UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 1O-Q/A

 

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

 

For the quarterly period ended March 31, 2011

 

Commission File No. 000-51632

 

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VIPER POWERSPORTS INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada	41-1200215
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

2458 West Tech Lane, Auburn, AL	36832
(Address of principal executive offices)	(Zip Code)

 

(334) 887-4445

(Issuer’s telephone number)

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

The number of shares of common stock outstanding was 17,949,590 as of May 83, 2011.

 

Transitional Small Business Disclosure Format (check one): Yes x   No o   

 

The Company is filing the Amended 10-Q for the period ended March 31, 2011. The amended 10-Q/A addresses the following items;

 

1)

Strategic Engine Development Joint Venture – (Item 2 – Management Discussion and Analysis) – The Company elaborated on the penalty associated with the Company not remaining current on payments to Ilmor reaching certain engine development milestones,

 

2)

Dealer floor planning – (Risk Factors) – The Company has removed all references to floor planning as the Company does not have a current floor planning program with the dealer network.,

 

3)

Controls and Procedures – (Item 3 – Controls and Procedures) – The Company discusses further disclosure regarding deficiencies in internal controls for reporting.

 

4)

Derivative Liability – The Company reevaluated the classification of its warrant based on ASC 815-40-25-7 through 815-40-25-35 through a review with the Office of the Chief Accountant with the U.S. Securities & Exchange Commission. The Office did not object that to the classification of the warrants as equity rather than a liability. Accordingly, the Company is amending the March 21, 2011 and 2010 10-Q/A to reflect the classification in permanent equity.

 

5)

Error correction for reclassification of loans and warrants

 

6)

Accounts Payables restatement – In reviewing the beginning balances of Accounts Payable, the Company discovered that errors were recorded during the prior years. The Company is making a prior period adjustment to retained earnings to correct these entries. In addition, an adjustment to the ending Accounts Payable accrual is made to correct entries made during 2010.

 

The Company is filing the Amended 10-Q for the period ended March 31, 2010. The amended 10-Q/A addresses the following items;

 

1)

Derivative Liability – The Company reevaluated the classification of its warrant based on ASC 815-40-25-7 through 815-40-25-35 through a review with the Office of the Chief Accountant with the U.S. Securities & Exchange Commission. The Office did not object that to the classification of the warrants as equity rather than a liability. Accordingly, the Company is amending the March 21, 2011 and 2010 10-Q/A to reflect the classification in permanent equity.

  

TABLE OF CONTENTS

 

PART I: FINANCIAL INFORMATION	4
Item 1.   Financial Statements	4
Item 2.   Management’s Discussion and Analysis	11
Item 3.   Controls and Procedures	19
PART II: OTHER INFORMATION	20
Item 6.   Exhibits	20
SIGNATURE:	21
INDEX TO EXHIBITS	22
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

  

PART 1: FINANCIAL INFORMATION

 

Item 1:  Financial Statements

Viper Powersports Inc.

(A Development Stage Company)

Consolidated Balance Sheets

 

		Restated (Note G) March 31, 2011				December 31, 2010
ASSETS		(Unaudited)
Current assets:
Cash		$	21,811			$	15,579
Accounts receivable			6,240				0
Inventory and supplies			208,832				190,930
Prepaid expenses and other			1,930				1,330
Total current assets:			238,813				207,839
Fixed assets:
Office and computer equipment			124,100				124,100
Manufacturing and development equipment			272,254				272,254
Vehicles			113,349				101,799
Leasehold improvements			90,446				90,446
Accumulated depreciation			(514,595	)			(507,989	)
Total fixed assets:			85,554				80,610
Other assets:
Rental deposit and other			17,410				4,010
Long term inventory			431,261				431,261
Total other assets:			448,671				435,271
Total assets:		$	773,038			$	723,720
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	151,023			$	132,512
Accrued liabilities			179,376				181,325
Notes payable			223,463				129,000
Notes payable – related party			140,000				304,513
Total current liabilities:			693,862				747,350
Long-term liabilities
Long-term note payable			70,000				0
Total long-term liabilities:			70,000				0
Total liabilities:			763,862				747,350
Stockholders’ deficit:
Preferred stock, $.001 par value; authorized 20,000,000 shares; 0 issued and outstanding			0				0
Common stock, $.001 par value; authorized 25,000,000 shares; 18,631,414 and 17,719,260 issued and outstanding, respectively			18,631				17,719
Additional paid in capital			37,127,332				36,549,869
Accumulated deficit during the development stage			(37,136,787	)			(36,591,218	)
Total stockholders’ deficit:			9,176				(23,630	)
Total liabilities and stockholders’ deficit:		$	773,038			$	723,720

