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EXCEL - IDEA: XBRL DOCUMENT - VIPER POWERSPORTS INCFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 - VIPER POWERSPORTS INCv309636_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - VIPER POWERSPORTS INCv309636_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - VIPER POWERSPORTS INCv309636_ex32-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-K

 

 

 

x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange

Act of 1934 for the Year Ended December 31, 2011.

 

¨ TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange

Act of 1934 for the transition period from ______ to ______.

 

 

 

VIPER POWERSPORTS INC.

(Name of Registrant in its charter)

 

Nevada 41-1200215

(State or other jurisdiction of

Incorporation or organization)

(IRS Employer ID Number)

 

2458 West Tech Lane

Auburn, AL

36832
(Address of principal executive offices) (Zip Code)

 

(334) 887-4445

(Issuer’s Telephone Number)

 

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

 

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

 

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

 

 

 

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

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.  Yes ¨   No  ¨

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, 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 ¨

 

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

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  Smaller reporting company   Yes x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. June 30, 2011, $12,804,855

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. 33,683,175 Common Shares as of April 16, 2012.

 

 
 

 

TABLE OF CONTENTS

 

    Page
       
PART I
       
Item 1. Description of Business 3  
       
Item 2. Description of Property 8  
       
Item 3. Legal Proceedings 8  
       
Item 4. Mine Safety Disclosures 8  
       
PART II
       
Item 5. Market for Common Equity and Related Stockholder Matters 9  
       
Item 6. Selected Financial Data 11  
       
Item 7. Management’s Discussion and Analysis and Plan of Operation 12  
       
Item 8. Financial Statements 19  
       
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 19  
       
Item 9A. Controls and Procedures 19  
       
Item 9B. Other Information 20  
       
PART III
       
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act 21  
       
Item 11. Executive Compensation 22  
       
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 23  
       
Item 13. Certain Relationships and Related Transactions 23  
       
Item 14. Principal Accountant Fees and Services 23  
       
Item 15. Exhibits 24  
       
  Signature Page 25  
       
  Index to Financial Statements F-1  
       
  Index to Exhibits 26  

 

2
 

 

PART  I

 

Item 1.  Description of Business

 

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 operations 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.

 

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.

 

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.

 

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 motorcycles 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 2009, 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 have commenced commercial marketing, very limited production and commercial shipment of Viper motorcycles , and we currently hold material orders from our first class motorcycle dealers. Our current firm orders from Viper dealers exceeded our remaining available production capacity for 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.

 

3
 

 

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 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 models of this engine based on specifications jointly developed by Ilmor and Viper. Under a payment schedule extending through November 2012, the Company will pay Ilmor a total of $745,000 for the design, development and testing of this V-Twin engine. Ilmor was paid a portion of this amount due upon reaching certain milestones and successful testing. The remaining fees will be amortized over manufacturing milestones agreed upon by both parties. The Company is current on all payments to Ilmor under this contract.

 

The Company has approved and is well satisfied with 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. The engine purchase requirement is developed annually between the parties and is current.

 

These Ilmor-designed Viper engines will be labeled with an Ilmor brand, for which the Company has been granted a non-exclusive paid-up license to use the Ilmor Mark in connection with sale and distribution of Viper engines. All intellectual property rights related to any Ilmor Marks, however, continue to be owned exclusively by Ilmor. Engine pricing to be paid to Ilmor by Viper will be determined annually based on the actual Bill of Materials for components, labor and assembly costs incurred by Ilmor, plus a reasonable mark-up percentage.  

 

Restructuring

 

The Company, on September 3, 2009, declared a reverse 1-for-4 stock split whereby each currently outstanding four shares of common stock of the Company were converted into one post-split share of common stock of the Company having the same par value of $.001 per share, and the effective date of the reverse stock split was September 15, 2009.  Pursuant to this reverse stock split the authorized common shares of the Company were concurrently reduced to Twenty-five Million (25,000,000) common shares.  On November 11, 2011, the authorized common shares were increased to One hundred Million (100,000,000).

 

Corporate Contact Data

 

The address of the Company is 2458 West Tech Lane, Auburn, AL 36832; its telephone number is (334) 887-4445; and its website address is www.viperpowersports.com.

 

BUSINESS OF COMPANY

 

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

  

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

 

Our Market

 

Motorcycles are generally characterized in their industry by weight, primarily based on engine displacement size.  Viper cruisers fall within the heavyweight motorcycle category which typically includes models with engine displacement of at least 651cc (cubic centimeters).  There are generally four types of heavyweight motorcycles:

·Standard, which emphasize simplicity and low cost (e.g., Harley Davidson Sportster);
·Performance, which emphasize handling and speed (e.g., Ducati models);
·Touring, which emphasize rider comfort and distance travel (e.g., Honda Gold Wing); and
·Cruiser, designed to facilitate customization by owners (e.g., most Harley Davidson models)

 

4
 

 

Our Viper motorcycles are offered in the premium segment of the heavyweight cruiser market which is dominated by Harley Davidson.  We believe that potential customers in this upscale market typically seek motorcycle models having a product and lifestyle appeal associated with the classic American V-Twin cruiser tradition.  Our targeted customer base has expanded significantly for many years due to the growing popularity of motorcycling as well as the maturing of the population bulge from the post- World War II baby boom years.  Many males of the baby boom generation now are in their peak income earning years, making them good prospects for luxury goods.  Harley Davidson has reported that the typical consumer of its heavyweight motorcycles is a married man in his mid-forties having an income in excess of $80,000.  We believe that premium heavy-weight motorcycles have become popular and well-accepted luxury recreational products.

 

Our Motorcycles

 

Viper Diamondback

 

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

 

Premium components and distinctive features of the Diamondback include:

·a powerful, billet-cut proprietary 152” V-Twin engine;
·our unique right-side drive train providing maximum rider balance;
·premium HID headlights and LED display functions;
·a 6-speed transmission;
·adjustable “on-the-fly” rear-end air suspension system;
·a proprietary handlebar vibration dampening system; and
·wide high-quality Metzeler tires and premium billet wheels.

 

The outward appearance of the Diamondback includes distinctive styling features such as:

·substantial use of billet-cut components including the V-Twin engine, primary drive, controls and wheels;
·a low, streamlined look;
·oil storage in the frame, enabling a sleeker and more naked appearance due to absence of an under-seat oil tank and
·a unique swingarm design.

 

Basic specifications of the Diamondback cruiser are as follows:

 

· Wheelbase length and rake: 69 inches, 38 degrees
· Weight: 660 pounds
· Seat height:: 24 inches, adjustable
· Engine type: 45° V-Twin, air cooled
· Engine displacement: 152 cubic inches
· Frame: 1 ½” tubular steel
· Transmission/drive train: 6-speed, right-side drive
· Final drive: Belt
· Rear-end suspension: Adjustable air-ride system
· Front-end suspension: Inverted adjusted forks
· Tires: Metzeler – 120/70-21 front and 260/40-18 rear
· Brakes: 4-piston caliper both front and rear
· Power rating ranges: 144 ft lbs torque at 3,000 rpm

 

Viper Mamba

 

We are continuing the development of the Viper “Mamba,” a sleek and low-slung pro-street model with unique and aggressive styling features. We believe the Mamba will appeal to motorcyclists desiring an aggressive 21st century look.  We anticipate commencing commercial production and marketing of our Mamba model during the second half of 2012.

 

Viper Proprietary Engines

 

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

 

5
 

 

Sales and Marketing

 

We sell our motorcycles directly to our authorized Viper dealers. Our dealer network includes well-established, independent full-service dealers offering more than one motorcycle brand. We currently have four (4) Viper dealers located both nationally and internationally, all of which are experienced in selling and servicing premium heavyweight V-Twin motorcycles. We will continue to recruit additional qualified Viper dealers to attain our goal of having a complete worldwide distribution network. Our near-term marketing focus will emphasize dealer recruitment in regions of the country where we lack dealer representation.

 

Our dealers must maintain full-service departments capable of providing quality V-Twin engine and drive train maintenance and repair. They also must be able to perform custom upgrade work on cruisers. Viper dealers are granted a designated, non-exclusive location to sell Viper motorcycle products. Dealers have the exclusive right to use and display our Viper brand in their respective locations in connection with the sale of our products. They must be responsible for warranty services and general repair and maintenance services, maintain adequate working capital, and conduct material efforts toward promoting and selling Viper products.

 

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

  

Design and Development

 

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

·introduce improved and enhanced Viper motorcycle models on an annual basis;
·develop and produce or outsource production of ancillary Viper components and accessories for sale in the large custom cruiser aftermarket.

 

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

 

Manufacturing and Suppliers

 

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

 

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

  

Warranty Policy

 

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

 

6
 

 

Competition

 

The heavyweight motorcycle market is highly competitive, and most of our competitors have substantially greater financial, personnel, development, marketing and other resources than us, which puts us at a competitive disadvantage. Our major competitors have substantially larger sales volumes than we expect to ever realize and in most cases have greater business diversification. In our premium heavyweight motorcycle market, our main competitor is Harley-Davidson Motor Company, Inc. which dominates the market for V-Twin cruiser motorcycles.  Other significant competitors include Polaris with its Victory motorcycle line.  We also face particularly direct competition from a number of V-Twin custom cruiser manufacturers concentrating on the same upscale market niche where we are situated. These builders build “one-off” custom cruisers from non-branded parts and components available from third parties.  We also expect additional competitors to emerge from time to time in the future.   We believe that the principal competitive factors in our industry are styling, performance, quality, product pricing, durability, consumer preferences, marketing and distribution, brand awareness and the availability of support services. We cannot assure anyone that we will be able to compete successfully against current or future competitors or that the competitive pressures faced by us will not materially harm our operations, business and financial condition.

 

Intellectual Property

 

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

 

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

 

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

 

Government Regulation

 

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

 

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

 

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

 

Employees

 

We currently employ 12 persons including our management, development, marketing and administrative personnel.  We expect to continue to hire assembly and administrative personnel during 2012 to support our anticipated commercial production and sales of Viper cruisers. Other than these additional anticipated personnel, we do not anticipate needing any additional personnel during the next twelve months. None of our employees belongs to a labor union, and we consider our relationship with our employees to be good.

