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EX-31.2 - EX-31.2 - VIPER POWERSPORTS INCv241006_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - VIPER POWERSPORTS INCv241006_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - VIPER POWERSPORTS INCv241006_ex31-1.htm


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


FORM 1O-Q


x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

Commission File No. 000-51632


 
VIPER POWERSPORTS INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
41-1200215
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification No.)
 
2458 W. Tech Lane, Auburn, Alabama
 
36832
(Address of principal executive offices)
  
(Zip Code)

(334) 887-4445
(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).  Yes x   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 23,746,724 as of November 9, 2011.
 


 
 

 

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
3
Item 1.
Financial Statements
3
Item 2.
Management’s Discussion and Analysis
9
Item 3.
Controls and Procedures
17
     
PART II: OTHER INFORMATION
18
Item 6.
Exhibits
18
     
SIGNATURE:
19
   
INDEX TO EXHIBITS
 

 
2

 
 
PART 1: FINANCIAL INFORMATION
 
Item 1: Financial Statements
Viper Powersports Inc.
(A Development Stage Company)
Consolidated Balance Sheets

   
September 30, 2011
   
December 31, 2010
 
   
(Unaudited)
       
Assets
           
Current Assets:
           
Cash
  $ 16,994     $ 15,579  
Accounts receivable, net of allowance
    6,303       -  
Inventory and supplies
    161,154       190,930  
Prepaid expenses and other
    41,873       1,330  
Total Current Assets:
    226,324       207,839  
                 
Fixed Assets:
               
Office and computer equipment
    96,733       124,100  
Manufacturing and development equipment
    232,196       272,254  
Vehicles
    99,829       101,799  
Leasehold improvements
    49,248       90,446  
Subtotal
    478,006       588,599  
Accumulated depreciation
    (150,126 )     (507,989 )
Total Fixed Assets:
    327,880       80,610  
Other Assets:
               
Rental deposit and other
    17,410       4,010  
Long-term inventory
    431,261       431,261  
Total Other Assets:
    448,671       435,271  
                 
Total Assets:
  $ 1,002,875     $ 723,720  
                 
Liabilities and Stockholders’ Equity(Deficit)
               
Current Liabilities:
               
Accounts payable
  $ 200,743     $ 303,518  
Accrued liabilities
    82,557       181,325  
Notes payable
    145,000       129,000  
Notes payable – related party
    294,512       304,513  
Derivative liability
    483,571       586,992  
Current portion of long-term note payable
    100,000       -  
Total Current Liabilities:
    1,306,385       1,505,348  
Long-term Liability
               
Long-term note payable
    100,000       -  
Total Long-term Liabilities:
    100,000       -  
Total Liabilities:
    1,406,385       1,505,348  
                 
Stockholders’ Equity(Deficit):
               
Preferred stock, $.001 par value; authorized 20,000,000 shares; 1,386,469 and 0 unissued and outstanding , respectively
    1,386       -  
Common stock, $.001 par value; authorized 100,000,000 shares; 23,236,724 and 17,719,280 issued and outstanding, respectively
    23,237       17,719  
Additional paid-in capital
    39,706,846       36,237,465  
Accumulated deficit during the development stage
    (40,134,979 )     (37,036,812 )
Total Stockholders’ Equity/(Deficit):
    (403,510 )     (761,628 )
                 
Total Liabilities and Stockholders’ Equity/(Deficit):
  $ 1,002,875     $ 723,720  

See accompanying notes to the financial statements

 
3

 
 
Viper Powersports Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
   
Cumulative from
Inception
November 18, 2002
through
 
   
2011
   
2010
   
2011
   
2010
   
September 30, 2011
 
                               
Revenue
  $ 166,166     $ 6,561     $ 204,901     $ 29,157     $ 1,294,763  
Cost of revenue
    162,787       3,301       208,992       22,856       1,255,589  
Gross Profit:
    3,379       3,260       (4,091 )     6,301       39,174  
                                         