 

See accompanying notes to the financial statements

 

Viper Powersports Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended								Cumulative from Inception November 18, 2002 through
		Restated March 31, 2011				Restated March 31, 2010				March 31, 2011 Restated
		(Note G)				(Note G)				(Note G)
Revenue		$	35,773			$	20,975			$	1,125,635
Cost of revenue			43,487				18,451				1,090,084
Gross profit:			(7,714	)			2,524				35,551
Operating expense:
Research and development cost			1,205				316,949				6,032,004
Selling, general and administrative			512,974				413,120				20,869,262
Loss on impairment of assets			0				0				7,581,317
Total operating expense:			514,179				730,069				34,482,583
Loss from operations:			(521,893	)			(727,545	)			(34,447,032	)
Other (expenses) income:
Interest expense			(23,676	)			(21,313	)			(1,542,582	)
Loss on sale of assets			0				0				(18,994	)
Accretion of debt discount			0				(90,050	)			(647,804	)
Financing costs related to debt discount			0				(61,195	)			(426,102	)
Beneficial conversion feature on loan			0				(318,439	)			(401,069	)
Other income (expense)			0				68				346,796
Total other (expense) income:			(23,676	)			(490,929	)			(2,689,755	)
Net loss:		$	(545,569	)		$	(1,218,474	)		$	(37,136,787	)
Net loss per common share:
Basic and diluted (March 31, 2011 restated)		$	(0.03	)		$	(0.09	)
Weighted average shares
Common stock outstanding			18,154,260				13,583,797

 

 

See accompanying notes to the financial statements.

  

Viper Powersports Inc.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

 

		Three Months Ended								Cumulative from Inception November 18, 2002
		Restated March 31,2011				Restated March 31,2010				through March 31, 2011 Restated
Cash Flows Used in Operating Activities:		(Note G)				(Note G)
Net loss		$	(545,569	)		$	(1,218,474	)		$	(37,136,787	)
Expenses not requiring an outlay of cash:
Depreciation			6,606				5,405				584,108
Common stock and warrants issued for compensation and services			181,675				90,500				8,805,211
Beneficial conversion feature on convertible loan			0				318,439				401,069
Accretion of debt discount			0				90,050				427,700
Bad debt expense			0				0				105,707
Amortization of financing costs related to debt discount			0				61,195				426,102
Warrant issued for inducement to convert debt			0				0				407,264
Impairment loss – inventory			0				0				7,581,317
Common stock issued to convert accrued interest			0				0				123,814
Changes to operating assets and liabilities:
Decrease (increase) in accounts receivable			(6,240	)			32,456				(113,214	)
Decrease (increase) in inventory and supplies – net of obsolescence			(17,902	)			(30,787	)			(844,216	)
Decrease (increase) in prepaid expenses and other			(600	)			0				(1,930	)
Decrease (increase) in rental deposits and other			(13,400	)			(8,113	)			(65,093	)
Increase (decrease) in accounts payable			18,511				(115,371	)			457,298
Increase (decrease) in accrued liabilities			(1,949	)			(7,099	)			33,837
Net cash flows used in operating activities			(378,868	)			(781,799	)			(18,807,813	)
Cash flows Used in Investing Activities:
Proceeds from sale of fixed assets			0				0				18,994
Funding from Thor Performance for engine development			0				0				150,000
Purchase of intellectual property			0				0				(35,251	)
Purchase of fixed assets			(11,550	)			0				(838,235	)
Net cash flows used in investing activities			(11,550	)			0				(704,492	)
Cash Flows from Financing Activities:
Net proceeds from sale of stock			396,700				191,420				12,314,487
Proceeds from notes payable			0				850,000				1,852,169
Payments on notes payable			(50,050	)			(25,000	)			(290,676	)
Payments on notes payable – related parties			0				(5,000	)			(641,004	)
Payment of loan costs			0				(96,000	)			(156,000	)
Payment of capital leases			0				(1,065	)			(1,065	)
Proceeds from loans from stockholders			50,000				0				6,356,205
Net cash flows from financing activities			396,650				914,355				19,534,116
Net increase (decrease) in cash			6,232				132,556				21,811
Cash at beginning of period			15,579				100,162				0
Cash at end of period		$	21,811			$	232,718			$	21,811
Supplemental Non-Cash Financing Activities and Cash Flow Information:
Common stock issued for debt and expenses		$	0			$	0			$	9,732,009
Common stock issued for engine development		$	0			$	0			$	7,341,437
Stock warrants issued with convertible debt		$	0			$	181,561			$	313,762
Stock warrants issued with short-term loans		$	0			$	128,350			$	148,150
Stock warrants as prepaid finders fee		$	0			$	178,513			$	154,300
Equipment acquired via capital lease		$	0			$	0			$	304,740
Interest paid		$	0			$	21,312			$	808,664