 

7
 

 

Item 2.    Description of Property

 

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

 

Auburn, Alabama Facility

 

The Company completed its relocation to its headquarters and manufacturing operations from Hopkins, Minnesota to Auburn, Alabama.  The Company leases and occupies a modern facility in Auburn. The facility is 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.  

 

The Company owns development and production equipment, computer and office equipment, and business vehicles, all of which have cost approximately $651,860. Leasehold improvements and some obsolete equipment were abandoned with the relocation from Hopkins, MN. Leasehold improvements of $90,446, with accumulated amortization of $87,332, were abandoned with the 2011 move to Auburn. In addition, various fixed assets of $223,941, with accumulated amortization of $220,966 were also impaired.

 

Item 3.    Legal Proceedings

 

In January 2011, Transactional Finance, LLC, as plaintiff, commenced a legal action against the Company, claiming that the Company owes the plaintiff approximately $98,000 in principal and accrued interest relating to a Promissory Note executed by the Company in 2007.  The Company has answered this claim and denied any liability regarding this Promissory Note on the grounds primarily due to lack of consideration by the plaintiff.  The Company will continue to defend and oppose this lawsuit. The Company has accrued for this contingency.

 

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

 

Item 4.    Mine Safety Disclosures .

 

None.

 

8
 

 

PART II

 

Item 5.    Market for Common Equity and Related Stockholder Matters.

 

Market Information

 

The Company’s common stock is traded in the over-the-counter (OTC) market under the symbol “VPWI.” The range of high and low bid prices of the Company’s common stock are as follows. These quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions, and are adjusted to reflect the 1 for 4 reverse stock split of September 2009.

 

Period  High Price(Bid)   Low Price(Bid) 
April – June, 2010  $.850   $.810 
July – September, 2010  $.910   $.830 
October – December, 2010  $.700   $.600 
January – March , 2011  $.690   $.130 
April – June, 2011  $.670   $.350 
July – September 2011  $.690   $.210 
October – December, 2011  $.490   $.155 
January – March, 2012  $.340   $.190 

 

The closing sales price of our common stock on April 12, 2012 was $.33 per share.

 

 Reverse Stock Split

 

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

 

Shareholders

 

As of April 16, 2012, there were 461 shareholders of record holding common stock of the Company.

 

Dividends

 

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

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

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

 

There were no issuer repurchases by the Company during the fiscal year ended December 31, 2011.

 

9
 

 

Equity Securities Sold by the Company

 

Following are all equity security transactions during the year ended December 31, 2011, involving sales not registered under the Securities Act of 1933:

 

Loan Transactions

 

The Company entered into nine (9) 60-day loan agreements from January through December 31, 2011. The total of the loans amounted to $425,000. The loans carry interest rates ranging from 10% to 12%. Each agreement also required the Company to issue 650,000 warrants to purchase 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.

 

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 was 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 principal 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 $65,000. The term of the Note is 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.

 

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 CD’s owned by Robert Van Den Berg, a related party, who has also filed a UCC lien on the Company’s assets.

 

On November 21, 2011, the Viper Performance Company entered into a secured inventory financing agreement for $152,000 with Wayne Nelson and Patrick Moloney. The loan carries a 12.0% annual interest rate, calculated and payable quarterly, with a balloon payment due June 2012. 500,000 warrants were issued to purchase common stock for $0.15 per share with the loan agreement as finance fees. The loan is collateralized by inventory valued at $165,900 as of December 31, 2011.

 

Common Stock Transactions

 

During the period of January through March, 2011, the Company issued to nine (9) shareholders, 908,000 shares of common stock under $.50 private placements and 688,000 warrants to purchase common stock at prices ranging from $1.00 to $0.50 per share for $454,000 in cash. The Company performed Black-Scholes valuations for each transaction, with an allocation 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.

 

During the period of January through March, 2011, the Company issued to three (3) shareholders, 4,134 shares of common stock. The stock prices were used to value the stock issued for services on each relevant date.

 

On March 31, 2011, the Company issued to eight (8) warrant holders, 337,500 warrants to purchase common stock at prices ranging from $2.00 to $0.50 per share for services performed. The Company performed a Black-Scholes valuation for each transaction, a warrant allocation of the proceeds applied to the warrants.  

 

During the period of April through June, 2011, the Company issued to three (3) shareholders, 170,000 shares of common stock under $.50 private placements and 170,000 warrants issued to purchase common stock for $0.50 per share for $85,170 in cash. The Company performed Black-Scholes valuations for each transaction, with an allocation 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.

 

During the period of April through June, 2011, the Company issued to four (4) shareholders, 280,000 shares of common stock. The stock prices were used to value the stock issued for services, on each relevant date.

 

During the period of July through September, 2011, the Company issued to two (2) shareholders, 300,000 shares of common stock under $.25 private placements for $75,000 in cash.

 

During the period of July through September, 2011, the Company issued to nine (9) shareholders, 3,855,000 shares of common stock for services. The value used was the market closing price on each applicable date.

 

During the period of October through December, 2011, the Company issued to twelve shareholders, 855,858 shares of common stock for services. The value used was the market closing price on each applicable date.

 

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During the period of October through December, 2011, the Company issued to ten (10) shareholders, 3,500,000 shares of common stock under $.15 private placements along with 168,840 warrants to purchase common stock at prices ranging from $1.25 to $0.40 per share for $525,000 in cash.

 

Preferred Stock Transactions

 

During the period of April through June, 2011, the Company issued to 22 shareholders, 1,353,135 shares of preferred stock under $.75 private placements and 750,000 warrants issued to purchase common stock for $0.50 per share for $589,852 in cash and $425,000 of converted loans. The Company performed Black-Scholes valuations for each transaction, with an allocation of the proceeds applied to the warrants.  The difference between the warrant allocation and the proceeds was allocated to the shares of preferred stock issued.

 

During the period of July through September, 2011, the Company issued one (1) shareholder, 33,334 shares of preferred stock under $.75 private placements and 50,000 issued warrants to purchase common stock for $0.50 per share for $50,000 in cash. The Company performed Black-Scholes valuations for the transaction, with an allocation of the proceeds applied to the warrants.  The difference between the warrant allocation and the proceeds was allocated to the shares of preferred stock issued.

 

Based on the manner of offering and sale of all the foregoing equity security transactions, they were private placements and not in the nature of a public offering, and the Company believes they were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. All of the persons receiving securities of the Company in the foregoing transactions received legended certificates for such securities which clearly stated the securities could not be resold, transferred or otherwise disposed of unless registered under applicable securities laws or exempt from registration under a satisfactory securities exemption.

 

Item 6.   Selected Financial Data.

 

The Company is a smaller reporting company and is not required to provide this information.

 

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Item 7.    Management’s Discussion and Analysis and Plan of Operation.

 

Forward-Looking Statements

 

This Annual Report on Form 10-K contains “forward-looking statements”. Forward-looking statements sometimes include the words “may,” “will,” “estimate,” “intend,” “continue,” “expect,” “anticipate” or other similar words. Statements expressing expectations regarding our future and projections we make relating to products, sales, revenues and earnings are typical of such statements.

 

All forward-looking statements are subject to the risks and uncertainties inherent in attempting to predict the future. Our actual results may differ materially from those projected, stated or implied in our forward-looking statements as a result of many factors, including, but not limited to, our overall industry environment, customer and dealer acceptance of our products, effectiveness of our dealer network, failure to develop or commercialize new products, delay in the introduction of products, regulatory certification matters, production and/or quality control problems, warranty and/or product liability matters, competitive pressures, inability to raise sufficient working capital, general economic conditions and our financial condition.

 

Our forward-looking statements speak only as of the date they are made by us. We undertake no obligation to update or revise any such statements to reflect new circumstances or unanticipated events as they occur, and you are urged to review and consider all disclosures we make in this and other reports that discuss risk factors germane to our business.

 

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

 

Results of Operations for the Fiscal Year Ended December 31, 2011 Compared to the Fiscal Year Ended December 31, 2010.

 

Revenues.     We reported revenue of $165,209 in 2011 compared to revenue of $35,768 in 2010 represented by the sale of motorcycles and motorcycle parts.  There were more motorcycles sold in 2011 as the Company moved to Auburn, Alabama and restarted operations.

 

Gross Profit.  Gross deficit 2011 was $329 on sales of seven motorcycles and costs associated with low volumes of production.  The gross profit for 2010 was $728 representing low volumes of production.  Low volume combined with charging off of obsolete and slow moving inventory, which resulted in low margins.

 

Research and Development.    Research and development costs were $69,585 in 2011 compared to $758,107 in 2010.  The decreased R&D costs in 2011 were due primarily from the shift from development cost with Ilmor Engineering to improve our V-Twin engine to production related activites.

 

Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the year 2011 were $3,136,316 compared to $1,710,174 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 losses were $3,282,032 in 2011 compared to $2,677,181 for 2010. This increase was due primarily to expenses reflecting the expenses incurred in relocating to Auburn and the hiring of new employees.

 

Interest Expense.    Interest expense was $59,444 in 2011 compared to $268,775 in 2010. The decrease reflects a number of loan conversions to common and preferred stocks.

 

 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 during the next twelve months:

 

Continue commercializing the Diamondback & Mamba – Our primary focus during 2011 was 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 to develop and test 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.

 

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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 2012, 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 during 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.

 

 Liquidity and Capital Resources

 

Since our inception, we have financed our development, capital expenditures and working capital needs primarily through the sale and issuance of our capital stock or through loans from our principal shareholders. Financing through issuance of our common or preferred stock has included private placements for cash, common stock issued to satisfy accounts payable, and common and preferred stock issued to convert outstanding loans and other liabilities into capital stock of our company. We have raised a total of approximately $13 million through the sale of our common stock in private placements, and at least $6.5 million in loans from our management or principal shareholders.

 

We have also relied on satisfying substantial employee compensation, consulting fees, product development, marketing, administrative expenses and shareholder notes directly through issuance of our common stock. From inception through the end of 2011, we paid a total of approximately $10.6 million for such expenses with our capital stock.

 

Future Liquidity

 

Based on our current cash position, private placement subscriptions and anticipated revenues from product sales, we believe we will be able to fund our ongoing operations until at least the summer of 2012. To provide working capital and funding for increased motorcycle engine and component inventories to support anticipated growth thereafter, however, we will need to obtain substantial additional financing through loans and/or sales of our equity securities. Although we believe such additional financing will be available to us as needed, there is no assurance we will raise any such additional funds on terms acceptable to us, or at all, or that any future financing transactions will not be dilutive to our stockholders.

