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EX-32.1 - VIPER POWERSPORTS INC | v181170_ex32-1.htm |
EX-31.2 - VIPER POWERSPORTS INC | v181170_ex31-2.htm |
EX-31.1 - VIPER POWERSPORTS INC | v181170_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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)
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(IRS
Employer ID Number)
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10895
Excelsior Blvd., Suite 203
Hopkins,
MN
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55343
|
(Address
of principal executive offices)
|
(Zip
Code)
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(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
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PART
I
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Item
1.
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Description of Business
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1
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Item
2.
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Description of Property
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8
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Item
3.
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Legal
Proceedings
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9
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Item
4.
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Submission of Matters to a Vote
of Security Holders
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9
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PART
II
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Item
5.
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Market for Common Equity and
Related Stockholder Matters
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9
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Item
6.
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Management’s Discussion and
Analysis and Plan of Operation
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11
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Item
7.
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Financial Statements
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21
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Item
8.
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Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure
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21
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Item
8A.
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Controls and Procedures
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21
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Item
8B.
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Other Information
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21
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PART
III
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Item
9.
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Directors, Executive Officers,
Promoters and Control Persons; Compliance With Section 16(a) of the
Exchange Act
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21
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Item
10.
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Executive Compensation
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22
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Item
11.
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Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
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23
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Item
12.
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Certain Relationships and Related
Transactions
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25
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Item
13.
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Exhibits
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25
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Item
14.
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Principal Accountant Fees and
Services
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26
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Signature Page
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27
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Index to Financial Statements
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F-1
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Index to Exhibits
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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.
1
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);
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Performance,
which emphasize handling and speed (e.g., Ducati
models);
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Touring,
which emphasize rider comfort and distance travel (e.g., Honda Gold Wing);
and
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Cruiser,
designed to facilitate customization by owners (e.g., most Harley Davidson
models)
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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:
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a powerful, billet-cut
proprietary 152” V-Twin
engine;
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our unique right-side drive train
providing maximum rider
balance;
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premium
HID headlights and LED display
functions;
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a
6-speed transmission;
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adjustable
“on-the-fly” rear end air suspension system and front-end adjustable
Marzocchi forks;
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a
proprietary handlebar vibration dampening system;
and
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wide high-quality Metzeler tires
and premium billet wheels.
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3
The
outward appearance of the Diamondback includes distinctive styling features such
as:
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substantial
use of billet-cut components including the V-Twin engine, primary drive,
controls and wheels;
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a
low, streamlined look;
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oil
storage in the frame, enabling a sleeker and more naked appearance due to
absence of an under-seat oil tank;
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a
unique swingarm design; and
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rear
light and LED turn signals built into the
fender.
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Basic
specifications of the Diamondback cruiser are as follows:
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Wheelbase
length and rake:
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71
inches, 34 degrees, 5 degree trees
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Weight:
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610
pounds
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Seat
height::
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24
inches, adjustable
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Engine
type:
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45°
V-Twin, air cooled
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Engine
displacement:
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152
cubic inches
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Fuel
distribution:
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Mikuni
carburetion
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Frame:
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1
½” tubular steel
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Transmission/drive
train:
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6-speed,
Viper right-side drive
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Final
drive:
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Belt
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Rear-end
suspension:
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Adjustable
air-ride system
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Front-end
suspension:
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Marzocchi inverted adjusted
forks
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Tires:
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Metzeler – 120/70-21 front and
260/40-18 rear
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Brakes:
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4-piston caliper both front and
rear
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Power rating
ranges:
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144 ft lbs torque at 3,000
rpm
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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.
4
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.
5
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:
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introduce
improved and enhanced Viper motorcycle models on an annual
basis;
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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.
6
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.
Item
2. Description of Property
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.
8
Item
3. Legal Proceedings
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.
9
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.
10
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.
11
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.
14
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.
16
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.
17
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.
18
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.
Item 8. Financial
Statements.