 

 

See accompanying notes to the financial statements

   

Viper Powersports Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

A. Basis of Presentation

 

The consolidated balance sheet as of March 31, 2011, the consolidated statements of operations for the three month periods ended March 31, 2011 and 2010 and the consolidated statements of cash flows for the three month periods ended March 31, 2011 and 2010 have been prepared by Viper Powersports Inc., (the “Company”) without audit. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position, as of March 31, 2011 and results of operations and cash flows for the three month periods ended March 31, 2011 and 2010 presented herein have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Annual Report on Form 10-K/A of the Company for the fiscal year ended December 31, 2010.

 

B. Going Concern

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has no current revenues and has a negative working capital position of $455,049 as of March 31, 2011. Current cash and cash available are not sufficient to fund operations beyond a short period of time. These conditions create uncertainty as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

C. 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.

 

D. Loan

 

The Company entered into a 60-day loan agreements for $50,000 from a related party. The loan is not convertible and carries a 8.0% interest rate.

 

E Warrants for Services

 

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.  

 

F Subsequent Events

 

The Company has evaluated subsequent events from March 31, 2011 through the date the financial statements were issued and determined that there is the following events to disclose:

 

Loans:

 

The Company entered into three 60-day loan agreements for $150,000 from March 31, 2011 until the date of the original filing. These loans are not convertible and carry interest rates of 10% or 12%. Each agreement also required the Company to issue 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.

 

Common Stock Transactions:

 

During the period from March 31, 2011 through the original filing date, the Company issued 270,000 shares of common stock and 145,000 warrants under a private placement for $135,000 in cash. The Company valued the warrants issued using the Black-Scholes model. The warrant allocation is the amount of the proceeds applied to the warrants. The difference between the warrant allocation and the proceeds was allocated to the shares of common stock issued.

 

New personnel announcements:

 

Viper Powersports Inc. has announced in a press release dated April 27, 2011 that it has hired a new Vice President of Investor Relations. Mr. Michael Mann started on May 8, 2011 as the Company continues to raise money and prepare for its move to Auburn, Alabama.

 

Viper Powersports Inc. has announced in a press release dated May 23, 2011 that it has hired a new Chief Financial Officer. Mr. Timothy C Kling will be starting on July 1, 2011 as the Company relocates to Auburn, Alabama.

 

G  RESTATEMENT

 

Subsequent to issuance, Management has subsequently determined to correct the accounting procedures and has amended the March 31, 2011 financial statements.

1.

The Company corrected the classification of warrants as equity with no derivative liability.

2.

Error correction for reclassification of loans, accounts receivable and warrant.

3.

Accounts Payables restatement – In reviewing the beginning balances of Accounts Payable, the Company discovered that errors were recorded during the prior years. The Company is making a prior period adjustment to retained earnings to correct these entries.

 

 

Accordingly, the accompanying balance sheet, statement of operations, and statement of cash flows for the period amended as of March 31, 2011 have been retroactively adjusted as summarized below:

Effect of Corrections		As Previously Reported				As Restated				Adjustment				Reference
BALANCE SHEET
At March  31, 2011
ASSETS
-Accounts receivable		$	0			$	6,240			$	6,240				3
-Prepaid expenses and other assets		$	8,170			$	1,930			$	(6,240	)			3
LIABILITIES
-Accounts payable		$	322,260			$	151,023			$	(171,237	)			4
-Accrued liabilities		$	179,376			$	179,146			$	(230	)			4
-Current derivative liability		$	398,689			$	-			$	(398,689	)			1
-Notes payable		$	80,000			$	223,463			$	143,463				3
-Notes payable – related party		$	353,463			$	140,000			$	(213,463	)			3
-Total current liabilities		$	1,333,788			$	693,862			$	(639,926	)			1,4
-Long-term note payable		$	0			$	70,000			$	70,000				3
-Total long-term liabilities		$	0			$	70,000			$	70,000				3
-Total liabilities		$	1,333,788			$	764,862			$	(568,926	)			1,4
STOCKHOLERS’ DEFICIT
-Common stock		$	18,527			$	18,631			$	104				2
-Additional paid-in capital		$	36,768,358			$	37,127,332			$	358,974				2
-Accumulated deficit		$	(37,347,635	)		$	(37,136,787	)		$	210,848				1,2,4
-Total stockholders’ deficit		$	(560,750	)		$	9,176			$	569,926				1,2,4
STATEMENT OF OPERATIONS
Quarter ended March 31, 2011
OTHER (EXPENSES)INCOME
- Selling, general and administrative		$	466,533			$	512,974			$	46,441				1
- Total operating expense		$	467,738			$	514,179			$	46,441				1
- Loss from operations		$	(475,452	)		$	(521,893	)		$	(46,441	)			1
- Gain/loss from derivative liability		$	188,303				-				(188,330	)			1
-Total other income		$	164,627			$	(23,676	)		$	(188,303	)			1
-Net loss		$	(310,824	)		$	(545,569	)		$	(234,745	)			1
Earnings per share
-Net loss per common share		$	(0.02	)		$	(0.03	)		$	(0.01	)			1,5

 

Effect of Corrections		As Previously Reported				As Restated				Adjustment				Reference
STATEMENT OF CASH FLOWS
Quarter ended March 31, 2011
-Net loss at March 31, 2011		$	(310,824	)		$	(545,569	)		$	(234,745	)			1,4
-Common stock and warrants issued for compensation and services		$	0			$	181,675			$	181,675				3
-Derivative liability		$	(188,303	)		$	0			$	188,303				1
-Decrease (increase) in account receivable		$	0			$	(6,240	)		$	(6,840	)			3
-Increase (decrease) in inventory and supplies – net of obsolescence		$	(20,240	)		$	(17,902	)		$	2,338				3
- Decrease (increase) in prepaid expenses and other		$	0			$	(600	)		$	(600	)			3
- Decrease (increase) in rental deposits and other		$	(14,000	)		$	(13,400	)		$	600				3
-Increase (decrease) in accounts payable		$	18,743			$	18,511			$	232				3
Net cash flows used in operating activities		$	(702,172	)		$	(378,868	)		$	(323,304	)			1,3
-Net proceeds from sale of stock		$	531,700			$	396,700			$	(135,000	)			3
Net cash flows from financing activities		$	531,651			$	396,650			$	(135,001	)			3

 

REFERENCE

1  Correct a classification of warrants as equity with no derivative liability

2  Use of relative fair value of the warrants as a result of change for debt to equity of warrant classification, prior periods

3  Error correction for reclassification of loans, accounts receivable and warrant

4  Prior period posting errors relating to accounts payable

5  Earnings per share was recalculated

 

Subsequent to issuance, Management has subsequently determined to correct the accounting procedures and has amended the March 31, 2010 financial statements.

1.

The Company corrected the classification of warrants as equity with no derivative liability.

2.

Accounts Payables restatement – In reviewing beginning balances of Accounts Payable, the Company discovered that errors were recorded during the prior years. The Company is making a prior period adjustment to retained earnings to correct these entries.

 

Accordingly, the accompanying balance sheet, statement of operations, and statement of cash flows for the period amended as March 30, 2010 have been retroactively adjusted as summarized below:

 