 

If we are unable to raise additional funds as needed, we will be required to curtail significantly, or may even cease, our ongoing and planned operations. Our future liquidity and capital requirements will be influenced materially by various factors including the extent and duration of our future operating losses, the level and timing of future sales and expenses, market acceptance of our motorcycle products, regulatory and market developments in our industry, and general economic conditions.

 

The report of our independent registered accounting firm for our audited financial statements included in this Form 10-K filing states that there is substantial doubt about the ability of our business to continue as a going concern.

 

Critical Accounting Policies

 

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

 

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

 

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Revenue Recognition – Our sales since inception have all been to dealers. We recognize revenue for sales to dealers when the following has occurred:

·the sales price is fixed or determinable
·motorcycle products are delivered, which is upon shipment;
·title to products passes to the dealer, also upon shipment; and
·collection is reasonably assured.

 

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

 

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

 

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

 

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

 

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

 

Offering prices with respect to our private placements have been based on various factors including arms’ length negotiations with unaffiliated representatives of private investors or independent placement agents and our valuation beliefs based on the development of our company and motorcycle products at the respective times of the private placements.

 

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

 

Off-Balance Sheet Arrangements

 

Other than a guarantee of our limited floor plan financing by a principal shareholder we have no off-balance sheet arrangements.

 

Risk Factors

 

Our business and any related investment in our common stock or other securities involves many significant risks. Any person evaluating our company and its business should carefully consider the following risks and uncertainties in addition to other information in this Annual Report. Our business, operating results and financial condition could be seriously harmed due to one or more of the following risks.

 

Because of our early stage commercial status and the nature of our business, our securities are highly speculative.

Our securities are speculative and involve a high degree of risk and there is no assurance we will ever generate any material commercial revenues from our operations. Moreover, we do not expect to realize any material profits from our operations in the short term. Any profitability in the future from our business will be dependent upon realizing production and sales of our motorcycle products in material commercial quantities, which there is no assurance will ever happen.

 

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Our auditors have raised doubts about our ability to continue as a going concern.

The report of our independent registered public accounting firm on our financial statements at December 31, 2011 raises doubts about our ability to continue as a going concern based on our losses since inception.  Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. As described above, we believe our current capital is insufficient to sustain our current operations for the next 12 months and we will need to raise additional financing in order to continue to implement our business model.  If such funds are not available to us as needed, we may be forced to curtail our growth plans and our ability to grow our company will be in jeopardy.  In such event, we may not be able to continue as a going concern.

 

We have a limited operating history primarily involved in product development, and we have only generated limited commercial revenues to date.

From our inception in late 2002 through December 31, 2011, we have experienced cumulative losses of approximately $40.8 Million, and we will continue to incur losses until we produce and sell our motorcycle products in sufficient volume to attain profitability, which there is no assurance will ever happen. Our operations are particularly subject to the many risks inherent in the early stages of a business enterprise and the uncertainties arising from only a limited commercial operating history. There can be no assurance that our business plan will prove successful.

  

Our business plan will encounter serious delays or even result in failure if we are unable to obtain significant additional financing when needed, since we are required to make significant and continuing expenditures to satisfy our future business plan.

Our ability to become commercially successful will depend largely on our being able to continue raising significant additional financing. If we are unable to obtain additional financing through equity or debt sources as needed, we would not be able to succeed in our commercial operations which eventually would result in a failure of our business.

 

Our ability to generate future revenues will depend upon a number of factors, some of which are beyond our control.

These factors include the rate of acceptance of our motorcycle products, competitive pressures in our industry, effectiveness of our independent dealer network, adapting to changes in the motorcycle industry, and general economic trends. We cannot forecast accurately what our revenues will be in future periods.

 

We have very limited experience in commercial production or sales of our products.

Our operations have been limited primarily to designing and developing our products, testing them after development, establishing our initial distribution network of independent dealers, obtaining suppliers for our components, outsourcing future production of certain components, and reorganizing our company. These past activities only provide a limited basis to assess our ability to commercialize our motorcycle products successfully.

 

We have limited experience in manufacturing motorcycle products.

Our motorcycles must be designed and manufactured to meet high quality standards in a cost-effective manner. Because of our lack of experience in manufacturing operations, we may have difficulty in timely producing or outsourcing motorcycle products in a volume sufficient to cover orders from our dealers. Any material manufacturing delays could frustrate dealers and their customers and lead to a negative perception of Viper products or our company. If we are unable to manufacture effectively in terms of quality, timing and cost, our ability to generate revenues and profits will be impaired.

 

We depend upon a limited number of outside suppliers for our key motorcycle parts and components.

Our heavy reliance upon outside vendors and suppliers for our components involves risk factors such as limited control over prices, timely delivery and quality control. We have no written agreements to ensure continued supply of parts and components. Although alternate suppliers are available for our key components, any material changes in our suppliers could cause material delays in production and increase production costs. We are unable to determine whether our suppliers will be able to timely supply us with commercial production needs. There is no assurance that any of our vendors or suppliers will be able to meet our future commercial production demands as to volume, quality or timeliness.

 

We will be highly dependent upon our Viper distribution network of independent motorcycle dealers.

We depend upon our Viper dealers to sell our products and promote our brand image. If our dealers are unable to sell and promote our products effectively, our business will be harmed seriously. We currently have agreements with ten dealers. We must continue to recruit and expand our dealer base to satisfy our projected revenues. If we fail to timely obtain new dealers or maintain our relationship with existing dealers effectively, we could be unable to achieve sufficient sales to support our operations.

 

Our dealers are not required to sell our products on an exclusive basis and also are not required to purchase any minimum quantity of Viper products. The failure of dealers to generate sales of our products effectively would impair our operations seriously and could cause our business to fail.

 

We also depend upon our dealers to service Viper motorcycles. Any failure of our dealers to provide satisfactory repair services to purchasers of Viper products could lead to a negative perception of the quality and reliability of our products.

 

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We will face significant challenges in obtaining market acceptance of Viper products and establishing our Viper brand.

Our success depends primarily on the acceptance of our products and the Viper brand by motorcycle purchasers and enthusiasts. Virtually all potential customers are not familiar with or have not seen or driven Viper motorcycles. Acceptance of our products by motorcyclists will depend on many factors including price, reliability, styling, performance, uniqueness, service accessibility, and our ability to overcome existing loyalties to competing products.

 

Our business model of selling Viper motorcycles to upscale purchasers at premium prices may not be successful.

Sales of our premium motorcycle products are targeted toward a limited number of upscale purchasers willing to pay a higher price for Viper products. Suggested retail prices of our motorcycles will be considerably higher than most premium models of our competitors. If we are unable to attract and obtain sufficient motorcyclists willing to pay the higher prices of our products, our business model would not succeed and our business would likely fail.

 

We may experience significant returns or warranty claims.

Since we have a minimal history of commercial sales of our products, we have no material data regarding the performance or maintenance requirements of Viper products. Accordingly, we have no basis on which we can currently predict warranty costs. If we experience significant warranty service requirements or product recalls, potential customers may not purchase our products. Any significant warranty service requirements or product recalls would increase our costs substantially and likely reduce the value of our brand.

 

Our exposure to product liability claims could harm us seriously.

 Given the nature of motorcycle products, we expect to encounter product liability claims against us from time to time for personal injury or property damage. If such claims become substantial, our brand and reputation would be harmed seriously. These claims also could require us to pay substantial damage awards.

 

Although we intend to obtain adequate product liability insurance, we may be unable to obtain coverage at a reasonable cost or in a sufficient amount to cover future losses from product liability claims. Any successful claim against us for uninsured liabilities or in excess of insured liabilities would most likely harm our business seriously.

 

Our success will be substantially dependent upon our current key employees and our ability to attract, recruit and retain additional key employees.

Our success depends upon the efforts of our current executive officers and other key employees, and the loss of the services of one or more of them could impair our growth materially. If we are unable to retain current key employees, or to hire and retain additional qualified key personnel when needed, our business and operations would be adversely affected substantially. We do not have "key person" insurance covering any of our employees, and we have no written employment agreement with a key employee.

 

 Our success depends substantially on our ability to protect our intellectual property rights, and any failure to protect these rights would be harmful to us.

The future growth and success of our business will depend materially on our ability to protect our trademarks, trade names and any future patent rights, and to preserve our trade secrets. We hold trademark rights for our logo design and our brand, Viper Motorcycle Company.

 

We have applied for various patents covering unique features of both our motorcycles and our V-Twin engines, but we do not expect to obtain any significant patent protection. We will rely mainly upon trade secrets, proprietary know-how, and continuing technological innovation to compete in our market. There is no assurance that our competitors will not independently develop technologies equal to or similar to ours, or otherwise obtain access to our technology or trade secrets. Our competitors also could obtain patent rights that could prevent, limit or interfere with our ability to manufacture and market our products. Third parties also may assert infringement claims against us, which could cause us to incur costly litigation to protect and defend our intellectual property rights. Moreover, if we are judged to have infringed rights of others, we may have to pay substantial damages and discontinue use of the infringing product or process unless they are re-designed to avoid the infringement. Any claim of infringement against us would involve substantial expenditures and divert the time and effort of our management materially.

 

We will face intense competition from existing motorcycle manufacturers already well-established and having much greater customer loyalty and financial, marketing, manufacturing and personnel resources than us.

In our premium heavyweight motorcycle market, our main competitor is Harley-Davidson Inc. which dominates the market for V-Twin cruiser motorcycles. Other significant competitors include Polaris with its Victory motorcycle line. We also face particularly direct competition from a number of V-Twin custom cruiser manufacturers concentrating on the same upscale market niche where we are situated. These competitors are small companies and individuals throughout the country which build "one-off" custom cruisers from non-branded parts and components available from third parties. We also expect additional competitors to emerge from time to time in the future. There is no assurance that we will be able to compete successfully against current and future competitors.

 

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Introduction of new models of motorcycles by our competitors could materially reduce demand for our products.