Operating expense:
                                       
Research and development cost
    14,983       18,610       19,139       532,260       6,049,939  
Selling, general and administrative
    2,184,080       373,885       3,138,472       1,211,909       23,665,766  
Loss on impairment of assets
    -       -       -       -       7,581,317  
Total operating expense:
    2,199,063       392,495       3,157,611       1,744,169       37,297,022  
                                         
Loss from operations:
    (2,195,684 )     (389,235 )     (3,161,702 )     (1,737,868 )     (37,257,848 )
                                         
Other (expenses) income:
                                       
Interest expense
    (5,929 )     (43,441 )     (41,349 )     (121,855 )     (1,560,254 )
Loss on sale of assets
    -       -       -       -       (18,994 )
Accretion of debt discount
    -       (77,032 )     -       (229,141 )     -  
Gain/loss from derivative liability
    266,598       (78,297 )     103,421       (182,356 )     (483,571 )
Beneficial conversion feature on loan
    -       (56,000 )     -       (268,000 )     (1,162,571 )
Other income (expense)
    -       -       1,463       1,746       348,259  
Total other (expense) income:
    260,669       (254,770 )     63,535       (799,606 )     (2,877,131 )
Net Loss:
  $ (1,935,015 )   $ (644,005 )   $ (3,098,167 )   $ (2,537,474 )   $ (40,134,979 )
                                         
Net Loss Per Common Share:
                                       
                                         
Basic and diluted
    (0.10 )     (0.05 )     (0.16 )     (0.18 )        
                                         
Weighted Average Shares Common Stock Outstanding
    19,979,738       14,125,629       19,021,687       13,820,104          

See accompanying notes to the financial statements.

 
4

 

Viper Powersports Inc.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
 
   
Nine Months Ended
September 30,
   
Cumulative from
Inception
November 18, 2002
through
 
   
2011
   
2010
   
September 30, 2011
 
Cash Flows Used in Operating Activities:
                 
Net loss
  $ (3,098,167 )   $ (2,537,474 )   $ (40,134,979 )
Expenses not requiring an outlay of cash:
                       
Depreciation
    55,568       16,217       633,169  
Common stock and warrants issued for compensation and services
    1,848,950       90,500       10,730,186  
Beneficial conversion feature on convertible loan
    -       268,000       416,333  
Accretion of debt discount
    -       229,141       297,250  
Bad debt expense
            -       105,707  
Change in derivative liability
    (103,421 )     182,356       483,571  
Warrant issued for inducement to convert debt
    -       -       292,987  
Impairment loss – inventory
    -       -       7,581,317  
Common stock issued to convert accrued interest
    3,164       -       126,978  
                         
Changes to operating assets and liabilities:
                       
Decrease (increase) in accounts receivable
    (6,303 )     81,648       (113,277 )
Decrease (increase) in inventory and supplies
    29,776       (384,227 )     (796,538 )
Decrease (increase) in prepaids
    (53,943 )     22,828       (106,966 )
Increase (decrease) in accounts payable
    (102,773 )     113,532       325,750  
Increase (decrease) in accrued liabilities
    (98,768 )     56,009       118,289  
Cash flows used in operating activities
    (1,525,917 )     (1,861,470 )     (20,040,023 )
                         
Cash flows Used in Investing Activities:
                       
Proceeds from sale of fixed assets
    -       -       18,994  
Funding from Thor Performance for engine development
    -       -       150,000  
Purchase of intellectual property
    -       -       (35,251 )
Purchase of fixed assets
    (220,796 )     (5,977 )     (1,047,481 )
Cash flows used in investing activities
    (220,796 )     (5,977 )     (913,738 )
                         
Cash Flows from Financing Activities:
                       