Effect of Corrections			As Previously Reported				As Restated				Adjustment				Reference
BALANCE SHEET
At March  31, 2010
ASSETS
-Prepaid expenses and other		$	240,058			$	283,001			$	42,943				1
-Current assets		$	1,224,751			$	1,267,694			$	42,943				1
-Total assets		$	1,338,043			$	1,380,986			$	42,943				1
LIABILITIES
-Accounts payable		$	242,796			$	142,697			$	(100,099	)			2
-Short-term notes payable		$	679,458			$	630,139			$	(49,319	)			2
-Total current liabilities		$	1,603,108			$	1,453,690			$	(149,418	)			2
-Derivative liability		$	142,509			$	-			$	(142,509	)			1
-Total long-term liabilities		$	172,430			$	29,921			$	(142,509	)			1
-Total liabilities		$	1,775,538			$	1,483,611			$	(291,927	)			1
STOCKHOLERS’ DEFICIT
-Additional paid-in capital		$	33,053,059			$	33,274,168			$	221,109				1,2
-Accumulated deficit		$	(33,504,268	)		$	(33,390,507	)		$	113,761				1,2
-Total stockholders’ deficit		$	(437,495	)		$	(102,625	)		$	334,870				1,2
-Total liability and stockholder’s deficit		$	1,338,043			$	1,380,986			$	42,943				2

 

Effect of Corrections			As Previously Reported				As Restated				Adjustment				Reference
STATEMENT OF OPERATIONS
Quarter ended March 31, 2010
OTHER (EXPENSES)INCOME
- Selling, general and administrative		$	463,848			$	413,120			$	(50,728	)			1
- Total operating expense		$	780,797			$	730,545			$	(50,728	)			1
- Loss from operations		$	(778,273	)		$	(730,069	)		$	50,728				1
- Gain/loss from derivative liability		$	(142,509	)			0				142,509				1
-Accretion of debt discount		$	(78,109	)		$	(90,050	)		$	(11,941	)			1
-Financing costs related to debt discount		$	0			$	(61,195	)		$	(61,195	)			1
- Beneficial conversion feature on loan		$	(212,000	)		$	(318,439	)		$	(106,439	)			1
-Total other income		$	(453,863	)		$	(490,929	)		$	(37,066	)			1
-Net loss		$	(1,232,136	)		$	(1,218,474	)		$	13,662				1
STATEMENT OF CASH FLOWS
Quarter ended March 31, 2010
-Net loss at March 31, 2010		$	(1,232,136	)		$	(1,218,474	)		$	13,662				1
-Derivative liability		$	142,509			$	0			$	(142,509	)			1
-Accretion of debt discount		$	78,109			$	90,050			$	11,941				1
-Financing costs related to debt discount		$	0			$	61,195			$	61,195				1
- Beneficial conversion feature on loan		$	212,000			$	318,439			$	106,439				1
-Decrease (increase) in prepaid and other		$	(53,385	)		$	(8,113	)		$	45,272				1
Net cash flows used in operating Activities		$	(877,799	)		$	(781,799	)		$	96,000				1
-Payment of loan costs		$	0			$	(96,000	)		$	(96,000	)			1
Net cash flows from financing activities		$	1,010,355			$	914,355			$	(96,000	)			1

 

REFERENCE

1  Correct a classification of warrants as equity with no derivative liability

2  Prior period posting errors relating to accounts payable

 

Item 2: Management’s Discussion and Analysis

 

The following discussion should be read and considered along with our consolidated financial statements and related notes included in this 1O-Q/A. These financial statements were prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in these forward-looking statements as a result of various factors including those set forth in the “Risk Factors” section of our Form 10-K/A filing for December 31, 2010.

 

Business Development Overview

 

Viper Powersports Inc., formerly ECCO Capital Corporation (“ECCO”), was incorporated in Nevada in 1980 under a former name. ECCO ceased all active operations in 2001 and remained inactive until its stock exchange acquisition of Viper Motorcycle Company in early 2005, incident to which it changed it name to Viper Powersports Inc.

 

Effective March 31, 2005, Viper Powersports Inc. acquired all of the outstanding capital stock of Viper Motorcycle Company, a Minnesota corporation, resulting in Viper Motorcycle Company becoming a wholly-owned subsidiary of Viper Powersports Inc. For accounting and operational purposes, this acquisition was a recapitalization conducted as a reverse acquisition of Viper Powersports Inc. with Viper Motorcycle Company being regarded as the acquirer. Consistent with reverse acquisition accounting, all of the assets, liabilities and accumulated deficit of Viper Motorcycle Company are retained on our financial statement as the accounting acquirer. Since Viper Powersports Inc. had no assets or liabilities at the time of this acquisition, its book value has been stated as zero on the recapitalized balance sheet. The stock exchange for this reverse acquisition was affected on a one-for-one basis, resulting in the stockholders of Viper Motorcycle Company exchanging all of their outstanding capital stock for an equal and like amount of capital stock of Viper Powersports Inc. This resulted in the former shareholders of Viper Motorcycle Company acquiring approximately 94% of the resulting combined entity.

