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EX-31.1 - VIPER POWERSPORTS INCv203560_ex31-1.htm
EX-31.2 - VIPER POWERSPORTS INCv203560_ex31-2.htm
EX-32.1 - VIPER POWERSPORTS INCv203560_ex32-1.htm


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


 
FORM 1O-Q
 

 
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2010
 
Commission File No. 000-51632
 

 
VIPER POWERSPORTS INC.
(Exact name of small business issuer as specified in Its charter)
 
Nevada
 
41-1200215
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification No.)
 
10895 Excelsior Blvd, Ste. 203, Hopkins, Minnesota
 
55343
(Address of principal executive offices)
  
(Zip Code)
 
(952) 938-2481
(Issuer’s telephone number)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  The registrant has not been phased into the Interactive Data reporting system. Yes ¨  No ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer ¨
 
Accelerated filer ¨
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)
 
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule l2b-2 of the Exchange Act). Yes ¨   No x 

The number of shares of common stock outstanding was 14,739,160 as of November 22, 2010.
 
Transitional Small Business Disclosure Format (check one): Yes ¨   No x
 


 
 

TABLE OF CONTENTS
 
PART I: FINANCIAL INFORMATION
   
Item 1.   Financial Statements
 
3
Item 2.   Management’s Discussion and Analysis
 
9
Item 3.   Controls and Procedures
 
18
     
PART II: OTHER INFORMATION
 
 
Item 6.   Exhibits
 
19
     
SIGNATURE:
 
20
         
INDEX TO EXHIBITS
 
21
Exhibit 31.1
   
Exhibit 31.2
   
Exhibit 32.1
   

 
2

 
 
PART 1: FINANCIAL INFORMATION
 
Item 1:  Financial Statements
Viper Powersports Inc.
(A Development Stage Company)
Consolidated Balance Sheets
 
   
September 30, 2010
   
December 31, 2009
 
 
 
(Unaudited)
   
 
 
Assets
           
Current Assets:
           
Cash
  $ 10,380     $ 100,162  
Accounts receivable
    267,727       212,675  
Inventory and supplies
    797,196       540,969  
Prepaid expenses and other
    189,844       61,570  
Total Current Assets:
    1,265,148       915,376  
                 
Fixed Assets:
               
Office & computer equipment
    124,100       119,835  
Manufacturing and development equipment
    275,471       273,759  
Vehicles
    101,799       101,799  
Leasehold improvements
    90,446       90,446  
Accumulated depreciation
    (487,369 )     (471,152 )
Total Fixed Assets:
    104,447       114,687  
                 
Other Assets:
               
Rental deposit and other
    4,010       4,010  
Total Other Assets:
    4,010       4,010  
                 
Total Assets:
  $ 1,373,604     $ 1,034,073  
                 
Liabilities and Stockholders’ Deficit
               
Current Liabilities:
               
Accounts payable
  $ 471,699     $ 358,167  
Accrued liabilities
    182,121       125,612  
Notes payable – related party
    75,000       439,353  
Notes payable
    387,000       150,000  
Short-term notes payable, less discount of $65,310 and $0, respectively
    1,184,690       -  
Current portion of capital lease
    530       4,052  
Total Current Liabilities:
    2,301,040       1,077,184  
                 
Long-term Liabilities:
               
Note Payable
    29,921       29,921  
Total Long-Term Liabilities
    29,921       29,921  
Total Liabilities:
    2,330,961       1,107,105  
                 
Stockholders’ Deficit:
               
Preferred stock, $.001 par value; authorized 20,000,000 shares; 0 issued and outstanding
    -       -  
Common stock, $.001 par value; authorized 25,000,000 shares; 14,344,160 and 13,408,962 issued and outstanding, respectively
    14,344       13,409  
Additional paid in capital
    33,646,849       32,185,691  
Accumulated deficit during the development stage
    (34,618,550 )     (32,272,132 )
Total Stockholders’ Deficit:
    (957,357 )     (73,032 )
                 