Net proceeds from sale of preferred stock
    525,007       469,443       493,029  
Net proceeds from sale of stock with warrants
    624,199       188,597       12,729,147  
Proceeds from notes payable
    600,000       1,250,000       2,501,248  
Payments on notes payable
    (76,078 )     (75,000 )     (265,783 )
Payments on stockholder loans and capital leases
    -       (201,375 )     (642,069 )
Proceeds from loans from stockholders
    75,000       146,000       6,381,205  
Cash flows from financing activities
    1,748,128       1,777,665       21,228,755  
                         
Net increase (decrease) in cash
    1,415       (89,782 )     16,994  
Cash at beginning of period
    15,579       100,162       -  
                         
Cash at end of period
  $ 16,994     $ 10,380     $ 16,994  
                         
Supplemental Non-Cash Financing Activities and Cash Flow Information:
                       
Preferred stock issued for debt
  $ 113,400     $ -     $ 113,400  
Common stock issued for debt and expenses
  $ 325,000     $ -     $ 10,057,009  
Common stock issued for engine development technology
  $ -     $ -     $ 7,341,437  
Stock warrants issued with convertible debt
  $ -     $ 163,000     $ 137,000  
Stock warrants issued with short-term loans
  $ 75, 000     $ 131,450     $ 206,450  
Stock warrants as prepaid finder’s fee
  $ 100,000     $ 151,102     $ 251,103  
Equipment acquired via capital lease
  $ -     $ -     $ 304,740  
Interest converted
  $ 35,419     $ 121,855     $ 820,407  

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, 2011, the consolidated statements of operations for the nine months ended September 30, 2011 and 2010 and the consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010 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, 2011 and results of operations and cash flows for the nine months ended September 30, 2011 and 2010 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, 2010.

For comparison, the Company’s Form 10-Q for the quarter ended September 30, 2010 was restated.  When comparative data is used in this statement, the Company is referencing the restated Form 10-Q.

B. Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  As of September 30, 2011, the Company has a negative working capital position of $1,080,061. This is calculated with a derivative liability of $483,571 which is recorded as a non-operating, non-cash current liability and would have no effect on working capital.  Current cash and cash available are 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.

These consolidated financial statements do not include any adjustments relating to the recoverability and classifications of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

C. Inventories
Inventories are stated at the lower of cost or market.  Cost is determined by using first-in, first-out method (FIFO).  Demonstration motorcycles are stated at manufacturing cost with reserves recorded to reflect their net realizable value.  The Company reviews inventory for obsolescence and excess quantities to determine that items deemed obsolete or in excess are appropriately reserved.  Inventory components at September 30, 2011 are as follows:

   
September 30, 2011
 
Raw material
  $ 542,031  
Work-in-process
    50,384  
Finished goods
    -  
    $ 592,415  
         
Current portion
  $ 161,154  
Long-term portion
  $ 431,261  

D.  Loans
The Company entered into the following 60-day loan agreements through September 30, 2011.  The loans carried a 10.0% 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 relative fair value method was used to allocate the proceeds between the warrants and the loans.  The resulting debt discounts were then accreted over the life of the loans.  These loans were subsequently converted into Convertible Preferred Stock at which time the unamortized discount was expensed.

Date
 
Term
(days)
   
Proceeds
   
Warrants
   
Exercise
 Price
   
Interest
   
Call
Value
   
Warrant
Value
 
4/9/2011
    60     $ 50,000       50,000     $ 0.50       10 %   $ .33     $ 16,500  
4/9/2011
    60       50,000       50,000       0.50       10 %     .33       16,500  
4/14/2011
    60       50,000       50,000       0.50       10 %     .32       16,100  
6/14/2011
    60       50,000       100,000       0.50       10 %     .33       33,000  
6/14/2011
    60       25,000       50,000       0.50       10 %     .33       16,500  
6/14/2011
    60       50,000       100,000       0.50       10 %     .33       33,000  
6/29/2011
    60       25,000       50,000       0.50       10 %     .62       31,000  
6/29/2011
    60       100,000       200,000       0.50       10 %     .33       124,000  
7/1/2011
    60       25,000       50,000       0.50       10 %     .33       31,000  
            $ 425,000       700,000                             $ 317,600  

 
6

 

On July 27, 2011, the Company entered into a two-year loan agreement with the Industrial Development Board of the City of Auburn, Alabama.  The $200,000 loan will be used to purchase new equipment.  The new equipment will be used as collateral for the loan agreement.  The loan carries a 3.25% interest rate payable in quarterly payments.  Two principle payments of $100,000 are due on July 27, 2012 and 2013.