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 $l.5 Million in annual
product sales for Terminal Supply from a broad base of approximately 750
customers developed by him, including the Minnesota Dept. of Transportation
(DOT), the City of St. Paul, and the counties of Directors of the Company. The
Company is very pleased to have retained Mr. Kelly to serve on its Board of
Directors.
22
Audit
Committee
We
do not have a separately designated audit committee, but rather our entire Board
of Directors serves as our audit committee.
Section
16(a) Beneficial Ownership Reporting Compliance
Based
upon a review of copies of reports furnished to us during our fiscal year ended
December 31, 2009, which are required to be filed under Section 16(a) of the
Securities Exchange Act of 1934, we know of no director, officer, or beneficial
owner of more than 10% of our common stock who failed to file on a timely basis
any report required by Section 16(a).
Code
of Ethics
We
have adopted a Code of Ethics that applies to our principal executive officer,
our principal financial and accounting officer, or persons performing similar
functions. We will provide any person without charge who requests, a copy of our
Code of Ethics. Any copy requests may be directed to Viper Powersports Inc.,
10895 Excelsior Blvd., Suite 203, Hopkins, MN 55343 in care of John
Silseth.
Item
11. Executive Compensation
The
following table sets forth the executive compensation of the executive officers
of the Company during the two fiscal years ended December 31, 2008 and
2009.
SUMMARY
COMPENSATION TABLE
Name
and Position
|
Year
|
Salary
($)
|
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 | |||||||||
— |
23
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)
|
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
|
$ | - | $ | - | $ | 1,957,500 | ||||||
Common
stock issued for debt
|
$ | 90,000 | $ | 529,500 | $ | 4,472,020 | ||||||
Common
stock issued for assets (software and inventory)
|
$ | 25,000 | $ | - | $ | 75,000 | ||||||
Common
stock issued for engine development technology and engine development
obligation of $150,000
|
$ | - | $ | - | $ | 7,341,437 | ||||||
Equipment
acquired via capital lease
|
$ | - | $ | - | $ | 304,740 | ||||||
Stock
warrants issued with convertible debt
|
$ | - | $ | - | $ | 132,201 | ||||||
Interest
paid
|
$ | 75,944 | $ | 137,203 | $ | 771,352 | ||||||
Income
taxes paid
|
$ | - | $ | - | $ | - |
See notes
to consolidated financial statements.
F-6
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
1.
|
NATURE
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Viper
Powersports Inc. was incorporated in Nevada in 1980 under a different name, and
was inactive for years. On March 31, 2005 the Company
was recapitalized through a merger with Viper Motorcycle Company, a Minnesota
corporation. The former shareholders of Viper Motorcycle Company acquired 93.5%
of the capital stock of Viper Powersports Inc. in exchange for all of the
capital stock of Viper Motorcycle Company. This transaction was effected as a
reverse merger for financial statement and operational purposes, and accordingly
Viper Powersports Inc. regards its inception as being the incorporation of Viper
Motorcycle Company on November 18, 2002. (See Note 4 - Recapitalization).
Upon completion of this reverse merger, Viper Motorcycle Company became a
wholly-owned subsidiary of Viper Powersports Inc.
The stock
exchange in this reverse merger was effected on a one-for-one basis, resulting
in each shareholder of Viper Motorcycle Company receiving the same number and
type of capital stock of Viper Powersports Inc. which they held in Viper
Motorcycle Company prior to the merger.
Viper
Performance Inc., also a wholly-owned subsidiary of Viper Powersports Inc., was
incorporated in Minnesota in March 2005 for the purpose of receiving and holding
engine development technology and related assets acquired by Viper Powersports
Inc. These assets were acquired from Thor Performance Inc., a Minnesota
corporation in March 2005 in exchange for 2,996,575 shares of common stock of
Viper Powersports Inc. (See
Note 3 - Purchase of Engine Development Technology.)
