Attached files
file | filename |
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EX-31.1 - VIPER POWERSPORTS INC | v203560_ex31-1.htm |
EX-31.2 - VIPER POWERSPORTS INC | v203560_ex31-2.htm |
EX-32.1 - VIPER POWERSPORTS INC | v203560_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.
9
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.
10
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.
11
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.
12
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.
13
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.
14
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.
15
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.
16
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.
17
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.
18
PART
II - OTHER INFORMATION
Item
6. Exhibits
See Index
of Exhibits.
19
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
20
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
|
21