On September 19, 2011, the Company entered into a Convertible Promissory Note with Asher Enterprises, Inc. with a principal amount of $62,000.  Terms of the Note are nine months and the Note carries an 8% interest rate per annum, compounded annually. If the note remains unpaid after one hundred and eighty (180) days from the Issue date, the holder has the option to convert the principal and accrued interest into shares of our Company stock at a conversion price equal to 58% of the “trading price” as described in the Note. These proceeds from this loan were used for both the purchase of inventory as well as Company operations.

E.   Leasing Activities
On July 27, 2011, the Company and Industrial Development Board of the City of Auburn, Alabama renegotiated its operating lease for the Auburn, Alabama facility.  The term of the lease is for one hundred and twenty (120) months with a starting date of November 1, 2011.  Total operating lease payments for the remainder of 2011 are $21,064. Lease payments for 2012 are $138,784.  The lease payment, starting in November 2013 will be recalculated based on the City of Auburn’s cost of debt service.

F.  Common Stock Transactions
During the nine months ended September 30, 2011, the Company issued 1,378,000 shares of common stock for $614,000 in cash and 858,000 warrants as follows:

Date
 
Shares
   
Proceeds
 
Warrant
term
 
Warrants
   
Exercise
 Price
 
1/6/2011
    100,000     $ 50,000  
3 yr
    50,000     $ 1.00  
1/14/2011
    60,000       30,000  
5 yr
    30,000       1.00  
1/25/2011
    30,000       15,000  
5 yr
    15,000       1.00  
1/27/2011
    200,000       100,000  
5 yr
    200,000       1.00  
2/9/2011
    10,000       5,000  
5 yr
    5,000       1.00  
2/14/2011
    134,000       67,000  
5 yr
    134,000       1.00  
2/14/2011
    134,000       67,000  
5 yr
    134,000       1.00  
2/22/2011
    140,000       70,000  
5 yr
    70,000       1.00  
3/29/2011
    100,000       50,000  
5 yr
    50,000       1.00  
4/1/2011
    50,000       25,000  
5 yr
    50,000       1.00  
4/21/2011
    100,000       50,000  
5yr
    100,000       1.00  
5/2/2011
    20,000       10,000  
5yr
    20,000       1.00  
7/1/2011
    200,000       50,000                    
7/1/2011
    100,000       25,000                    
Total:
    1,378,000     $ 614,000         858,000          

During the nine months ended September 30, 2011, the Company issued 3,000,000 shares of common stock to officers and employees.  The value used was the market closing price on each applicable date.

Date
 
Common
Stock
   
Market
Price
   
Value
 
9/20/2011
    2,500,000       .51       1,275,000  
9/20/2011
    200,000       .51       102,000  
9/20/2011
    200,000       .51       102,000  
9/20/2011
    50,000       .51       25,500  
9/20/2011
    50,000       .51       25,500  
      3,000,000             $ 1,530,000  

 
7

 

During the nine months ended September 30, 2011, the Company issued 25,000 shares of common stock to an officer no longer employed as part of a separation agreement.  The value used was the market closing price on each applicable date.

Date
 
Common
Stock
   
Market
Price
   
Value
 
9/20/2011
    25,000       .51       12,750  

During the nine months ended September 30, 2011, the Company issued 1,330,000 shares of common stock for services.  The value used was the market closing price on each applicable date.