As used
herein, the term “the Company” refers to “Viper Powersports Inc.”, and its
wholly-owned subsidiaries, unless the context indicates otherwise.
The
Company is a development stage company engaged in design and development of
premium V-Twin cruiser motorcycles. The Company has sold its capital stock and
debt securities in various private placements to fund its development, marketing
and other operations. The Company also has issued substantial shares of its
common stock to compensate officers and other employees, consultants, and
vendors, and to satisfy outstanding debt and other obligations. The Company
continues to rely upon loans and sales of its equity securities to fund current
operations. The Company’s executive and administrative offices, were relocated ,
in October 2008, from Big Lake, Minnesota to Hopkins, Minnesota, a
suburb of Minneapolis. We lease our current Hopkins facility under a
three year lease at a monthly lease amount 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.
F-7
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
1.
|
NATURE
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
Going Concern – The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has incurred a net loss of
$32,272,132 since inception, and currently has limited sales. The future of the
Company is dependent upon its ability to obtain financing and upon future
profitable operations from the production of its motorcycles. Management has
plans to seek additional capital through private placements of its common stock.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
Principles of
Consolidation – The consolidated financial statements include the
accounts of Viper Powersports Inc. and its wholly-owned subsidiaries, Viper
Motorcycle Company and Viper Performance Inc. All intercompany balances and
transactions have been eliminated in consolidation.
Debt Conversions –
The
Company had $90,000 in debt conversions during 2009.
Use of Estimates –
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Loss Per Share –
Basic and diluted net loss per common share is computed using the net loss
applicable to common shareholders and the weighted average number of shares of
common stock outstanding. Diluted net loss per common share does not differ from
basic net loss per common share since potential shares of common stock from
conversion of debt and the exercise of warrants and options are anti-dilutive
for all periods presented.
Inventories –
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method (FIFO). Demonstration motorcycles are stated at
manufacturing cost and reserves are recorded to state the demonstration
motorcycles at net realizable value. The Company reviews inventory for
obsolescence and excess quantities to determine that items deemed obsolete or
excess are appropriately reserved.
F-8
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
1.
|
NATURE
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
Property and
Equipment – Property and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of the
assets, which are 3 to 7 years. Leasehold improvements are amortized straight
line over the shorter of the lease term or estimated useful life of the
asset.
Impairment of Long Lived
Assets – The Company reviews long-lived assets for impairment annually or
more frequently if the occurrence of events or changes in circumstances
indicates that the carrying amount of the assets may not be fully recoverable or
the useful lives of the assets are no longer appropriate. Each impairment test
is based on a comparison of the carrying amount of an asset to future net
undiscounted cash flows. If impairment is indicated, the asset is written down
to its estimated fair value on a discounted cash flow basis.
Revenue Recognition –
The Company conducts its sales through a network of independent dealers, and the
Company recognizes revenue for sales to dealers after the following has taken
place:
•
|
Motorcycles
are delivered, which is at the time they are
shipped;
|
•
|
Title
of the motorcycle passes to the dealer, generally at the time of
shipment;
|
•
|
Collection
of the relevant receivable is
probable;
|
•
|
Persuasive
evidence of an arrangement exists;
and
|
•
|
The
sales price is fixed or
determinable.
|
The
exception to the above statement is if the sale(s) to the dealer(s) are financed
through dealer financing. At that point the company records revenue for the bike
sold and a receivable from Viper Powersports financing.
The
Company’s dealer agreement provides that the dealer has no right of return
unless the Company authorizes the return.
F-9
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
1.
|
NATURE
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
Warranty – The
Company provides warranty coverage for its motorcycles with unlimited miles
within a one year period from date of purchase, including parts and labor
necessary to repair the motorcycle during the warranty period.