Total Liabilities and Stockholders’ Deficit:
  $ 1,373,604     $ 1,034,073  
 
See accompanying notes to the financial statements

 
3

 

Viper Powersports Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
 
   
For the Three Months Ended September 30
   
For the Nine Months Ended September 30,
   
Cumulative from November 18, 2002 (Date of Inception) through
 
   
2010
   
2009
   
2010
   
2009
   
Sept 30, 2010
 
                               
Revenues (net of returns)
  $ 35,257     $ 141,039     $ 165,857     $ 373,669     $ 1,219,951  
Cost of revenues
    23,298       140,618       150,856       280,149       1,162,413  
Gross profit:
    11,961       421       15,001       93,520       57,538  
                                         
Operating expenses
                                       
Research and development costs
    18,610       114,049       532,260       183,136       5,804,953  
Selling, general and administrative
    373,885       343,760       1,211,909       1,577,332       19,958,122  
Loss on impairment of assets
    -       -       -       -       7,371,689  
Total operating expenses
    392,495       457,809       1,744,169       1,760,468       33,134,764  
                                         
Loss from operations:
    (380,534 )     (457,388 )     (1,729,168 )     (1,666,948 )     (33,077,226 )
                                         
Other income (expense)
                                       
Interest expense
    (43,441 )     (28,705 )     (121,855 )     (61,085 )     (1,371,985 )
Loss on sale of asset
    -       -       -       -       (18,994 )
Accretion of debt discount
    (77,033 )     -       (229,141 )     -       (229,141 )
Beneficial conversion feature on loan
    (56,000 )     -       (268,000 )     -       (268,000 )
Other income
    -       -       1,746       2,435       346,796  
Total other income (expense)
    (176,473 )     (28,705 )     (617,250 )     (58,650 )     (1,541,324 )
                                         
Net Loss:
  $ (557,007 )   $ (486,093 )   $ (2,346,418 )   $ (1,725,598 )   $ (34,618,550 )
                                         
Net Loss per Common Share:
                                       
                                         
Basic and diluted
  $ (0.04 )   $ (0.04 )     (0.17 )   $ (0.17 )        
                                         
Weighted Average Share
                                       
Common Stock Outstanding
    14,125,629       11,581,953       13,820,104       10,444,619          
 

See accompanying notes to the financial statements.

 
4

 
 
Viper Powersports Inc.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
 
 
   
For the Nine Months Ended September 30,
   
Cumulative from November 18, 2002 (Date of Inception) through
 
   
2010
   
2009
   
Sept 30, 2010
 
Cash flows from operating activities:
                 
Net loss
  $ (2,346,418 )   $ (1,725,598 )   $ (34,618,550 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                       
Depreciation
    16,217       73,831       556,988  
Common stock and warrants issued for compensation and expenses
    90,500       683,698       8,623,436  
Beneficial conversion feature on convertible loan
    268,000       -       268,000  
Accretion of debt discount
    229,140       -       229,140  
Impairment loss
    -       -       7,371,689  
Changes in operating assets and liabilities:
                       
Decrease (increase) in accounts receivable
    (55,052 )     (262,467 )     (268,994 )
Decrease (increase) in inventory and supplies
    (256,227 )     77,597       (791,691 )
Decrease (increase) in prepaids and other
    22,829       (40,320 )     (136,092 )
Increase (decrease) in accounts payable
    113,532       187,970       596,705  
Increase (decrease) in accrued interest
    21,323       -       21,323  
Increase (decrease) in accrued liabilities
    34,686       57,374       196,024  
Net cash provided by (used in) operating activities
    (1,861,470 )     (947,915 )     (17,906,367 )
                         
Cash flows from investing activities:
                       