Date
     
Common
Stock
   
Market
Price
   
Value
 
3/31/2011
 
Services
    50,000     $ .45     $ 22,500  
3/31/2011
 
Services
    50,000       .45       22,500  
3/31/2011
 
Services
    100,000       .45       45,000  
3/31/2011
 
Services
    50,000       .45       22,500  
3/31/2011
 
Services
    50,000       .45       22,500  
4/25/2011
 
Services
    100,000       .50       50,000  
5/16/2011
 
Services
    30,000       .50       15,000  
6/23/2011
 
Services
    100,000       .48       48,000  
9/20/2011
 
Services
    200,000       .51       102,000  
9/20/2011
 
Services
    280,000       .51       142,800  
9/20/2011
 
Services
    320,000       .51       163,200  
          1,330,000             $ 564,000  

E.  Preferred Stock
During the nine months ended September 30, 2011, the Company sold 1,386,469 shares of Convertible Preferred Stock net of expenses for $950,007 in cash and $425,000 of converted debt.  The preferred shares become eligible for converting into Common Stock.  The conversion price per share is the lower of $0.75 or a 30% discount from the public trading price of Viper Common Stock averaged over a five-day period prior to the date of the conversion or January 1, 2012.  The Company has acted as its own Registrar and Transfer Agent for the Preferred Stock.

F.   Subsequent Events
The Company has evaluated subsequent events from September 30, 2011 through the date the financial statements were issued and determined that there are the following events to disclose.

On October 2, 2011, the Company renegotiated a $200,000 short-term loan agreement with Venture Banks.  The loan carries a 5.5% interest rate, calculated and payable monthly, with a balloon payment due October 2, 2012.  The loan is collateralized by a related party.

On October 4, 2011, the Company filed an Information Statement with the Securities Exchange Commission and on October 14, 2011 to our shareholders notifying that the Company has filed an Amendment to its Articles of Incorporation increasing its capital stock from 25,000,000 to 100,000,000 of common stock.

On October 15, 2011, the Company has started a Private Placement to raise funds for inventory build-up and working capital needs.  At the time of this statement, the terms have not been completed.

On October 10, 2011 issued 510,000 shares of common stock for services.  The value used was the market closing price on each applicable date.

Date
     
Common
Stock
   
Market
Price
   
Value
 
10/10/2011
 
Services
    200,000     $ .34     $ 68,000  
10/10/2011
 
Services
    100,000       .34       34,000  
10/10/2011
 
Services
    50,000       .34       17,000  
10/10/2011
 
Services
    100,000       .34       34,000  
10/10/2011
 
Services
    20,000       .34       6,800  
10/10/2011
 
Services
    40,000       .34       13,600  
          510,000             $ 173,400  

 
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, 2010.

Business Development Overview

Viper Powersports Inc., formerly ECCO Capital Corporation (“ECCO”), was incorporated in Nevada in 1980 under a former name.   ECCO ceased all active operation in 2001 and remained inactive until its stock exchange acquisition of Viper Motorcycle Company in early 2005, incident to which it changed 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.  Consistent with reverse acquisition accounting, all of the assets, liabilities and accumulated deficit of Viper Motorcycle Company are retained on our financial statement as the accounting acquirer. Since Viper Powersports Inc. had no assets or liabilities at the time of this acquisition, its book value has been stated as zero on the recapitalized balance sheet.  The stock exchange for this reverse acquisition was effected on a one-for-one basis, resulting in the stockholders of Viper Motorcycle Company exchanging all of their outstanding capital stock for an equal and like amount of capital stock of Viper Powersports Inc. This resulted in the former shareholders of Viper Motorcycle Company acquiring approximately 94% of the resulting combined entity.

Viper Performance Inc. was incorporated by us in March 2005 as a wholly-owned Minnesota corporation. We organized and incorporated Viper Performance Inc. for the purpose of receiving and holding the engine development technology and related assets which we acquired from Thor Performance Inc.