A
provision for the costs related to warranty expense will be recorded as a charge
to cost of goods sold when revenue is recognized. The estimated warranty cost
will be based on industry averages and the stage of production life cycle of the
Company’s motorcycles. The warranty reserve will be evaluated on an ongoing
basis to ensure its adequacy. At the same time the company calculates a Fair
Market value of the risk associated with the dealer financing liability and
records the entry. The liability exposure is based on using an industry average
of ten percent (10%) for the motorcycle sales for the reporting period. Up to
2005 the company used a rate of five percent (5%) but now has adjusted to ten
percent (10%).
Warranty
information is detailed in the following table:
December
31,
2009
|
December
31,
2008
|
||||||
Beginning
balance
|
$
|
7,016
|
$
|
21,631
|
|||
Addition
to Reserve
|
29,515
|
0
|
|||||
Warranty
payments
|
0
|
(14,615
|
)
|
||||
Ending
balance
|
$
|
36,531
|
$
|
7,016
|
Research and
Development – Research and development costs are expensed as incurred.
Assets that are required for research and development activities, and have
alternative future uses, in addition to its current use, are included in
equipment and depreciated over their estimated useful lives. Research and
development costs consist primarily of salaries and other compensation for
development and engineering personnel, contract engineering and development
costs for outsourced projects, equipment and material costs for development
activities, and expenses for regulatory compliance and
certifications.
Income Taxes – The
Financial Accounting Standards Board (FASB) has issued Financial Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109, “Accounting for Income
Taxes.” FIN 48 requires a company to determine whether it is more
likely than not that a tax position will be sustained upon examination based
upon the technical merits of the position. If the
more-likely-than-not threshold is met, a company must measure the tax position
to determine the amount to recognize in the financial statements. As
a result of the implementation of FIN 48, the Company performed a review of its
material tax positions. At the adoption date of January 1, 2007, the
Company had no unrecognized tax benefit which would affect the effective tax
rate. As of December 31, 2009, the Company had no accrued interest
and penalties related to uncertain tax positions. Net deferred tax
assets consist of the following components as of December 31, 2009 and
2008:
2009
|
2008
|
|||||||
Deferred
tax asset:
|
||||||||
Net
operating loss carryforward
|
$ | 5,564,952 | $ | 5,060,800 | ||||
Valuation
allowance
|
(5,564,952 | ) | (5,060,800 | ) | ||||
$ | - | $ | - | |||||
The
components of income tax expense are as follows:
|
||||||||
Current
federal tax
|
$ | - | $ | - | ||||
Current
state tax
|
- | - | ||||||
Change
in NOL benefit
|
(504,152 | ) | (519,813 | ) | ||||
Change
in allowance
|
504,152 | 519,813 | ||||||
$ | - | $ | - |
A
reconciliation of expected to actual income tax expense (benefit) based on
statutory tax rate of 34%:
For
the Years Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Expected
income tax benefit
|
$ | 831,088 | $ | 683,907 | ||||
Stock
based compensation
|
(326,936 | ) | (164,094 | ) | ||||
Change
in valuation allowance
|
(504,152 | ) | (519,813 | ) | ||||
Ending
Balance
|
$ | - | $ | - |
A
valuation allowance has been established for the net deferred tax asset due to
the uncertainty of the Company’s ability to realize such assets. At
December 31, 2009, the Company has available net operating loss carryforwards of
approximately $5.5 million for federal income tax purposes that begin to expire
in 2016. The utilization of the net operating loss carryforwards is
dependent upon the tax laws in effect at the time the net operating loss
carryforwards can be utilized. The Tax Reform Act of 1986
significantly limits the annual amount that can be utilized for certain of these
carryforwards as a result of a change in ownership.
F-10
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
1.
|
NATURE
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
Fair Value of Financial
Instruments – The carrying values of balance sheet financial instruments
approximates their fair values as the debt and assets were incurred and acquired
recently. These financial instruments include cash, accounts receivable,
accounts payable, accrued liabilities, notes payables and indebtedness to
related parties. Management is of the opinion that the Company is not exposed to
significant interest, credit or currency risks arising from these financial
instruments.