Proceeds from sale of fixed assests
    -       -       18,994  
Funding from Thor Performance for engine development
    -       -       150,000  
Purchase of intellectual property
    -       -       (35,251 )
Purchase of fixed assets
    (5,977 )     (1,865 )     (829,902 )
Net cash provided by (used in) investing activities
    (5,977 )     (1,865 )     (696,159 )
                         
Cash flows from financing activities:
                       
Net proceeds from sale of stock
    469,443       660,197       11,089,191  
 Net proceeds from warrants issued with stock
    188,597       -       188,597  
Proceeds from note payable
    1,250,000       -       1,852,169  
Payments on note payable
    (75,000 )     -       (264,705 )
Payments on stockholder loans and capital leases
    (201,375 )     (52,299 )     (839,392 )
Proceeds from loans from stockholders
    146,000       375,934       6,587,046  
Net cash provided by (used in) financing activities
    1,777,665       983,832       18,612,906  
                         
Net change in cash and cash equivalents
    (89,782 )     34,052       10,380  
Cash, beginning of period
    100,162       368       -  
                         
Cash, end of period
  $ 10,380     $ 34,420     $ 10,380  
                         
Supplemental Non-Cash Financing Activities and Cash Flow Information:
                 
Capital Stock issued for Debt & Expenses
  $ -     $ -     $ 8,382,009  
Common stock issued for engine development technology and engine development obligation of $150,000
  $ -     $ -     $ 7,341,437  
Stock warrants issued with convertible debt
  $ 163,000     $ -     $ 295,201  
Stock warrants issued with Short-term loans
    131,450       -       131,450  
Stock warrants issued as prepaid finders fee
    151,103       -       151,103  
Equipment acquired via capital lease
  $ -     $ -     $ 304,740  
                         
Interest paid
  $ 189,838     $ 32,380     $ 974,826  
 

See accompanying notes to the financial statements

 
5

 

Viper Powersports Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
A.  Basis of Presentation
 
The consolidated balance sheet as of September 30, 2010, the consolidated statements of operations for the three month and nine month periods ended September 30, 2010 and 2009 and the consolidated statements of cash flows for the nine month periods ended September 30, 2010 and 2009 have been prepared by Viper Powersports Inc. , (the ‘Company”) without audit. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position, as of September 30, 2010 and results of operations and cash flows for the three month and nine month periods ended September 30, 2010 and 2009 presented herein have been made.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2009.
 
B. Going Concern
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has minimal revenues and has a negative working capital position of $932,178 as of September 30, 2010. Current cash and cash available is not sufficient to fund operations beyond a short period of time. These conditions create uncertainty as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty

C.  Loan Transactions

The Company entered into seven 90-day loan agreements during the nine months ended September 30, 2010.  These loans are not convertible and carry a 12.0% interest rate.  Each agreement also required the company to issue warrants to purchase the applicable number of shares of common stock at $.50 per share.  The Company performed a Black-Scholls valuation for each transaction.  The call value was used to value the warrants issued.  Once the warrants were valued, the relative fair value method was used to allocate the proceeds between the warrants and the loans.  The warrant values would be credited to the APIC-Warrant account.  The difference in the face value of the loans and the proceeds assigned to the loans becomes a discount on the loans.  These discounts are then accreted over the life of the loans.

                   
Exercise
         
Call 
   
Warrant
   
Proceeds
   
9/30/2010
 
Date
 
Term
 
Proceeds
   
Warrants
   
 Price
   
Interest
   
 Value
   
Value
   
Allocation
   
Accretion
 
1/21/2010
 
90 days
  $ 100,000       50,000     $ 0.50       12.00 %   $ 1.11     $ 55,500     $ 35,600     $ 27,293  
1/27/2010
 
90 days
  $ 25,000       12,500     $ 0.50       12.00 %   $ 0.95     $ 11,875     $ 8,050     $ 5,635  
1/28/2010
 
90 days
  $ 25,000       12,500     $ 0.50       12.00 %   $ 0.94     $ 11,750     $ 8,000     $ 5,511  
2/4/2010
 
