957       -       130,000  
Conversion of notes payable at $1.25/share
    -       -       447,567       448       2,237,388       -       2,237,836  
Conversion of notes payable at $.75/share
    -       -       171,119       171       513,185       -       513,356  
Dividends for preferred converted at $1.25/share
    -       -       52,257       52       261,234       -       261,286  
Net loss for the year ended December 31, 2006
    -       -       -       -       -       (11,323,832 )     (11,323,832 )
Balances at December 31, 2006
    -       -       3,637,368       3,638       25,444,108       (25,415,406 )     32,340  
Common stock for cash at $.75/share
    -       -       532,792       533       1,588,468       -       1,589,001  
Common stock for services at $.75/share
    -       -       276,501       276       734,724       -       735,000  
Net loss for the year ended December 31, 2007
    -       -       -       -       -       (2,400,853 )     (2,400,853 )
Balances at December 31, 2007
    -       -       4,446,661       4,447       27,767,300       (27,816,259 )     (44,512 )
Common stock for services
    -       -       531,084       531       482,100       -       482,631  
Common stock for cash
    -       -       2,080,417       2,080       1,354,920       -       1,357,000  
Common stock for conversion of debt
    -       -       663,000       663       528,837       -       529,500  
Net loss for the year ended December 31, 2008
    -       -       -       -       -       (2,011,494 )     (2,011,494 )
Balances at December 31, 2008
    -       -       7,721,162       7,721       30,133,157       (29,827,753 )     313,125  
Reconciliation adjustment
    -       -       236,161       236       52,264       -       52,500  
Stock warrants issued for services
    -       -       -       -       25,498       -       25,498  
Common stock for services
    -       -       2,231,449       2,231       881,349       -       883,580  
Common stock for inventory
    -       -       62,500       63       24,937       -       25,000  
Common stock for cash
    -       -       2,925,000       2,925       978,719       -       981,644  
Common stock for conversion of debt
    -       -       225,000       225       89,775       -       90,000  
Common stock issued for rounding with 4-to-1 reverse stock split
    -       -       7,690       8       (8 )     -       -  
Net loss for the year ended December 31, 2009
    -       -       -       -       -       (2,444,379 )     (2,444,379 )
Balances at December 31, 2009
    -     $ -     $ 13,408,962     $ 13,409     $ 32,185,691     $ (32,272,132 )   $ (73,032 )
 
See notes to consolidated financial statements.
 
F-5


Viper Powersports, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
 
   
December 31, 2009
   
December 31, 2008
   
Cumulative from November 18, 2002 (Date of Inception) through December 31, 2009
 
Cash flows from operating activities:
                 
Net loss
  $ (2,444,379 )   $ (2,011,494 )   $ (32,272,132 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                       
Depreciation
    40,443       106,339       540,764  
Common stock and warrants issued for compensation and expenses
    961,578       482,631       8,532,936  
Impairment loss
    -       -       7,371,689  
Changes in operating assets and liabilities:
                       
Decrease (increase) in accounts receivable
    (212,675 )     (1,267 )     (213,942 )
Decrease (increase) in supplies and prepaids
    251,360       (133,732 )     (535,464 )
Decrease (increase) in rental deposits and other
    (53,652 )     -       (113,263 )
Increase (decrease) in accounts payable
    148,854       (116,478 )     483,173  
Increase (decrease) in accrued liabilities
    73,832       (11,047 )     161,342  
Net cash provided by (used in) operating activities
    (1,234,639 )     (1,685,048 )     (16,044,897 )
                         
Cash flows from investing activities:
                       
Loss from sale of fixed asses
    -       -       18,994  
Funding from Thor Performance for engine development
    -       -       150,000  
Purchase of intellectual property
    -       -       (35,251 )
Purchase of fixed assets
    -       (17,137 )     (823,925 )
Net cash provided by (used in) investing activities
    -       (17,137 )     (690,182 )
                         
Cash flows from financing activities:
                       
Net proceeds from sale of stock
    981,644       1,357,000       10,619,748  
Proceeds from note payable
    352,169       -       602,169  
Payments on note payable
    (189,705 )     -       (189,705 )
Payments on stockholder loans and capital leases
    (36,381 )     (122,658 )     (638,017 )
Proceeds from loans from stockholders
    226,706       466,101       6,441,046  
Net cash provided by (used in) financing activities
    1,334,433       1,700,443       16,835,241  
Net change in cash and cash equivalents
    99,794       (1,742 )     100,162  
Cash, beginning of period
    368       2,110       -  
Cash, end of period
  $ 100,162     $ 368     $ 100,162  
                         
Supplemental Non-Cash Financing Activities and Cash Flow Information:
                 
Common Stock issued for accounts payable (expenses)
  $ -     $ -     $ 1,323,698  
Common stock issued for accrued liabilities (expenses)
  $ -     $ -     $ 553,521  
Preferred stock issued for debt
  $ - &#