Stock Options and Stock
Based Compensation
The
Company accounts for equity instruments issued to non-employees for services and
goods under SFAS 123; EITF 96-18 (Accounting for Equity Instruments Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and
Services); and EITF 00-18 (Accounting Recognition for Certain Transactions
Involving Equity Instruments Granted to other than Employees.) Generally, the
equity instruments issued for services or goods are for common shares or common
stock purchase warrants. These shares or warrants are fully vested,
non-forfeitable and fully paid or exercisable at the date of grant and require
no future performance commitment by the recipient. The Company expenses the fair
market value of these securities over the period in which the Company receives
the related services.
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.
Recently Issued Accounting
Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued The FASB Accounting Standards
Codification (“ASC’) which became effective for interim and annual
reporting periods ending after September 15, 2009. The Codification is the
source of authoritative U.S. GAAP recognized by the FASB. The adoption of this
Codification did not have any material impact on the Company’s financial
position, results of operations or cash flows.
F-11
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
2.
|
EQUITY
FINANCING AGREEMENTS
|
In 2008
the Company sold a total of 2,730,916 common shares of the Company in various
private placements to accredited investors. 136,666 were sold at $.75
per share, 56,250 were sold at $.50 per share, 573,000 were sold at $.25 per
share and 1,965,000 were sold at $.10 per share for a total consideration of
$1,881,500.
In 2009
the Company sold a total of 1,985,000 common shares of the Company in various
private placements to accredited investors for a total consideration of
$1,224,000.
During
2009, it was determined that there was a reconciliation error in the number of
shares outstanding per the stock transfer agent’s records. The fiscal
periods for these differences could not be specifically identified, so it was
decided to correct this error in the current fiscal period. An
adjustment of 236,161 shares of common stock and $52,500 was made to correct the
error.
F-12
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
3.
|
PURCHASE
OF ENGINE DEVELOPMENT TECHNOLOGY
|
Effective
March 31, 2005, Viper Powersports Inc., acquired substantial motorcycle engine
technology and related assets from Thor Performance Inc., a Minnesota
corporation. These assets were acquired in exchange for 2,996,575 shares of
common stock of Viper Powersports Inc. issued to Thor Performance, Inc. The
Company valued the engine development technology at $2.50 per share and
capitalized $7,341,438 for the value of the motorcycle engine development. This
motorcycle development was designed and developed over the past 6 to 7 years by
Melling Consultancy Design (MCD), an engine development firm based in the United
Kingdom, which has previously designed both motorcycle and auto racing
engines.
Motorcycle
development technology acquired from Thor Performance Inc. includes designs and
prototypes for various V-Twins and other motorcycle engines and other
components, and a $150,000 commitment by Thor Performance Inc. to fund the
completion of certain development in progress being conducted by MCD, which
commitment has been fulfilled. The Company had an independent appraisal of the
engine development technology conducted which, under the income methodology
approach, valued the engine development technology at $19,616,400.
In
accordance with SFAS 2, Accounting for Research and
Development Costs, and SFAS 142, Goodwill and Other Intangible
Assets, the Company’s policy is to capitalize costs incurred in
connection with the purchase, from outside parties, of new engine development
technology. Any internally developed technology would be classified as research
and development, and would be immediately expensed. During 2005 the Company
capitalized $ 7,341,438 of motorcycle engine development cost. The Company’s
policy is to amortize the cost capitalized in connection with developing engine
technology on a straight line basis over 10 years. No amortization was taken
during 2005 as the company was still in the development stage. The company did
not produce any motorcycles during the 2006 year and so it was determined that
impairment of the engine development cost should be taken. This amount is
$7,371,689 and has been fully impaired in the fiscal year 2006.