90 days
  $ 100,000       50,000     $ 0.50       12.00 %   $ 0.86     $ 43,000     $ 30,000     $ 18,333  
2/4/2010
 
90 days
  $ 100,000       50,000     $ 0.50       12.00 %   $ 0.86     $ 43,000     $ 30,000     $ 18,333  
6/16/2010
 
90 Days
  $ 100,000       50,000     $ 1.00       12.00 %   $ 0.22     $ 11,000     $ 9,900     $ 1,650  
6/16/2010
 
90 Days
  $ 100,000       50,000     $ 1.00       12.00 %   $ 0.22     $ 11,000     $ 9,900     $ 1,650  
        $ 550,000       275,000                                     $ 131,450     $ 78,406  

 
6

 

The Company entered into a 90-day loan agreement and a 365-day loan agreement during the nine months ended September 30, 2010.  These loans are convertible and carry a 12.0% interest rate.  The agreement also requires the company to issue warrants to purchase the applicable number of shares of common stock at $1.00 per share.  The client performed a Black-Scholls valuation for this transaction.  The call value was used to value the warrants issued.  Once the warrants were valued, the relative fair value method was used to allocate the proceeds between the warrants and the loan.  The warrant values will be credited to the APIC-Warrant account.  The difference in the face value of the loans and the proceeds assigned to the loans becomes a discount on the loans.  These discounts are then accreted over the life of the loans.  With the convertibility of this loan, a beneficial conversion feature is created.  The effective conversion price is subtracted from the stock market price to determine the beneficial conversion feature per share.  This is then multiplied by the number of warrants issued.  This BCF value is then expensed immediately, since the loan can be immediately converted.

                                                 
Beneficial
Conv.
 
                   
Exercise
               
Warrant
   
Proceeds
   
Feature
 
Date
 
Term
 
Proceeds
   
Warrants
   
Price
   
Interest
   
Call Value
   
Value
   
Allocation
   
Value
 
3/23/2010
 
365 days
  $ 500,000       250,000     $ 1.00       12.00 %   $ 0.76     $ 190,000     $ 137,000     $ 212,000  
7/2/2010
 
90 days
  $ 200,000       100,000     $ 1.00       12.00 %   $ 0.34     $ 34,000     $ 28,800     $ 56,000  
        $ 700,000       350,000                                     $ 165,800     $ 268,000  

 D.  Common Stock Transactions

During the nine months ended September 30, 2010, the Company issued 855,200 shares of common stock and 427,600 warrants for $855,200 in cash.  Client performed Black-Scholls valuation for each transaction.  The call value was the cost per share per this model.   The warrant allocation is the amount of the proceeds applied to the warrants.  The difference between the warrant allocation and the proceeds was allocated to the shares of common stock issued.

                           
Call
   
Warrant
 
Date
 
Shares
   
Proceeds
   
Warrants
   
Exercise Price
   
Value
   
Allocation
 
1/12/2010
    100,000     $ 100,000       50,000     $ 0.50     $ 1.22     $ 60,977  
1/14/2010
    200     $ 200       100     $ 0.50     $ 1.09     $ 109  
2/23/2010
    100,000     $ 100,000       50,000     $ 0.50     $ 0.84     $ 41,939  
2/23/2010
    25,000     $ 25,000       12,500     $ 0.50     $ 0.84     $ 10,485  
5/5/2010
    50,000     $ 50,000       25,000     $ 1.00     $ 0.40     $ 10,000  
7/1/2010
    30,000     $ 30,000       15,000     $ 1.00     $ 0.20     $ 3,000  
7/9/2010
    250,000     $ 250,000       125,000     $ 1.00     $ 0.39     $ 48,750  
7/20/2010
    100,000     $ 100,000       50,000     $ 1.00     $ 0.44     $ 22,000  
8/25/2010
    25,000     $ 25,000       12,500     $ 1.00     $ 0.42     $ 5,250  
9/2/2010
    50,000     $ 50,000       25,000     $ 1.00     $ 0.36     $ 9,000  
9/23/2010
    25,000     $ 25,000       12,500     $ 1.00     $ 0.40     $ 5,000  
9/29/2010
    100,000     $ 100,000       50,000     $ 1.00     $ 0.37     $ 18,500  
      855,200     $ 855,200       427,600                     $ 235,010  