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

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

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

After undergoing an extensive engine emissions testing program for an entire year conducted by a leading independent test laboratory in 2007, our proprietary V-Twin engines recently satisfactorily passed  and complied with all noise and pollution emissions requirements of both the federal Environmental  Protection Agency (EPA) and the more stringent emissions requirements of the California  Air Resources Board (CARB).  Satisfying these standards constitutes a touchstone achievement for the Company that we believe places us in a commanding competitive position in the upscale custom motorcycle market.

We commenced commercial marketing, very limited production and commercial shipment of Viper motorcycles in 2009.  With the completed relocation to Auburn, Alabama, the Company has started stocking inventory and will begin production of its 2011 motorcycles.

 
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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 2009, Ilmor began assembling all V-Twin engines used by Viper Motorcycle Company and since then Ilmor has conducted all of the Company’s engine product assembly. The initial 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.

The Company has approved and is well satisfied with the most improved and upgraded Ilmor-designed Viper engine, and accordingly has ordered and obtained initial commercial shipments of these engines.  Ilmor agrees to manufacture and supply all V-Twin requirements of Viper Motorcycle Company and in turn the Company 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 Motorcycle Company 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 are 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 Motorcycle Company 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.

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 2011 is to complete implementing and improving production operations for our motorcycle products to be manufactured by us effectively on a commercial scale. We will complete our production assembly set-up 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 and a Viper three-wheeled “trike” in order to offer the Mamba commercially as soon as possible in 2012 and the “trike” soon thereafter.

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.

 
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Market and Sell Ancillary Viper Product
In 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 2012 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
In September 2011, Viper Motorcycle Company completed its relocation from Hopkins, MN to Auburn, Alabama.  The new 63,000 sq ft production facility is situated on 13 acres.  The plant is large enough to produce up to 1,000 units per year and can be expanded to a maximum footprint of 163,000 square feet.

Operational Overview

During 2009 and 2010, the Company commenced limited commercial marketing and production of its motorcycles powered by Ilmor produced engines.  Prior thereto, the Company retained a licensed emissions certification laboratory to test its motorcycles and engines and certify its test results for compliance with the emission standards promulgated by the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB).  This independent test process was successfully completed, and the Company received its official certification from the Environmental Protection Agency on December 4, 2008.
 
In July 2011, the Company completed the relocation of its entire headquarters and manufacturing operations from Hopkins, Minnesota to Auburn, Alabama.  With this move completed the Company is leasing and occupying a modern state-of-the-art facility in Auburn which was upgraded and customized to suit all of our motorcycle development, marketing, production and administrative functions.  This Auburn facility includes 63,000 square feet with ample future expansion capability.
 
Results of Operations

Revenues
Since our 2002 inception, we have generated total revenues of $1,294,763 some of which occurred 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 in the first quarter of 2012. We anticipate receiving additional revenues from our planned line of custom parts and accessories for the motorcycle aftermarket as well as our Viper branded apparel and other merchandise.

We believe our future revenue stream will be most significantly affected by customer demand for Viper cruisers, performance of our proprietary V-Twin engines, our ability to timely manufacture our motorcycle products in response to dealer and customer orders, recruitment and retention of dealers and distributors who actively promote and sell our products.

Operating Expenses
From our inception in November 2002 through September 30, 2011, we have incurred total operating expenses of $37,297,022 including $6,049,939 of research and development expenses and $23,665,766 of selling, general and administrative expenses.

Research and development expenses consist primarily of salaries and other compensation for development personnel, contract engineering costs for outsourced design or development, supplies and equipment related to design and prototype development activities, and costs of regulatory compliance or certifications.

Selling, general and administrative expenses consist primarily of salaries and other compensation for our management, marketing and administrative personnel, facility rent and maintenance, advertising and promotional costs including trade shows and motorcycle rallies, sales brochures and other marketing materials, dealer recruitment and support costs, development of accounting systems, consulting and professional fees, financing costs, public relations efforts and administrative overhead costs.