Products offered in our industry often change significantly due to product design and performance advances, safety and environmental factors, or changing tastes of motorcyclists. Our future success will depend materially on our ability to anticipate and respond to these changes. If we cannot introduce acceptable new models on a regular basis or if our new models fail to compete effectively with those of our competitors, our ability to generate revenues or achieve profitability would be impaired substantially.

 

Purchase of recreational motorcycles is discretionary for consumers, and market demand for them is influenced by factors beyond our control.

Viper motorcycles represent luxury consumer products and accordingly market demand for them depends on a number of economic factors affecting discretionary consumer income. These factors are beyond our control and include employment levels, interest rates, taxation rates, consumer confidence levels, and general economic conditions. Adverse changes in one or more of these factors may restrict discretionary consumer spending for our products and thus harm our growth and profitability.

 

Viper motorcycles also must compete with other powersport and recreational products for the discretionary spending of consumers.

 

Our business is subject to seasonality which may cause our quarterly operating results to fluctuate materially.

Motorcycle sales generally are seasonal in nature since consumer demand is substantially lower during colder seasons in North America. We may endure periods of reduced revenues and cash flows during off-season periods, requiring us to lay off or terminate employees from time to time. Seasonal fluctuations in our business could cause material volatility in the public market price of our common stock.

 

When we sell our products in international markets, we will encounter additional factors which could increase our cost of selling our products and impair our ability to achieve profitability from foreign business.

Our marketing strategy includes future sales of Viper products internationally, which will subject our business to additional regulations and other factors varying from country to country. These matters include export requirement regulations, foreign environmental and safety requirements, marketing and distribution factors, and the effect of currency fluctuations. We also will be affected by local economic conditions in international markets as well as the difficulties related to managing operations from long distances. There is no assurance we will be able to successfully market and sell Viper products in foreign countries.

 

 We must comply with numerous environmental and safety regulations.

Our business is governed by numerous federal and state regulations governing environmental and safety matters with respect to motorcycle products and their use. These many regulations generally relate to air, water and noise pollution and to motorcycle safety matters. Compliance with these regulations could increase our production costs, delay introduction of our products and substantially impair our ability to generate revenues and achieve profitability.

 

Use of motorcycles in the United States is subject to rigorous regulation by the Environmental Protection Agency (EPA), and by state pollution control agencies. Any failure by us to comply with applicable environmental requirements of the EPA or relevant state agencies could subject us to administratively or judicially imposed sanctions including civil penalties, criminal prosecution, injunctions, product recalls or suspension of production.

 

Motorcycles and their use are also subject to safety standards and rules promulgated by the National Highway Traffic Safety Administration (NHTSA). We could suffer harmful recalls of our motorcycles if they fail to satisfy applicable safety standards administered by the NHTSA.

 

We do not intend to pay any cash dividends on our common stock.

 We have never declared or paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.

 

The price of our common stock may be volatile and fluctuate significantly in our over-the-counter trading market, and an investor’s shares could decline in value.

Our common stock trades in the over-the-counter (OTC) market, and has not experienced a very active trading market. There is no assurance a more active trading market for our common stock will ever develop, or be sustained if it emerges. Unless an active trading market is developed for our common stock, it will be difficult for shareholders to sell our common stock at any particular price or when they wish to make such sales.

 

The market price of our common stock may fluctuate significantly, making it difficult for any investor to resell our common stock at an attractive price or on reasonable terms. Market prices for securities of early stage companies such as us have historically been highly volatile due to many factors not affecting more established companies. Moreover, any failure by us to meet estimates of financial analysts is likely to cause a decline in the market price of our common stock.

 

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Our current management and principal shareholders control our company, and they may make material decisions with which other shareholders disagree.

Our executive officers and directors and principal shareholders affiliated with them own a majority of our outstanding capital stock. As a result, these persons acting as a group have the ability to control transactions requiring stockholder approval, including the election or removal of directors, significant mergers or other business combinations, changes in control of our company, and any significant acquisitions or dispositions of assets.

 

Additional shares of our authorized capital stock which are issued in the future will decrease the percentage equity ownership of existing shareholders, could also be dilutive to existing shareholders, and could also have the effect of delaying or preventing a change of control of our company.

Under our Articles of Incorporation we are authorized to issue up to 100,000,000 shares of common stock and 20,000,000 shares of preferred stock. Our board of directors has the sole authority to issue remaining authorized capital stock without further shareholder approval. To the extent that additional authorized preferred or common shares are issued in the future, they will decrease existing shareholders’ percentage equity ownership and, depending upon the prices at which they are issued, could be dilutive to existing shareholders.

 

Issuance of additional authorized shares of our capital stock also could have the effect of delaying or preventing a change of control of our company without requiring any action by our shareholders, particularly if such shares are used to dilute the stock ownership or voting rights of a person seeking control of our company.

 

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Item 8.    Financial Statements.

 

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

 

Item 9.    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.    Controls and Procedures.

 

Disclosure Controls and Procedures.  

We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) under the Exchange Act.  In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met.  Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Principal Executive Officer and Chief Financial Officer concluded, as of the Evaluation Date, that our disclosure controls and procedures are not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. During the preparation of our 2011 Form 10-K, management was made aware of certain disclosures in 2011 that while made, were not made timely enough to be in compliance with the Exchange Act. To remediate this material weakness in disclosure controls and procedures, the Company will establish enhanced practices to ensure that all transactions that may potentially fall under the disclosure rules are reported in a timely fashion. In addition, during 2011 and 2012, management restated its 2010 10-K. Management corrected various statements and policies within the 10-K. Also, the Company reevaluated the classification of its warrants based in ASC 815-40-25-7 through 815-40-25-35. The reevaluation resulted in a classification of the warrants as equity rather than a liability.

 

Management’s Annual Report on Internal Control Over Financial Reporting. 

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.  In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework.  Based on this evaluation, our management concluded that, as of December 31, 2011, our internal control over financial reporting was not effective based on those criteria.  The following material weaknesses were identified from our evaluation:

 

Due to the small size and limited financial resources, the Company’s Chief Financial Officer and Principal Executive Officer are the only individuals involved in the accounting and financial reporting. As a result, there is no segregation of duties within the accounting function, leaving all aspects of financial reporting and physical control of cash in the hands of the same individual, our Chief Financial Officer.  Usually, this lack of segregation of duties represents a material weakness; however, to remedy the matter, the Company may hire additional in-house accounting personnel in Alabama as sales have reached levels where it has become necessary. This will allow our Chief Financial Officer to spend more time performing high end accounting duties and make better use of his time. The Principal Executive Officer and Chief Financial Officer examine and approve all cash transactions. We will continue to periodically review our disclosure controls and procedures and internal control over financial reporting and make modifications from time to time considered necessary or desirable.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm due to the small size of the Company.

 

Changes in Internal Control over Financial Reporting.

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.

 

19
 

 

Item 9B.               Other Information

 

The Company did not have any information to report in this section.

 

20
 

 

PART III

 

Item 10.    Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.

 

The directors of the Company serve until their successors are elected and shall qualify. Executive officers are elected by the Board of Directors and serve at the discretion of the directors. There are no family relationships among our directors and executive officers.

 

Name   Age   Position
John R. Silseth II   48   Chief Executive Officer and Director
Robert O. Knutson   75   Director and Secretary
Timothy C. Kling   53   Chief Financial Officer and Treasurer
Robert Van Den Berg   77   Director
Grant Lynch   58   Director
Tim Wellborn   53   Director
James Shields   53   Director

 

JOHN R. SILSETH II has been a director of the Company since 2009 and is also Chief Executive Officer of the Company. Through his wholly-owned company, Racing Partners Management Inc., Mr. Silseth has provided consulting and financing services to the Company since its 2002 inception, and he also is a principal shareholder of the Company. Through Racing Partners Management Inc., Mr. Silseth also has provided consulting services to various early-stage or start-up businesses during the past ten years.

 

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

 

Timothy C. Kling has been the Chief Financial Officer of the Company since July 2011. From 2004 through June 2011, Mr. Kling served as Chief Financial Officer of Lehman Trikes, Inc., a listed Canadian public company which is a leading manufacturer of three-wheeled “trike” motorcycles, and he has over 20 years extensive experience with financial, accounting and information systems as well as public company financial reporting and disclosures. Mr. Kling holds certified designations as both a Certified Public Accountant (CPA) and a Certified Management Accountant.

 

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

 

Grant Lynch is the Chairman of Talladega Superspeedway and Vice president of Strategic Projects for International Speedway Corporation (ISC). Grant came to Talladega in 1993 after 11 years with R.J. Reynolds Tobacco Co., where in his last post as senior manager of operations and public relations, he managed the Company's involvement in NASCAR Winston Cup.

 

Tim Wellborn is the past CEO and owner of Wellborn Forest Products, and is the owner of the Wellborn Muscle Car Museum which houses the world's largest Mopar classic car collection. Mr. Wellborn has served on the Talladega International Motorsports Hall of Fame Board of Directors since 1985. In 2008 Tim was presented with the prestigious Lee Iacocca Award.

 

James Shields is a senior partner in the Texas Law Firm Shields, Britton & Fraser. The firm’s area of expertise is Litigation, Real Estate, Estate Planning, Bankruptcy, Employment Matters, and Mergers & Acquisitions.

 

21
 

 

Audit Committee

 

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

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Based upon a review of copies of reports furnished to us during our fiscal year ended December 31, 2011, which are required to be filed under Section 16(a) of the Securities Exchange Act of 1934, we know of no director, officer, or beneficial owner of more than 10% of our common stock who failed to file on a timely basis any report required by Section 16(a).

 

Code of Ethics

 

We have adopted a Code of Ethics that applies to our principal executive officer, our principal financial and accounting officer, or persons performing similar functions. We will provide any person without charge who requests, a copy of our Code of Ethics. Any copy requests may be directed to Viper Powersports Inc., 2458 West Tech Lane, Auburn, AL, 36832 in care of John Silseth.

 

Item 11.    Executive Compensation

 

The following table sets forth the executive compensation of the executive officers of the Company during the two fiscal years ended December 31, 2010 and 2011.