F-13
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
4.
|
RECAPITALIZATION
|
On March
31, 2005 Viper Powersports Inc. was merged with Viper Motorcycle Company
pursuant to a merger agreement dated March 11, 2005. Upon consummation of this
merger, Viper Motorcycle Company became a wholly-owned subsidiary of Viper
Powersports Inc. Prior to the merger Viper Powersports Inc. was an inactive
publicly-held company.
Immediately
after completion of the merger, the former stockholders of Viper Motorcycle
Company owned 93.5% of the outstanding shares of capital stock of Viper
Powersports Inc. Accordingly, this transaction constituted a reverse merger
which is regarded as if Viper Motorcycle Company had acquired Viper Powersports
Inc. These financial statements present operations of Viper Motorcycle Company
from its inception on November 18, 2002, and do not include any prior operations
of Viper Powersports Inc.
For
accounting and financial reporting purposes, this reverse merger was treated as
a recapitalization of Viper Powersports Inc. Viper Powersports Inc. had no
assets or liabilities and no business other than the search for a suitable
merger target, and accordingly its book value has been stated at zero on the
recapitalized balance sheet.
Pursuant
to the one-for-one share exchange basis of this merger, the stockholders of
Viper Motorcycle Company exchanged all of their capital stock for a like amount
and type of capital stock of Viper Powersports Inc. Common stockholders of Viper
Motorcycle Company acquired a total of 749,144 shares of common stock of Viper
Powersports Inc., including shares issued for engine development technology.
Preferred stockholders of Viper Motorcycle Company acquired a total of 195,750
shares of preferred stock of Viper Powersports Inc., which preferred shares were
convertible into common shares on a one-for-one basis. All preferred shares were
converted, in December 2006, on the basis of $1.25 per share.
Additionally
under this reverse merger, all outstanding options and warrants to purchase
common stock of Viper Motorcycle Company were converted into like options and
warrants to purchase common stock of Viper Powersports Inc.
F-14
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
5.
|
RELATED
PARTY TRANSACTIONS
|
Guarantee of Floor Planning
Arrangement – In late March of 2009 the Company entered into an
arrangement with Mr. Palmlund to provide a guarantee for our current floor plan
facility funding from a local bank. For that guarantee Mr. Palmlund
is being paid $7,000 a month until the guarantee is no longer
needed.
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.
F-15
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
6.
|
COMMON
STOCK WARRANTS AND OPTIONS
|
The
Company has issued warrants to purchase a total of 483,167 shares of its common
stock, and also has granted options to purchase a total of 92,000 of its common
shares.
Warrants –
Outstanding warrants to purchase 37,500 common shares at a
price of $6.00 per share have a five-year term expiring in January
2010; outstanding warrants to purchase 25,001 common shares at a
price of $3.90 per share have a five year term expiring August 2010; outstanding
warrants to purchase 54,166 common shares at a price of $.75 per share have
three year term expiring September 2010 to December 2010: outstanding warrants
to purchase 37,500 common shares at a price of $1.00 per share
have five year terms expiring January 2013 to March 2013; outstanding
warrants to purchase 162,500 common shares at a price of $.50 per share having
two and five year terms expiring April 2011 to December 2014 and outstanding
warrants to purchase 10,000 common shares at a price of $2.00 per share having a
term expiring November 2014 Related parties hold warrants to
purchase156,500 of these warrant shares, with the other warrants being held by
persons who have provided financial or consulting services to the Company. No
warrants issued by the Company have been exercised so far.
Stock Options –
Outstanding stock options all have five-year terms expiring from January 2010 to
November 2010. They consist of options to purchase 92,000 common shares are held
by current and former employees of the Company. No stock options granted by the
Company have been exercised so far.
F-16
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
VIPER
POWERSPORTS, INC.