Comparison of Quarter Ended September 30, 2011 and September 30, 2010.

Revenues and Gross Profit
There was $166,166 of motorcycle and parts revenue for the quarter ending September 30, 2011 as compared to $6,561 for the same period of 2010.  There were only parts sold during this quarter of 2010, while there were five bikes sold in the quarter ended September 30, 2011.

 
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Research and Development Expenses
Research and development cost for the quarter ending September 30, 2011 was $14,983 compared to $18,610 for the same period of 2010.  This $3,627 decrease was due to minimal development expense as the Company moved into production.

Selling, general and administrative expenses
Selling, general and administrative expenses for the quarter ending September 30, 2011 was $2,184,080 compared to $373,885 for the same period of 2010.  The increase of $1,810,195 in our selling and general administrative expenses were higher due to the relocation to the Auburn location, increased personnel cost and stock grants.

Loss from operations
Operational loss for the quarter ending September 30, 2011 was $2,195,684 compared to $389,235 for the same period of 2010. The loss in this quarter of 2011 was due primarily to minimal revenues with an increase in general and administration expense as the Company hired new employees and moved into production.

Interest expense
Interest expense for the period ending September 30, 2011 was $5,929 compared to $43,441 for the same period of 2010. This decrease during the reporting period was due to reduced debt.

No income tax benefit was recorded regarding our net loss for the quarters ending September 30, 2011 and 2010; since we could not determine that it was more likely than not that any tax benefit would be realized in the future.

Comparison of the Nine months Ended September 30, 2011 and September 30, 2010.

Revenues and Gross Profit
There was $204,901 of revenue for the nine months ending September 30, 2011 as compared to $29,157 (restated) for the same period of 2010.  During the first nine months of 2011, there were five motorcycles sold, compared to zero sold in the same period of 2010.

Research and Development Expenses
Research and development for the nine months ending September 30, 2011 was $19,139 compared to $532,260 for the same period of 2010. This $513,121decrease was due to minimal development expense as the Company moved into production.

Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ending September 30, 2011 was $3,138,472 compared to $1,211,909 for the same period of 2010.  Our increased selling and general administrative expenses reflected the expenses incurred in relocating to Auburn and the hiring of new employees.

Loss from operations
Operational loss for the nine months ending September 30, 2011 was $3,161,702 compared to $1,737,868 for the same period of 2010.   The increased loss of $377,918 resulted from the $1,423,834 increase in loss from operations offset by the lack of any loan beneficial conversion features.

Interest expense
Interest expense for the nine months ending September 30, 2011 was $41,349 compared to $121,855 for the same period of 2010.This decrease during the quarter ended September 30, 2011, was due to reduced debt for the Company.

No income tax benefit was recorded regarding our net losses for the periods ending September 30, 2011 and 2010; 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 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 winter of 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.

 
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We currently employ 10 persons including our management, production, engineering, marketing and administrative personnel.  We expect to hire 1-2 assembly and administrative personnel during the remaining quarter of 2011 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 belong to a labor union, and we consider our relationship with our employees to be good.

Liquidity and Capital Resources

Since our inception, we have financed our development, capital expenditures, and working capital needs through sale of our common stock to investors in private placements and substantial loans from our principal shareholders. We raised a total of approximately $12.7 million through the sale of our common stock in private placements, and in excess of $6.3 million through loans from our principal shareholders and outside sources.

As of September 30, 2011, we had cash resources of $16,994, total liabilities of $1,406,385 and a negative working capital position of $1,080,061.  In our current liabilities, the Company is carrying a derivative liability resulting from the issuance of cash-less warrants.  This derivate liability of $483,571 is recorded as a non-operating, non-cash current liability and would have no effect on working capital.

 
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Future Liquidity

Based on our current cash position, we have concerns about our ability to fund our ongoing operations. We anticipate obtaining additional needed financing through the proceeds from additional private placement of equity securities.