Also during the nine months ended September 30, 2010, the Company issued 80,000 shares of common stock for services.  The stock price was traced to the market closing price on each applicable date.  These prices were used to value the stock issued for services.

 
7

 

Date
 
Shares
   
Market Price
   
Value
 
2/5/2010
    10,000     $ 1.20     $ 12,000  
2/5/2010
    20,000     $ 1.20     $ 24,000  
2/23/2010
    50,000     $ 1.09     $ 54,500  
      80,000             $ 90,500  

E.  Subsequent Events

During the period from September 30, 2010, through the date of this filing, the Company issued 220,000 shares of common stock for $220,000 in cash.  Client performed Black-Scholls valuation for each transaction.  The call value was the cost per share per this model .   The warrant allocation is the amount of the proceeds applied to the warrants.  The difference between the warrant allocation and the proceeds was allocated to the shares of common stock issued.

                           
Call
   
Warrant
 
Date
 
Shares
   
Proceeds
   
Warrants
   
Exercise Price
   
Value
   
Allocation
 
10/1/2010
    25,000     $ 25,000       12,500     $ 1.00     $ 0.40     $ 5,000  
10/1/2010
    25,000     $ 25,000       12,500     $ 1.00     $ 0.40     $ 5,000  
10/13/2010
    30,000     $ 30,000       15,000     $ 1.00     $ 0.44     $ 6,600  
10/13/2010
    40,000     $ 40,000       20,000     $ 1.00     $ 0.44     $ 8,800  
10/18/2010
    100,000     $ 100,000       50,000     $ 1.00     $ 0.42     $ 21,000  
      220,000     $ 220,000       110,000                     $ 46,400  

 
8

 

Item 2: Management’s Discussion and Analysis
 
The following discussion should be read and considered along with our consolidated financial statements and related notes included in this 1O-Q. These financial statements were prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in these forward-looking statements as a result of various factors including those set forth in the “Risk Factors” section of our Form 10-K filing for December 31, 2009.
 
Business Development Overview
 
Viper Powersports Inc., the Company, was incorporated in Nevada in 1980 under a former name.   The Company ceased all active operation in 2001 and remained inactive until its stock exchange acquisition of Viper Motorcycle Company in early 2005, incident to which it changed its name to Viper Powersports Inc.
 
Effective March 31, 2005, Viper Powersports Inc. acquired all of the outstanding capital stock of Viper Motorcycle Company, a Minnesota corporation, resulting in Viper Motorcycle Company becoming a wholly-owned subsidiary of Viper Powersports Inc. For accounting and operational purposes, this acquisition was a recapitalization conducted as a reverse acquisition of Viper Powersports Inc. with Viper Motorcycle Company being regarded as the acquirer.  The stock exchange for this reverse acquisition was affected on a one-for-one basis, resulting in the stockholders of Viper Motorcycle Company exchanging all of their outstanding capital stock for an equal and like amount of capital stock of Viper Powersports Inc. This resulted in the former shareholders of Viper Motorcycle Company acquiring approximately 94% of the resulting combined entity.
 
Viper Performance Inc. was incorporated by us in March 2005 as a wholly-owned Minnesota corporation. We organized and incorporated Viper Performance Inc. for the purpose of  holding engine development technology which we acquired.

As used herein, the terms “we”, “us”, “our”, and “the Company” refer to Viper Powersports Inc. and its two wholly-owned subsidiaries, unless the context indicates otherwise.