 

SUMMARY COMPENSATION TABLE

 

Name and Position  Year   Salary ($)   Stock
Awards
(Shares)
 
             
John Silseth  Chief Executive Officer   2011   $126,750    2,500,000 
    2010   $102,000      
Terry Nesbitt, President, Viper Motorcycle Co. Resigned June 30, 2011   2011   $57,333    25,000 
    2010   $86,000      
Timothy Kling Chief Financial Officer Effective July 1, 2011   2011   $64,674    200,000 
Jerome Posey Chief Financial Officer   2011   $64,694      
Through June 30, 2011   2010   $75,000      

 

Options/SAR Grants

 

The Company does not have any employee stock options or grants outstanding.

 

Compensation of Directors

 

 No compensation was paid by the Company to its directors for their services as a director during 2011.

 

Employment Contracts and Change-in-Control Arrangements

 

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

 

22
 

 

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters.

 

The following table sets forth as of December 31, 2011 certain information regarding beneficial ownership of the common stock of the Company by (a) each person or group known by the Company to be the beneficial owner of more than 5% of the outstanding common stock of the Company, (b) each director and executive officer of the Company, and (c) all directors and executive officers of the Company as a group. Each shareholder named in the below table has sole voting and investment power with respect to shares of common stock shown in the table. Shares underlying any options or warrants included in the table are all currently exercisable. Unless otherwise indicated, the address of each listed shareholder is 2458 West Tech Lane, Auburn, AL 36832.

 

Shareholder  Shares Owned
Beneficially
   Percent of
Class
 
         
Title of Class – Common Stock          
           
Robert O. Knutson   162,356    .6%
John R. Silseth II   2,500,000    9.1%
Robert Van Den Berg   252,356    .9%
Grant Lynch   700,000    2.5%
Tim Wellborn   250,000    .9%
James Shield   1,000,000    3.6%
Timothy C. Kling   200,000    .7%
           
All directors and officers as a group (7persons)   5,064,712    18.3%

 

Item 13.    Certain Relationships and Related Transactions.

 

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

 

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

 

Robert Van Den Berg, a director of the Company, guaranteed a $200,000 credit facility we obtained from a banking institution, which was established in order to purchase inventory parts and components for upcoming commercial production of Viper motorcycles.

 

The Company entered into a loan conversion agreement with Robert Van Den Berg. The Company converted $50,000 of its outstanding loan for preferred shares and extended $80,000 of the remaining loan.

  

Item 14.    Principal Accountant Fees and Services.

 

Pre-Approval of Audit Fees

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

 

Auditor Fees

Child, Van Wagoner & Bradshaw, PLLC acted as our independent accounting firm for the fiscal years ended December 31, 2011 and 2010, including performing our audits for these two fiscal years and reviews of our quarterly financial statements for this two-year period.  The aggregate fees billed by Child, Van Wagoner & Bradshaw, PLLC for such services are as follows:

 

   Fiscal 2011   Fiscal 2010 
Audit and review fees  $34,103   $44,417 
Tax fees  $0   $0 
All other fees  $0   $0 

 

23
 

 

Item 15.   Exhibits.

 

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

 

24
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

VIPER POWERSPORTS INC.

(Registrant)

     
  By: /s/   John R. Silseth
    John R. Silseth - Chief Executive Officer
     
  Date: April 16, 2012

 

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

 

  By: /s/   John R. Silseth
    John R. Silseth – Director
     
  Date: April 16, 2012
     
  By: /s/   Robert O. Knutson
    Robert O. Knutson – Director
     
  Date: April 16, 2012
     
  By: /s/   Robert Van Den Berg
    Robert Van Den Berg – Director
     
  Date: April 16, 2012
     
  By: /s/   Grant Lynch
    Grant Lynch – Director
     
  Date: April 16, 2012
     
  By: /s/   Tim Wellborn
    Tim Wellborn – Director
     
  Date: April 16, 2012
     
  By: /s/   James Shields
    James Shields – Director
     
  Date: April 16, 2012
     
  By: /s/  Timothy C. Kling
    Timothy C. Kling – Chief Financial Officer
     
  Date: April 16, 2012

 

25
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Consolidated Financial Statements

 

For the Years Ended

December 31, 2011 and 2010

 

 
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Index to Consolidated Financial Statements

 

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

 

F-1
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To The Board of Directors

Viper Powersports, Inc.

Auburn, Alabama

We have audited the accompanying consolidated balance sheets of Viper Powersports, Inc. (the Company) and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended and for the period of November 18, 2002 (inception) through December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Viper Powersports, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, and for the period of November 18, 2002 (inception) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses from operations, has a liquidity problem, and requires additional funds for its operational activities. These factors raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Child, Van Wagoner & Bradshaw, PLLC
Child, Van Wagoner & Bradshaw, PLLC
Salt Lake City, Utah
April 16, 2012

 

F-2
 

 

Viper Powersports Inc.

(A Development Stage Company)

Consolidated Balance Sheets

 

   December 31,
2011
   December 31,
2010
 
ASSETS          
Current assets          
Cash  $27,896   $15,579 
Accounts receivable   8,803    1,330 
Inventory and supplies   523,174    190,930 
Prepaid expenses and other assets   101,602    - 
Total current assets   661,475    207,839 
           
Fixed assets:          
Office and computer equipment   96,733    124,100 
Manufacturing and development equipment   242,835    272,254 
Vehicles   248,937    101,799 
Leasehold improvements   63,363    90,446 
Subtotal   651,868    588,599 
Accumulated depreciation   (140,715)   (507,989)
Total fixed assets   511,153    80,610 
           
Other assets:          
Rental deposit   13,400    4,010 
Long term inventory   -    431,261 
Total other assets   13,400    435,271 
           
Total assets  $1,186,028   $723,720 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
Current liabilities          
Accounts payable  $222,319   $132,512 
Accrued liabilities   205,091    181,325 
Notes payable, less discount of $31,379   233,621    129,000 
Notes payable – related party, less discount of $56,889   175,111    304,513 
Current portion of long-term liabilities   100,000    - 
Total current liabilities   936,142    747,350 
           
Long-term liabilities          
Note payable   170,000    - 
Total long-term liabilities   170,000    - 
           
Total liabilities   1,106,142    747,350 
           
Stockholders' equity (deficit)          
Preferred stock; $0.001 par value; 20,000,000  shares authorized, 1,386,469 and 0 issued and outstanding, respectively   1,386    - 
Common stock; $0.001 par value; 100,000,000  shares authorized, 28,692,252 and 17,719,280 issued and outstanding, respectively   28,692    17,719 
Additional paid-in capital   40,812,394    36,549,869 
Accumulated deficit   (40,762,586)   (36,591,218)
           
Total Stockholders' Equity (Deficit)   79,886    (23,630)
           
Total liabilities and stockholders' equity (deficit)  $1,186,028   $723,720 

 

See notes to consolidated financial statements.

 

F-3
 

 

Viper Powersports Inc.

(A Development Stage Company)

Consolidated Statements of Operations

 

   Year Ended
December 31, 2011
   Year Ended
December 31, 2010
   Cumulative from
November 18, 2002
(Date of Inception)
through December 31,
2011
 
             
Revenues (net of returns)  $165,209   $35,768   $1,255,071 
Cost of revenues   165,538    35,040    1,212,135 
Gross profit   (329)   728    42,936 
                
Operating expenses               
Research and development costs   69,585    758,107    6,100,384 
Selling, general and administrative   3,136,316    1,710,174    23,492,604 
Loss on impairment and charge-off of assets and inventory   75,802    209,628    7,657,119 
                
Total operating expenses   3,281,703    2,677,909    37,250,107 
                
Loss from operations   (3,282,032)   (2,677,181)   (37,207,171)
                
Other income (expense)               
Interest expense   (59,444)   (268,775)   (1,578,350)
Gain sale of assets   -    -    (18,994)
Accretion of debt discount   (83,304)   (647,804)   (609,668)
Beneficial conversion features   (227,419)   (401,069)   (731,108)
Financing cost relating to debt discount   (183,566)   (426,102)   (628,488)
Other income   2,905    1,746    349,701 
                
Total other income (expense)   (550,828)   (1,742,004)   (3,216,907)
                
Net loss   (3,832,860)   (4,419,185)   (40,424,078)
                
Deemed dividend of preferred stock   (338,508)   -    (338,508)
Net loss attributed to common shareholders  $(4,171,368)  $(4,419,185)  $(40,762,586)
                
Loss per common share – basic and diluted  $(0.19)  $(0.31)     
                
Weighted average common shares outstanding –
- basic and diluted
   20,493,779    14,210,267      

 

See notes to consolidated financial statements.

 

F-4
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Consolidated Statements of Stockholders’ Equity (Deficit)

For the Period from November 18, 2002 (Inception) to December 31, 2011

 

   Preferred Stock   Common Stock   Additional
Paid-in
   Accumulated   Total
Stockholders’
 