If we are unable to complete the proposed private placements or to obtain substantial additional funding through another source, we most likely would need to curtail significantly, or even cease, our ongoing and planned operations. Our future liquidity and capital requirements will be influenced materially by various factors including the extent and duration of our future losses, the level and timing of future sales and expenses, market acceptance of our motorcycle products, regulatory and market developments in our industry, and general economic conditions.

The report of our independent registered accounting firm for our audited financial statements for the year ended December 31, 2010, states that there is substantial doubt about the ability of our business to continue as a going concern.

Cash Flow Information

Net cash consumed by operating activities was $1,525,917 during the nine months ended September 30, 2011 compared to consuming cash in the amount of $1,861,470 for the same period of 2010.  There was cash used from investing activities for the nine months ending September 30, 2011 of $220,796 as compared to $5,977 used during the same period of 2010.  Cash generated from financing activities for the nine months ended September 30, 2011 was $1,748,128 compared to $1,777,655 for the same period of 2010.

Business Seasonality

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

New personnel announcements:

On a press release dated July 1, 2011, Viper Powersports Inc. announced that Mr. David Leyson was hired as a new Director of Operations for Viper Motorcycle Company, the Company’s wholly owned subsidiary.

On July 1, 2011, Viper Powersports Inc. filed a Form 8-K announcing that Duane Peterson resigned as a director, Terry L. Nesbitt resigned as a director of the Company and as President of its subsidiary Viper Motorcycle Company; and Jerome Posey resigned as Chief Financial Officer (CFO).

Recent Accounting Pronouncements

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU No. 2011-02 amends the guidance within ASC Topic 310, “Receivables” to clarify how creditors determine when a restructuring constitutes a troubled debt restructuring. In addition, ASU No. 2011-02 clarifies the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties even though the debtor may not be in payment default.
 
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 clarifies the application of existing guidance within ASC Topic 820, “Fair Value Measurement” to ensure consistency between U.S. GAAP and IFRS. ASU No. 2011-04 also requires new disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements and also requires new disclosures around transfers into and out of Levels 1 and 2 in the fair value hierarchy. The Company is required to adopt ASU No. 2011-04 beginning in the first quarter of 2012 and is currently evaluating the impact the new disclosure requirements will have on its financial statements and notes.
 
 In September 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 amends the guidance within ASC Topic 220, “Comprehensive Income” to eliminate the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. ASU No. 2011-05 requires that all nonowner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company is required to adopt ASU No. 2011-05 beginning in the first quarter of 2012 and the adoption of ASU No. 2011-05 will only impact the format of the current presentation.

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

Off-Balance Sheet Arrangements
Other than a guarantee of our inventory financing by a principal shareholder we have no off-balance sheet arrangements.

 
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Forward-Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements.”  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/A for the period ended December 31, 2010.

 
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Item 3. Controls and Procedures

Evaluation of disclosure controls and procedures

As of September 30, 2011, management assessed the effectiveness of our internal control over financial reporting. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company's Principal Executive Officer and Chief Financial Officer and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America and includes those policies and procedures that:
 
i)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
 
ii)
Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors;
 
iii)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below.

This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our financial statements as of September 30, 2011.

Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

Changes in internal controls

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect our 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/ Timothy C. Kling
   
Timothy C. Kling
   
Principal Financial Officer

November 21, 2011
Auburn, Alabama
 
 
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VIPER POWERSPORTS INC.
INDEX TO EXHIBITS

Form 10-Q for
Quarter Ended September 30, 2011
 
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
101.INS **
 
XBRL Instance Document
101.SCH **
 
XBRL Taxonomy Extension Schema Document
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **
 
XBRL Taxonomy Label Linkbase Document
101.PRE **
  
XBRL Taxonomy Extension Presentation Linkbase Document
 

*          Filed herewith.
**        Submitted electronically with the Report.

 
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