Since our inception in late 2002, we have been in the business of designing, developing and commencing commercial marketing and production of premium custom V-Twin motorcycles popularly known as “cruisers.”  Our motorcycles will be distributed and sold under our Viper brand through a nationwide network of independent motorcycle dealers.  Marketing of our motorcycles is targeted toward the upscale market niche of motorcycle enthusiasts who prefer luxury products and are willing to pay a higher price for enhanced performance, innovative styling and a distinctive brand.  We believe there is a consistently strong demand for upscale or luxury motorcycle products like our American-styled classic Viper cruisers and our premium V-Twin engines.  For example, the prestigious upscale Robb Report magazine publishes a Robb Report Motorcycling magazine bi-monthly, which is targeted exclusively to luxury motorcycle products.

We have completed the development and extensive testing of proprietary V-Twin engines including actual performance testing of the engines on our Viper motorcycles, and we have been very satisfied with their performance while powering our cruisers during all kinds of street and highway running conditions.  Our proprietary V-Twin engines were designed and developed by Melling Consultancy Design (MCD), a leading professional engine design and development firm based in England.

After undergoing an extensive engine emissions testing program for an entire year conducted by a leading independent test laboratory in 2008-2009, 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 motorcycle dealers.  Our current firm orders from Viper dealers exceed our remaining available production capacity for remaining 2010 and early 2011.

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.

 
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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 commercial engines 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.
 
The Company is well satisfied with the final prototype of the Ilmor-designed Viper engine, and accordingly has ordered considerable commercial Ilmor engines which are now being delivered.  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 include being 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.

 
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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 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 2011.
 
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 early 2011, 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.
 
Relocation of Manufacturing operations - Viper Motorcycle Company has announced in a press release dated August 10, 2010 that it has plans to begin manufacturing motorcycles in Auburn, Alabama. The company will move its operations from Hopkins, Minnesota to Auburn, Alabama as soon as possible with full production beginning in 2011.  A brand new facility in Auburn Technology Park West will become the new headquarters and production facility for Viper Motorcycle Company and we have entered into a lease to occupy these facilities when ready.
 
Operational Overview

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.

 
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Results of Operations
 
Revenues
 
Since our inception, we have generated total revenues of $1,219,951 some of which occurred in 2004 before we discontinued offering a motorcycle with a non-proprietary engine. We anticipate that our future revenues for the next 12 months will be primarily from sale of Viper cruisers, although we expect to begin obtaining sales of our proprietary engines in the aftermarket during 2011. We anticipate receiving additional revenues from our planned line of custom parts and accessories for the motorcycle aftermarket as well as our Viper branded apparel and other merchandise.
 
We believe our future revenue stream will be most significantly affected by customer demand for Viper cruisers, performance of our proprietary V-Twin engines, our ability to timely manufacture our motorcycle products in response to dealer and customer orders and recruitment and retention of dealers who actively promote and sell our products.

Operating Expenses
 
Research and development expenses consist primarily of salaries and other compensation for development personnel, contract engineering costs for outsourced design or development, supplies and equipment related to design and prototype development activities, and costs of regulatory compliance or certifications.
 
Selling, general and administrative expenses consist primarily of salaries and other compensation for our management, marketing and administrative personnel, facility rent and maintenance, advertising and promotional costs including trade shows and motorcycle rallies, sales brochures and other marketing materials, dealer recruitment and support costs, development of accounting systems, consulting and professional fees, financing costs, public relations efforts and administrative overhead costs.
 
Comparison of Quarter Ended September 30, 2010 to Quarter Ended September 30, 2009.
 
Revenues
 
There was $35,257 of motorcycle and parts revenue for the third quarter of 2010 as compared to revenue for the third quarter of 2009 of $141,039.  Only one  bike was built and sold during the third quarter of 2010 vversus the four bikes built and sold during the third quarter of 2009.
 