    Shares    Amount    Shares    Amount    Capital    Deficit    Equity (Deficit) 
Balance at November 18, 2002 (Inception)   -   $-    -   $-   $-   $-   $- 
Common stock for services and accounts payable - $.40/share             106,250    170,000              170,000 
Common stock for cash at $.40/share             73,620    117,791              117,791 
Net loss from inception through December 31, 2002                       -    (344,612)   (344,612)
Balances at December 31, 2002   -    -    179,870    287,791    -    (344,612)   (56,821)
Common stock for services at $.40 to $1.00 /share             304,813    1,095,500              1,095,500 
Common stock for cash at $.40/share             213,881    342,209              342,209 
Common stock for services and accounts payable - $2.00/share             10,625    85,000              85,000 
Common stock for cash at $2.00/share net of issuance costs             114,350    884,549              884,549 
Value of warrants issued with convertible debt             -    110,168              110,168 
Net loss for the year ended December 31, 2003                       -    (2,999,735)   (2,999,735)
Balances at December 31, 2003   -    -    823,539    2,805,217    -    (3,344,347)   (539,130)
Value of warrants issued with convertible debt                  22,033              22,033 
Common stock for cash at $2.50/share             24,500    245,000              245,000 
Common stock for services and software at $2.50/share             15,250    152,500              152,500 
Common stock for employment agreement services at $2.50/share             43,750    437,500              437,500 
Common stock issued with May 2004 notes at $2.50/share             33,334    333,335              333,335 
Common stock grants to employees at $2.50/share             47,425    474,250              474,250 
Value of warrants and options issued for services                  175,363              175,363 
Net loss for the year ended December 31, 2004                            (5,761,208)   (5,761,208)
Balances at December 31, 2004   -    -    987,798    4,645,198    -    (9,105,555)   (4,460,357)
Common stock for cash at $2.50/share             76,303    763,030              763,030 
Common stock for payables and debt converted at $2.50/share             281,339    2,813,379              2,813,379 
Preferred stock for outstanding debt converted at $2.50/share   195,750    1,957,500                        1,957,500 
Value of warrants and option issued for services                  497,700              497,700 
Common stock for engine development technology (Note 3)             749,144    7,491,437              7,491,437 
Recapitalization from March 31, 2005 reverse merger (Note 4)        (1,957,304)   153,268    (16,208,496)   18,165,800          - 
Common stock for cash at $3.90/share , net of offering costs of $513,124             250,010    250    3,386,774         3,387,024 
Common stock issued for SEDA equity agreement             33,730    34    749,966         750,000 
Net loss for the year ended December 31, 2005                            (4,986,019)   (4,986,019)
Balances at December 31, 2005   195,750    196    2,531,592    2,532    22,302,540    (14,091,574)   8,213,694 
Preferred stock converted to common stock at $1.25/share   (195,750)   (196)   391,500    392    (196)        - 
Common stock for cash at $.75/share             43,333    43    129,957         130,000 
Conversion of notes payable at $1.25/share             447,567    448    2,237,388         2,237,836 
Conversion of notes payable at $.75/share             171,119    171    513,185         513,356 
Dividends for preferred converted at $1.25/share             52,257    52    261,234         261,286 
Net loss for the year ended December 31, 2006                            (11,223,733)   (11,223,733)
Balances at December 31, 2006   -    -    3,637,368    3,638    25,444,108    (25,315,307)   132,439 
Common stock for cash at $.75/share             532,792    533    1,588,468         1,589,001 
Common stock for services at $.75/share             276,501    276    734,724         735,000 
Net loss for the year ended December 31, 2007                            (2,400,853)   (2,400,853)
Balances at December 31, 2007   -    -    4,446,661    4,447    27,767,300    (27,716,160)   55,587 
Common stock for services             531,084    531    482,100         482,631 
Common stock for cash             2,080,417    2,080    1,354,920         1,357,000 
Common stock for conversion of debt             663,000    663    528,837         529,500 
Net loss for the year ended December 31, 2008                            (2,011,494)   (2,011,494)
Balances at December 31, 2008   -    -    7,721,162    7,721    30,133,157    (29,727,654)   413,224 
Reconciliation adjustment             236,171    236    52,264         52,500 
Stock warrants issued for services                       25,498         25,498 
Common stock for services             2,231,449    2,231    881,349         883,580 
Common stock for inventory             62,500    63    24,937         25,000 
Common stock for cash             2,925,000    2,925    978,719         981,644 
Common stock for conversion of debt             225,000    225    89,775         90,000 
Common stock issued for rounding with 4-to-1 reverse stock split             7,690    8    (8)        - 
Net loss for the year ended December 31, 2009                            (2,444,379)   (2,444,379)
Balances at December 31, 2009   -    -    13,408,972    13,409    32,185,691    (32,172,033)   27,067 
Common stock for cash             1,905,200    1,905    731,148         733,053 
Common stock for services             80,000    80    90,420         90,500 
Common stock for conversion of debt             2,133,333    2,133    1,347,866         1,349,999 
Stock warrants issued with common shares                       564,987         564,987 
Stock warrants issued with debt                       427,700         427,700 
Common stock issued for retirement of debt and interest             191,775    192    123,622         123,814 
Beneficial conversion features                       401,069         401,069 
Stock warrants issued with Finder’s fees                       270,102         270,102 
Warrants granted for inducement to convert loans                       407,264         407,264 
Net loss for the year ended December 31, 2010                            (4,419,185)   (4,419,185)
Balances at December 31, 2010   -    -    17,719,280    17,719    36,549,869    (36,591,218)   (23,630)
Common stock for cash and conversion of debt             5,978,000    5,978    730,415         736,393 
Common stock for services             4,994,972    4,995    1,196,347         1,201,342 
Preferred stock for cash and conversion of debt   1,386,469    1,386              1,038,465         1,039,851 
Beneficial conversion features                       258,799         258,799 
Stock warrants issued with common shares                       280,094         280,094 
Stock warrants for services                       179,443         179,443 
Stock warrants issued with debt                       240,454         240,454 
Deemed preferred dividend                       338,508    (338,508)   - 
Net loss for the year ended December 31, 2011                            (3,832,860)   (3,832,860)
Balances at December 31, 2011   1,386,469   $1,386    28,692,252   $28,692   $40,812,394   $(40,762,586)  $79,886 

 

See notes consolidated financial statements. 

 

F-5
 

 

Viper Powersports Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

 

   Year Ended
December 31,
2011
   Year Ended
December 31,
2010
   Cumulative
from November
18, 2002 (Date
of Inception)
through
December 31,
2011
 
Cash flows from operating activities:               
Net loss  $(3,832,860)  $(4,419,185)  $(40,424,078)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation   46,158    36,837    623,659 
Common stock and warrants issued for compensation and expenses   1,380,785    90,500    10,004,321 
Beneficial conversion feature on convertible loan   227,419    401,069    628,488 
Accretion of debt discount   183,566    427,700    611,266 
Amortization of loan costs   83,304    426,102    509,406 
Bad debt expense   -    105,707    105,707 
Warrants issued for inducement to convert debt   -    407,264    407,264 
Impairment loss-inventory and fixed assets   75,802    209,628    7,657,119 
Common stock issued to convert debt   75,000    123,814    198,814 
Changes in operating assets and liabilities:               
Decrease (increase) in accounts receivable, net of bad debts   (7,473)   106,968    (114,447)
Decrease (increase) in inventory and supplies, net of obsolescence   (144,893)   (290,850)   (971,207)
Decrease (increase) in prepaids and other   (110,992)   60,240    (164,015)
Decrease (increase) in accounts payable   89,807    (125,556)   528,594 
Increase (decrease) in accrued liabilities   (4,204)   55,713    31,582 
Net cash provided by (used in) operating activities   (1,938,581)   (2,384,049)   (20,367,527)
                
Cash flows from investing activities:               
Loss 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   (308,592)   (2,760)   (1,135,278)
Net cash provided by (used in) investing activities   (308,592)   (2,760)   (1,001,534)
                
Cash flows from financing activities:               
Net proceeds from sale of preferred stock   613,465    -    613,465 
Net proceeds from sale of common stock   892,871    1,298,040    12,810,659 
Net proceeds from note payable   690,000    1,250,000    2,542,169 
Net proceeds from note payable – related parties   202,000    -    6,643,046 
Payments on note payable   (59,000)   (50,921)   (299,626)
Payments on capital leases   -    (4,052)   (642,069)
Payments for loan costs   (55,333)   (156,000)   (211,333)
Payment on notes payable – related party   (24,513)   (34,841)   (59,354)
Net cash provided by (used in) financing activities   2,259,490    2,302,226    21,396,957 
                
Net change in cash and cash equivalents   12,317    (84,583)   27,896 
Cash, beginning of period   15,579    100,162    - 
Cash, end of period  $27,896   $15,579   $27,896 
                
Supplemental Non-Cash Financing Activities and Cash Flow Information:                
Preferred stock issued for debt  $425,000   $-   $425,000 
Common stock issued for debt and expenses  $325,000   $-   $10,057,009 
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   $163,000 
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 
Inventory transferred to fixed assets  $168,108   $-   $168,108 
Interest converted to common stock  $-   $121,855   $786,992 

 

See notes to consolidated financial statements.

 

F-6
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Viper Powersports Inc. was incorporated in Nevada in 1980 under a different name, and was inactive for years. On March 31, 2005 the Company was recapitalized through a merger with Viper Motorcycle Company, a Minnesota corporation. The former shareholders of Viper Motorcycle Company acquired 93.5% of the capital stock of Viper Powersports Inc. in exchange for all of the capital stock of Viper Motorcycle Company. This transaction was effected as a reverse merger for financial statement and operational purposes, and accordingly Viper Powersports Inc. regards its inception as being the incorporation of Viper Motorcycle Company on November 18, 2002. (See Note 4 - Recapitalization). Upon completion of this reverse merger, Viper Motorcycle Company became a wholly-owned subsidiary of Viper Powersports Inc.

 

The stock exchange in this reverse merger was effected on a one-for-one basis, resulting in each shareholder of Viper Motorcycle Company receiving the same number and type of capital stock of Viper Powersports Inc. which they held in Viper Motorcycle Company prior to the merger.

 

Viper Performance Inc., also a wholly-owned subsidiary of Viper Powersports Inc., was incorporated in Minnesota in March 2005 for the purpose of receiving and holding engine development technology and related assets acquired by Viper Powersports Inc. These assets were acquired from Thor Performance Inc., a Minnesota corporation in March 2005 in exchange for 749,144 shares of common stock of Viper Powersports Inc. (See Note 3 - Purchase of Engine Development Technology.)

 

As used herein, the term “the Company” refers to “Viper Powersports Inc.”, and its wholly-owned subsidiaries, unless the context indicates otherwise.

 

The Company is a development stage company engaged in design and development of premium V-Twin cruiser motorcycles. The Company has sold its capital stock and debt securities in various private placements to fund its development, marketing and other operations. The Company also has issued substantial shares of its common stock to compensate officers and other employees, consultants, and vendors, and to satisfy outstanding debt and other obligations. The Company continues to rely upon loans and sales of its equity securities to fund current operations.  The Company facility is located in Auburn, Alabama in a 63,000 sq ft plant which will allow us to grow based on our forecasted production schedule.

 

F-7
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

Going Concern – The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has incurred an accumulated deficit of $40,424,077 since inception, and currently has limited sales. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the production of its motorcycles. Management has plans to seek additional capital through private placements of its capital stock. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

Principles of Consolidation – The consolidated financial statements include the accounts of Viper Powersports Inc. and its wholly-owned subsidiaries, Viper Motorcycle Company and Viper Performance Inc. All intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Significant estimates that could change in the near term are warrants, inventory obsolescence and impairment.