COMMON
STOCK WARRANTS & OPTIONS
|
||||||||||||||||
Options
|
Warrants
|
|||||||||||||||
12/31/2009
|
12/31/2008
|
12/31/2009
|
12/31/2008
|
|||||||||||||
Beg
Bal
|
114,500 | 114,500 | 230,667 | 211,667 | ||||||||||||
Issued
|
0 | 0 | 297,500 | 44,000 | ||||||||||||
Exercised
|
— | — | — | — | ||||||||||||
Cancelled
|
(22,500 | ) | 0 | (45,000 | ) | (25,000 | ) | |||||||||
End
Bal
|
92,000 | 114,500 | 483,167 | 230,667 | ||||||||||||
Exercisable
|
92,000 | 114,500 | 185,667 | 154,376 |
7.
|
LEASING
ACTIVITIES
|
On
October 17, 2005, the Company entered into a capital lease with Citizen
Automobile Finance for the acquisition of a 2004 delivery van for a term of 60
months and an interest rate of 7.99%. Monthly payments of $407.36 are required
under this lease.
On
December 7, 2005, the Company entered into a capital lease agreement with
Venture Bank for the acquisition of a 2004 Chevy Truck for the term of 48 months
and an interest rate of 8.5%. Monthly payments of $802.92 are required under
this lease. This lease was completed satisfactorily in December
2008.
On June
1, 2006, the Company entered into a capital lease with GE Capital Finance for a
compressor for a term of 24 months. Monthly payments of $1,572.46 are due under
this lease. This lease was completed satisfactorily in May of
2008.
F-17
Viper
Powersports, Inc.
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
On
September 18, 2008, the Company entered into an operating lease for
manufacturing and office space to accommodate the Company’s future manufacturing
operations. The term of the lease is sixty (39) months beginning October 1,
2008. Future minimum lease payments under this agreement have been included in
the schedule of minimum operating lease payments.
Minimum
lease payments are as follows:
For
the years ending December 31,
|
Capital
Lease
|
Operating
Lease
|
||||||
2010
|
4,219 | 49,456 | ||||||
2011
|
0 | 50,985 | ||||||
—— | ||||||||
Total
|
4,219 | $ | 148,555 | |||||
Amount
for interest
|
167 | |||||||
Net
|
4,052 | |||||||
Less:
Current portion
|
4,052 | |||||||
Long
term portion
|
$ | 0 |
8.
|
PREFERRED
STOCK
|
The
Company has authorized 20,000,000 shares of preferred stock with par value of
$.001 per share and of these there are none outstanding.
9.
|
SUBSEQUENT
EVENTS
|
The
Company has evaluated subsequent events from December 31, 2009 through the date
the financial statements were issued and determined that there are no events to
disclose.
F-18
INDEX
TO EXHIBITS
Form 10-K
for
|
Viper Powersports Inc. |
Fiscal Year Ended December 31, 2009 |
Number
|
Description
|
2
+
|
Agreement
and Plan of Business Combination
|
3.1+
|
Articles
of Incorporation
|
3.2+
|
Bylaws
|
4
+
|
Rights
of Series A Preferred Shareholders
|
10.1
+
|
Asset
Purchase Agreement
|
10.2
+
|
Dealer
Agreement
|
10.3
+
|
Financing
Floor Plan Vendor Agreement
|
10.7
#
|
Palmlund
Secured Inventory Financing Agreement
|
10.9
#
|
V-Twin
Engine Component Purchase Order With MCD
|
10.10
#
|
Placement
Agent Agreement With Bathgate Capital Partners LLC
|
10.13
^
|
Amendment
to Secured Inventory Financing Agreement
|
21
+
|
Subsidiaries
of Registrant
|
31.1
*
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
31.2
*
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1
*
|
Certification
of Principal Executive Officer and Principal Financial Officer Under
Section 906 of the
Sarbanes-Oxley
|
________________________
+ Filed
previously with Form 10-SB which was filed on November 22, 2005.
# Filed
previously with Amendment #1 to Form 10-SB which was filed on January 19,
2006.
^ Filed
previously with Form 10KSB which was filed on March 31, 2006
* Filed
with this Annual Report for fiscal year ended December 31, 2009