 Research and Development Expenses
 
Research and development decreased by $95,439 to $18,610 for the third quarter of 2010 from $114,049 for the third quarter of 2009. This decrease was due primarily to reduced development expense associated with our agreement with Ilmor Engineering in regards to engine development
 
Selling, general and administrative expenses
 
Selling, general and administrative expenses increased to $373,885 for the third quarter of 2010 from $343,760 for the third quarter of 2009.  Our selling and general administrative expenses were similar for these two quarters.
 
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Loss from operations
 
Operational loss for the third quarter of 2010 was $380,535 compared to $457,388 for the third quarter of 2009. This decreased loss in the 3rd quarter of 2010 was due primarily to reduced research and development cost during the 3rd quarter of 2010.
 
Interest expense
 
Interest expense for the third quarter of 2010 was $43,441 compared to $28,705 for the third quarter of 2009. This increase during the 3rd quarter of 2010 was due to increased loans for operations and inventory.

Comparison of the Nine months Ended September 30, 2010 and September 30, 2009.
 
Revenues
 
Revenue of motorcycle and parts revenue for the first nine months of 2010 was $165,857 as compared to revenue for the same period of 2009 of $373,669.  This difference was due to more bikes built and sold in 2009 than the first nine months of 2010.
 
 Research and Development Expenses
 
Research and development cost were $532,260 for the first nine months of 2010 as compared to the same period of 2009 of $183,136. This increase was due primarily to development expense associated with our engine development agreement with Ilmor Engineering.
 
Selling, general and administrative expenses
 
Selling, general and administrative expenses were $1,211,909 for the first nine months of 2010 as compared to the same period of 2009 of $1,577,332.  Our selling and general administrative expenses were lower during the 2010 period due to decreased depreciation expenses, lower payroll cost, less professional fees and less promotional expense.

 
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Loss from operations
 
Operational loss for the first nine months of 2010 was $1,729,168 compared to a similar loss of  $1,666,948 for the first nine months of 2009.
 
Interest expense
 
Interest expense for the first nine months of 2010 was $121,855 compared to $61,805 for the first nine months of 2009. This increase was due to increased loans for operations and inventory.
 
No income tax benefit was recorded regarding our net loss for the first nine months of 2010 and 2009, since we could not determine that it was more likely than not that any tax benefit would be realized in the future.
 
Since we are beginning minimal commercial operations, our operations are subject to all of the risks inherent in the development of a new business enterprise, including the ultimate risk that we may never commence full-scale operations or that we may never become profitable. We do not expect to make material shipments of our motorcycles to dealers until early 2011. Our historic spending levels are not indicative of future spending levels since we are entering a period requiring increased spending for commercial operations including significant inventory purchases, increased marketing and dealer network costs, and additional general operating expenses. Accordingly, our losses could increase until we succeed in generating substantial product sales, which may never happen.
 
We currently employ 8 persons including our management, development, marketing and administrative personnel.  We expect to hire 2-5 assembly and administrative personnel during the early part of 2011 to support our anticipated commercial production and sales of Viper cruisers. We also anticipate increased hiring requirements with the projected move of the manufacturing operations sometime in 2011. None of our employees belongs to a labor union, and we consider our relationship with our employees to be good.
 
Liquidity and Capital Resources
 
Since our inception, we have financed our development, capital expenditures, and working capital needs through sale of our common stock to investors in private placements and substantial loans from principal shareholders and others. We raised a total of approximately $11 million through the sale of our common stock in private placements, and in excess of $7.6 million through loans from our principal shareholders.
 
As of  September 30, 2010, we had cash resources of $10,380, total liabilities of $2,330,961, and a negative working capital position of $1,035,893.

 
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Future Liquidity
 
Based on our current cash position, we need material additional financing to fund our ongoing operations. We anticipate obtaining additional needed financing through the proceeds from additional private placement of equity securities.
 