 

Loss Per Share – Basic and diluted net loss per common share is computed using the net loss applicable to common shareholders and the weighted average number of shares of common stock outstanding. Diluted net loss per common share does not differ from basic net loss per common share since potential shares of common stock from conversion of debt and the exercise of warrants and options are anti-dilutive for all periods presented.  The fully diluted shares would be 40,667,071.

 

Inventories – Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method (FIFO). Demonstration motorcycles are stated at manufacturing cost and reserves are recorded to state the demonstration motorcycles at net realizable value

 

The Company reviews inventory for obsolescence and excess quantities to determine that items deemed obsolete or excess are appropriately reserved.  Components of inventory at December 31, 2011 are as follows;

 

Raw materials  $334,875 
Work-in-process   37,660 
Finished Goods   150,639 
   $523,174 

 

F-8
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

Property and Equipment – Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, which are 3 to 7 years. Leasehold improvements are amortized straight line over the shorter of the lease term or estimated useful life of the asset.

 

Impairment of Long Lived Assets – The Company reviews long-lived assets for impairment annually or more frequently if the occurrence of events or changes in circumstances indicates that the carrying amount of the assets may not be fully recoverable or the useful lives of the assets are no longer appropriate. Each impairment test is based on a comparison of the carrying amount of an asset to future net undiscounted cash flows. If impairment is indicated, the asset is written down to its estimated fair value on a discounted cash flow basis.  

 

Revenue Recognition – The Company conducts its sales through a network of independent dealers, and the Company recognizes revenue for sales to dealers after the following has taken place:

·the sales price is fixed or determinable
·motorcycle products are delivered, which is upon shipment;
·title to products passes to the dealer, also upon shipment; and
·collection is reasonably assured.

 

The Company’s dealer agreement provides that the dealer has no right of return unless the Company authorizes the return.

 

 Warranty – The Company provides warranty coverage for its motorcycles with unlimited miles within a one year period from date of purchase, including parts and labor necessary to repair the motorcycle during the warranty period.

 

A provision for the costs related to warranty expense will be recorded as a charge to cost of goods sold when revenue is recognized. The estimated warranty cost will be based on industry averages and the stage of production life cycle of the Company’s motorcycles. The warranty reserve will be evaluated on an ongoing basis to ensure its adequacy. At the same time the Company calculates a Fair Market value of the risk associated with the dealer financing liability and records the entry. The liability exposure is generally based on using an industry average of ten percent (10%) for the motorcycle sales for the reporting period.

 

Warranty information is detailed in the following table:

 

   December 31,
2011
   December 31,
2010
 
Beginning balance  $28,996   $36,531 
Addition to Reserve   3,362    0 
Warranty payments   (496)   (7,565)
Ending balance  $31,832   $28,966 

 

Research and Development – Research and development costs are expensed as incurred. Assets that are required for research and development activities, and have alternative future uses, in addition to its current use, are included in equipment and depreciated over their estimated useful lives. Research and development costs consist primarily of salaries and other compensation for development and engineering personnel, contract engineering and development costs for outsourced projects, equipment and material costs for development activities, and expenses for regulatory compliance and certifications.

 

F-9
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred income taxes, if any, are recognized for the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred income taxes, if any, will be recorded at the tax rates expected to be in effect when amounts are to be included in future taxable income. A valuation allowance is recorded to reduce the deferred tax assets to the amounts believed to be realizable. Due to the uncertainty regarding the Company’s future profitability, the future tax benefits of its net operating losses (NOL) have been fully reserved and no net tax benefit has been recorded in these financial statements.  Cumulative NOL’s at December 31, 2011 of approximately $31,000,000 begin to expire in 2022.  Deferred tax assets of approximately $13,900,000 have been offset completely by a valuation allowance.  There are no other significant components of deferred tax assets or liabilities.

 

A reconciliation of the income tax benefit using federal statutory rates applied to pre-tax losses is as follows;

 

   2011   2010 
         
Income Tax Benefit at effective federal statutory rate of 35%  $(1,341,501)  $(1,546,715)
State income taxes (benefit)   (375,620)   (397,727)
Non-deductible impairment losses, accretion and financing expenses paid for with stock and warrants   239,636    377,100 
Change in valuation allowance   1,477,485    1,567,342 
Income Tax Benefit:  $0   $0 

 

The Company has no tax position for which the ultimate deductibility is certain but for which there is uncertainty about the timing of such deductibility.  The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.  During the year ended December 31, 2011, the Company recognized no interest or penalties.  The Company had no accruals for interest and penalties at December 31, 2011 or 2010.  Open years subject to investigation of the Company’s federal income tax returns extend from 2008 to 2011.

 

Fair Value of Financial Instruments – The carrying values of balance sheet financial instruments approximates their fair values as the debt and assets were incurred and acquired recently. These financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, notes payables and indebtedness to related parties. Management is of the opinion that the Company is not exposed to significant interest, credit or currency risks arising from these financial instruments.

 

Stock Options and Stock Based Compensation

 

The Company accounts for equity instruments issued to non-employees for services and goods under ASC Topic 505.50; EITF 96-18 (Accounting for Equity Instruments Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services); and EITF 00-18 (Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to other than Employees.) Generally, the equity instruments issued for services or goods are for common shares or common stock purchase warrants. These shares or warrants are fully vested, non-forfeitable and fully paid or exercisable at the date of grant and require no future performance commitment by the recipient. The Company expenses the fair market value of these securities over the period in which the Company receives the related services.

 

F-10
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

Recently Issued 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 June 2011, the FASB issued an update to Presentation of Comprehensive Income, that requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. The guidance is effective for us in the first quarter of fiscal year 2013. We do not expect the adoption of this update to have a material impact on our consolidated results of operations and financial condition.

 

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.

 

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update, Testing Goodwill for Impairment (the “Revised Standard”). The Revised Standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. The Revised Standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Entities considering early adoption should begin assessing relevant factors for the qualitative assessment. An entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. We are currently evaluating the early adoption option. We do not expect the adoption or early adoption of this update to have an impact on our consolidated results of operations and financial condition.

 

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

 

Reclassification:

 

Certain items for 2010 have been reclassified to conform to the 2011 presentation.

 

F-11
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

2. EQUITY FINANCING AGREEMENTS

 

Following are all equity security transactions during the year ended December 31, 2011 involving sales not registered under the Securities Act of 1933:

 

Loan Transactions

 

The Company entered into nine (9) 60-day loan agreements from January through December 31, 2011. The total of the loans amounted to $425,000. The loans carry interest rates ranging from 10% to 12%. Each agreement also required the Company to issue 650,000 warrants to purchase 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.

 

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 was 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 principal 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 $65,000. The term of the Note is 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.

 

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 CD’s owned by Robert Van Den Berg, a related party, who has also filed a UCC lien on the Company’s assets.

 

On November 21, 2011, the Viper Performance Company entered into a secured inventory financing agreement for $152,000 with Wayne Nelson and Patrick Moloney. The loan carries a 12.0% annual interest rate, calculated and payable quarterly, with a balloon payment due June 2012. 500,000 warrants were issued to purchase common stock for $0.15 per share with the loan agreement as finance fees. The loan is collateralized by inventory valued at $165,900 as of December 31, 2011.

 

Common Stock Transactions

 

During the period of January through March, 2011, the Company issued to nine (9) shareholders, 908,000 shares of common stock under $.50 private placements and 688,000 warrants to purchase common stock at prices ranging from $1.00 to $0.50 per share for $454,000 in cash. The Company performed Black-Scholes valuations for each transaction, with an allocation 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.

 

During the period of January through March, 2011, the Company issued to three (3) shareholders, 4,134 shares of common stock. The stock prices were used to value the stock issued for services on each relevant date.

 

On March 31, 2011, the Company issued to eight (8) warrant holders, 337,500 warrants to purchase common stock at prices ranging from $2.00 to $0.50 per share for services performed. The Company performed a Black-Scholes valuation for each transaction, a warrant allocation of the proceeds applied to the warrants.  

 

During the period of April through June, 2011, the Company issued to three (3) shareholders, 170,000 shares of common stock under $.50 private placements and 170,000 warrants issued to purchase common stock for $0.50 per share for $85,170 in cash. The Company performed Black-Scholes valuations for each transaction, with an allocation 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.

 

During the period of April through June, 2011, the Company issued to four (4) shareholders, 280,000 shares of common stock. The stock prices were used to value the stock issued for services, on each relevant date.

 

F-12
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

During the period of July through September, 2011, the Company issued to two (2) shareholders, 300,000 shares of common stock under $.25 private placements for $75,000 in cash.

 

During the period of July through September, 2011, the Company issued to nine (9) shareholders, 3,855,000 shares of common stock for services. The value used was the market closing price on each applicable date.

 

During the period of October through December, 2011, the Company issued to twelve shareholders, 855,858 shares of common stock for services. The value used was the market closing price on each applicable date.

 

During the period of October through December, 2011, the Company issued to ten (10) shareholders, 3,500,000 shares of common stock under $.15 private placements along with 168,840 warrants to purchase common stock at prices ranging from $1.25 to $0.40 per share for $525,000 in cash.

 

Preferred Stock Transactions

 

During the period of April through June, 2011, the Company issued to 22 shareholders, 1,353,135 shares of preferred stock under $.75 private placements and 750,000 warrants issued to purchase common stock for $0.50 per share for $589,852 in cash and $425,000 of converted loans. The Company performed Black-Scholes valuations for each transaction, with an allocation of the proceeds applied to the warrants.  The difference between the warrant allocation and the proceeds was allocated to the shares of preferred stock issued.

 

During the period of July through September, 2011, the Company issued one (1) shareholder, 33,334 shares of preferred stock under $.75 private placements and 50,000 issued warrants to purchase common stock for $0.50 per share for $50,000 in cash. The Company performed Black-Scholes valuations for the transaction, with an allocation of the proceeds applied to the warrants.  The difference between the warrant allocation and the proceeds was allocated to the shares of preferred stock issued.

 

F-13
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

3. PURCHASE OF ENGINE DEVELOPMENT TECHNOLOGY

 

Effective March 31, 2005, Viper Powersports Inc., acquired substantial motorcycle engine technology and related assets from Thor Performance Inc., a Minnesota corporation. These assets were acquired in exchange for 749,144 shares of common stock of Viper Powersports Inc. issued to Thor Performance, Inc. The Company valued the engine development technology at $10.00 per share and capitalized $7,341,438 for the value of the motorcycle engine development.

 

Motorcycle development technology acquired from Thor Performance Inc. includes designs and prototypes for various V-Twins and other motorcycle engines and other components, and a $150,000 commitment by Thor Performance Inc. to fund the completion of certain development in progress being conducted by MCD, which commitment has been fulfilled. The Company had an independent appraisal of the engine development technology conducted which, under the income methodology approach, valued the engine development technology at $19,616,400.

 

In accordance with SFAS 2, Accounting for Research and Development Costs,” and SFAS 142, “Goodwill and Other Intangible Assets,” the Company’s policy is to capitalize costs incurred in connection with the purchase, from outside parties, of new engine development technology. Any internally developed technology would be classified as research and development, and would be immediately expensed. During 2005 the Company capitalized $7,341,438 of motorcycle engine development cost. The Company’s policy is to amortize the cost capitalized in connection with developing engine technology on a straight line basis over 10 years. No amortization was taken during 2005 as the Company was still in the development stage. The company did not produce any motorcycles during the 2006 year and so it was determined that impairment of the engine development cost should be taken. This amount is $7,371,689 and has been fully impaired in the fiscal year 2006.

 

F-14
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

4. RECAPITALIZATION

 

In 2005 Viper Powersports Inc. was merged with Viper Motorcycle Company pursuant to a merger agreement dated March 11, 2005. Upon consummation of this merger, Viper Motorcycle Company became a wholly-owned subsidiary of Viper Powersports Inc.

 

This transaction constituted a reverse merger which is regarded as if Viper Motorcycle Company had acquired Viper Powersports Inc. These financial statements present operations of Viper Motorcycle Company from its inception on November 18, 2002, and do not include any prior operations of Viper Powersports Inc.

 

F-15
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

5. RELATED PARTY TRANSACTIONS

 

Robert Van Den Berg, a director of the Company, guaranteed a $250,000 credit facility we obtained from a banking institution, which was established in order to purchase inventory parts and components for upcoming commercial production of Viper motorcycles. In consideration for Mr. Van Den Berg providing this guaranty, we issued him 25,000 shares of our common stock. This line has been paid completely in early January 2011.

 

The Company entered into a loan conversion with Robert Van Den Berg. The parties had a $130,000 loan which $50,000 was converted into preferred shares and $80,000 was extended. The Preferred Shares was converted at $.75 or 66,667 shares. The remaining loan carries an interest rate of 8%, and no interest has been paid.

 

On November 21, 2011, the Viper Performance Company entered into a secured inventory financing agreement for $152,000 with Wayne Nelson and Patrick Moloney. The loan carries a 12.0% annual interest rate, calculated and payable quarterly, with a balloon payment due June 2012. 500,000 warrants were issued to purchase common stock for $0.15 per share with the loan agreement as finance fees. The loan is collateralized by inventory valued at $165,900 as of December 31, 2011.

 

F-16
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

6. COMMON STOCK WARRANTS AND OPTIONS

 

The Company has issued warrants to purchase a total of 6,775,563 shares of its common stock.

 

Warrants – We have granted outstanding warrants for the purchase of a total of 6,775,563 shares of our common stock, all of which are exercisable anytime until their respective expiration dates.

 

Warrants to
 Purchase
   Common Share
Strike Price
   Term   Expiration
Date
 31,250   $1.60    5 year   March 2012
 830,000   $1.00    3 year   November 2013 to December 2013
 37,500   $4.00    5 year   January 2013 to March 2013
 62,500   $0.50    5 year   November 2014 to December 2014
 100,000   $0.50    3 year   March 2014
 10,000   $2.00    5 year   November 2014
 500,000   $0.15    3 year   December 2014
 550,000   $0.50    5 year   January 2015 to December 2015
 1,373,980   $1.00    5 year   January 2015 to December 2015
 50,000   $2.00    5 year   May 2015
 1,538,000   $0.50    5 year   January 2016 to December 2016
 320,000   $1.00    5 year   January 2016 to December 2016
 37,500   $2.00    5 year   January 2016 to December 2016
 400,625   $0.40    10 year   December 2020
 90,000   $0.50    10 year   December 2020
 232,734   $0.75    10 year   December 2020
 203,467   $1.00    10 year   December 2020
 223,000   $1.25    10 year   December 2020
 16,167   $3.00    10 year   December 2020
 42,000   $0.40    10 year   December 2021
 18,000   $0.50    10 year   December 2021
 26,240   $0.75    10 year   December 2021
 36,000   $1.00    10 year   December 2021
 46,600   $1.25    10 year   December 2021

 

The following is a summary of the Company’s stock warrants outstanding as of December 30, 2011, adjusted for any changes in the exercise price of the stock warrants:

 

Warrants Outstanding  Warrants Exercisable
Range of
exercise price
  Number
Outstanding
   Weighted Average
 Remaining Contractual
 Life (in years)
  Weighted Average
Exercise Price
   Number
Exercisable
  Weighted Average
 Exercise Price
 
$ 0.15 to
$ 4.00
   6,775,563   4.59 years  $0.76   6,775,563  $0.76 

 

Exercise price $.15 to $4.00
Term Three to ten years
Volatility 213.8% to 250.04%
Dividends 0.00%

 

Stock Options – There are no outstanding options.

 

F-17
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

VIPER POWERSPORTS, INC.
COMMON STOCK WARRANTS AND OPTIONS
 
   Options   Warrants 
   12/31/2011   12/31/2010   12/31/2011   12/31/2010 
                 
Beg Bal   31,250    114,500    4,142,733    314,417 
                     
Issued   0    0    2,632,830    3,969,973 
                     
Exercised   -    -    -    - 
                     
Cancelled   (31,250)   (83,250)   -    (141,667)
                     
End Bal   0    31,250    6,775,563    4,142,733 
                     
Exercisable   0    31,250    6,775,563    4,142,733 

 

7. LEASING ACTIVITIES

 

On October 17, 2005, the Company entered into a capital lease with Citizen Automobile Finance for the acquisition of a 2004 delivery van for a term of 60 months and an interest rate of 7.99%. This lease was completely satisfied in November 2010.

 

On September 18, 2008, the Company entered into an operating lease for manufacturing and office space at its current Hopkins facility. The term of the lease is thirty nine (39) months beginning October 1, 2008. Future minimum lease payments under this agreement have been included in the schedule of minimum operating lease payments. Early termination of this lease was negotiated during 2011. No future lease payments are due.

 

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-18
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

 

Minimum lease payments are as follows:

 

For the years ending December 31,  Capital Lease   Operating Lease 
2012   -   $138,784 
2013        138,784 
2014        138,784 
2015        138,784 
2016        138,784 
2017        138,784 
2018        138,784 
2019        138,784 
2020   -    69,392 
Total   -   $1,318,448 
Amount for interest   -      
Net   -      
           
Less: Current portion   -      
Long term portion  $-      

 

8. PREFERRED STOCK

 

The Company has authorized 20,000,000 shares of preferred stock with par value of $.001 per share and of these there are 1,386,469 outstanding.

 

The 2011 offering of preferred stock was under $.75 private placements. Six months after June 24, 2011, each such preferred share becomes eligible for conversion into  common stock of the Company at either $.75 per common share or at that price representing a 30% discount from the public trading price of such common shares averaged over a five-day period, whichever is lower.  There is no dividend rate for this class of Preferred Stock. This private placement was a non-public offering purchased by 21 accredited investors not involving any general solicitation, and was made in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933.

 

F-19
 

 

Viper Powersports Inc.

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

9. SUBSEQUENT EVENTS

 

 

During 2011, the Company issued 1,386,469 Convertible Preferred Shares at a price of $0.75. Based on the last five trading days of December 2011, a conversion price of $0.20 was set. The conversion rate was 3.75 Common Shares for one (1) Preferred Share. As of the date of this filing, 1,153,134 Preferred Shares have been converted into 4,324,255 common shares.

 

During the period of January 2012 through the date these financial statements were available for issuance, Company issued nine (9) shareholders, 2,600,001 shares of common stock under $.15 private placements for $365,000 in cash net of fees.

 

During the period of January 2012 through the date these financial statements were available for issuance, the Company received two (2) six month, 12%, convertible notes from shareholders, for $100,000 each. The loans can be converted to common shares for $0.15. The note holders were also issued a total of 650,000, $0.15 warrants.

On March 15, 2012, the Company repaid the Convertible Promissory Note to Asher Enterprises, Inc. with a principal amount of $62,000 with accrued interest and prepayment option fees.

 

During the period of January 2012 through the date these financial statements were available for issuance, the Company issued 500,000 common shares for services valued at $0.15 per share.

The Company has evaluated subsequent events through the date of these financial statements were available to be issued and determined there are no additional events to disclose.

 

F-20
 

 

INDEX TO EXHIBITS

 

Form 10-K for Viper Powersports Inc.

Fiscal Year Ended December 31, 2011

 

Exhibit
Number
  Description
     
2 +   Agreement and Plan of Business Combination
3.1+   Articles of Incorporation
3.2+   Bylaws
4 +   Rights of Series A Preferred Shareholders
10.1 +   Asset Purchase Agreement
10.2 +   Dealer Agreement
10.3 +   Financing Floor Plan Vendor Agreement
10.7 #   Palmlund Secured Inventory Financing Agreement
10.9 #   V-Twin Engine Component Purchase Order With MCD
10.10 #   Placement Agent Agreement With Bathgate Capital Partners LLC
10.13 ^   Amendment to Secured Inventory Financing Agreement
21 +   Subsidiaries of Registrant
31.1 *   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *   Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 *   Certification of Principal Executive Officer and Principal Financial Officer Under Section 906 of the Sarbanes-Oxley
101.INS   XBRL Instance Document
101.SCH   XBRL Schema Document
101.CAL   XBRL Calculation Linkbase Document
101.DEF   Definition Linkbase Document
101.LAB   Label Linkbase Document
101.PRE   Presentation Linkbase Document

 

+   Filed previously with Form 10-SB which was filed on November 22, 2005.

#   Filed previously with Amendment #1 to Form 10-SB which was filed on January 19, 2006.

^   Filed previously with Form 10KSB which was filed on March 31, 2006

*   Filed with this Annual Report for fiscal year ended December 31, 2011

 

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