If we are unable to complete adequate private placements or to obtain substantial additional funding through other sources, we most likely would need to curtail significantly, or even cease, our ongoing and planned operations. Our future liquidity and capital requirements will be influenced materially by various factors including the extent and duration of our future losses, the level and timing of future sales and expenses, market acceptance of our motorcycle products, regulatory and market developments in our industry, and general economic conditions.
 
The report of our independent registered accounting firm for our audited financial statement ended December 31, 2009 states that there is substantial doubt about the ability of our business to continue as a going concern. Accordingly, our ability to continue our business as a going concern is in question.
 
Cash Flow Information
 
Net cash consumed by operating activities was $1,861,470 during the nine months ended September 30, 2010 compared to consuming cash in the amount of $947,915 for the nine months ended September 30, 2009 which substantial increase was attributable primarily to increased operational expenses necessary to engage fully in commercial marketing and production activities.

There was $5,977 of cash used or generated from investing activities related to purchase of fixed assets for the nine months ended September 30, 20101 as compared to $1,865 for the similar month period of 2009.

Cash generated from financing activities for the nine months ended September 30, 2010 was $1,777,665 including $469,443 from private placement sales of our common stock plus net loan proceeds of approximately $1,396,000, compared to $983,832 for the nine months ended September 30, 2009 including $660,187 from private placement sales of our common stock plus net loan proceeds of approximately $375,934.

Business Seasonality
 
Sales of motorcycles in the United States are affected materially by a pattern of seasonality experienced in the industry which results in lower sales during winter months in colder regions of the country. Accordingly, we anticipate that our sales will be greater during spring, summer and early fall months than during late fall and winter periods. We also expect our revenues and operating results could vary materially from quarter to quarter due to this industry seasonality.

 
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Recent 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. Our adoption of this Codification did not have any material impact on the Company’s financial position, results of operations or cash flows.

None of the recently issued accounting pronouncements we have reviewed are expected to have a material impact on the Company’s financial reporting.
 
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.

 
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Forward-Looking Statements
 
This quarterly report on Form I0-Q contains “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Statements expressing expectations regarding our future and projections we make relating to products, sales, revenues and earnings are typical of such statements. All forward-looking statements are subject to the risks and uncertainties inherent in attempting to predict the future. Our actual results may differ materially from those projected, stated or implied in our forward-looking statements as a result of many factors, including, but not limited to, our overall industry environment, customer and dealer acceptance of our products, effectiveness of our dealer network, failure to develop or commercialize new products, delay in the introduction of products, regulatory certification matters, production and or quality control problems, warranty and/or product liability matters, competitive pressures, inability to raise sufficient working capital, general economic conditions and our financial condition.
 
Our forward-looking statements speak only as of the date they are made by us. We undertake no obligation to update or revise any such statements to reflect new circumstances or unanticipated events as they occur, and you are urged to review and consider all disclosures we make in this and other reports that discuss risk factors germane to our business, including those risk factors in our Form 10-K for the period ended December 31, 2009.

 
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Item 3. Controls and Procedures
 
Evaluation of disclosure controls and procedures
 
The Company’s Chief Executive and Chief Financial Officer, John R. Silseth and Jerome L. Posey, have reviewed the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon this review, these two officers believe that the Company’s disclosure controls and procedures are effective in ensuring that information that is required to be disclosed by the Company in reports that it files under the Securities Exchange Act of 1934 is recorded, processed and summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission.
 
Changes in internal controls
 
There were no changes in the Company’s internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
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PART II - OTHER INFORMATION
 
Item 6. Exhibits
 
See Index of Exhibits.

 
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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duty authorized.
 
 
VIPER POWERSPORTS INC.
   
 
By: 
/s/ Jerome L. Posey
   
Jerome L. Posey
Principal Financial Officer
 
November 22, 2010
Hopkins, Minnesota

 
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INDEX TO EXHIBITS
  
Form 10-Q for
Quarter Ended September 30, 2010
 
Commission File No. 000-51632
 
Exhibit
   
Number
 
Description
31.1
 
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
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