 

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

 

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

 

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

 

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

 

After undergoing an extensive engine emissions testing program for an entire year conducted by a leading independent test laboratory in 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 commenced commercial marketing, very limited production and commercial shipment of Viper motorcycles in 2009, and we currently hold material orders from our Viper first class motorcycle dealers. Our current firm orders from Viper dealers exceed 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.

 

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 prototype models of this engine based on specifications jointly developed by Ilmor and Viper. Under a payment schedule extending through November 2012, the Company will pay Ilmor a total of $745,000 for the design, development and testing of this V-Twin engine. Ilmor will be paid upon reaching certain milestones and successful first article testing at each phase. If Ilmor is not paid upon reaching certain design and manufacturing milestones then Ilmor has the right to demand full payment or the various patents involved in the engine design would become Ilmor’s property. Ilmor also reserves the right to renegotiate the terms of payment from the Company. The Company is current on all payments to Ilmor under this contract.

 

The Company has approved and is well satisfied with the most recent prototype of the Ilmor-designed Viper engine, and accordingly has ordered considerable commercial Ilmor engines which are now being delivered. Ilmor agrees to manufacture and supply all V-Twin requirements of Viper and in turn Viper must purchase all its engines exclusively from Ilmor. Ilmor will bear the cost and expense of all tooling, parts and components to manufacture and supply Viper engines until finished engines are invoiced and shipped to the Company. So long as Viper satisfies certain minimum annual engine purchase requirements, Ilmor shall not develop, manufacture or sell a similar V-Twin engine for itself or any third party.

 

These Ilmor-designed Viper engines 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.

 

Plan of Operation

 

Our long-term business strategy or goal is to become a leading developer and supplier of premium V-Twin heavyweight motorcycles, V-Twin engines, and ancillary motorcycle aftermarket products. In implementing this strategy, we intend to execute the following matters for the next twelve months:

 

Continue commercializing the Diamondback & Mamba – Our primary focus during 2011 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 development and testing of our Mamba model to offer the Mamba and a Viper three-wheeled “trike” in order to offer the Mamba commercially as soon as possible in 2011 and the “trike” soon there after.

 

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 2011, we intend to commence marketing and sales of a variety of ancillary products under our Viper brand, particularly in the large custom cruiser aftermarket. We expect our primary aftermarket sales will be our line of powerful Viper V-Twin engines, and by 2011 we anticipate obtaining substantial revenues from Viper engine sales in this active aftermarket. We also will outsource production of ancillary Viper items from third-party suppliers including various motorcycle parts and accessories, apparel, and other Viper branded merchandise. For example, we have obtained a source to provide us with a line of Viper branded apparel. Our ancillary Viper products will be sold through multiple marketing channels including Viper dealers, independent aftermarket catalogs and our website.

 

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

 

Operational Overview

 

During 2007 the Company commenced limited commercial marketing and production of its motorcycles. Incident thereto, in November 2007 the Company retained a licensed emissions certification laboratory to test its motorcycles and engines and certify its test results for compliance with the emission standards promulgated by the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB). This independent test process was successfully completed in July 2008, and the Company received its official certification from the Environmental Protection Agency on December 4, 2008.

 

In October 2008, we relocated all of our operations and administration functions from Big Lake, MN to Hopkins, MN, a suburb of Minneapolis. We lease our current Hopkins facility under a written 3 year lease at a monthly rental of $7,600 not including utilities. The facility occupies 9,000 square feet in a modern one-story light industrial building.

 

The Company is in the process of relocating its entire headquarters and manufacturing operations from Hopkins, Minnesota to Auburn, Alabama. When this move is completed, which is anticipated during the summer of 2011, the Company will lease and occupy a modern state-of-the-art facility in Auburn which is currently being upgraded and customized to suit all of our motorcycle development, marketing, production and administrative functions. This Auburn facility includes 63,000 square feet with ample future expansion capability. The Company has already received support for this upcoming relocation from the City of Auburn and the State of Alabama in the promise of a $200,000 equipment loan.

  

Results of Operations

 

Revenues

 

Since our 2002 inception, we have generated total revenues of $1,125,635 some of which occurred in 2004 before we discontinued offering a motorcycle with a non-proprietary engine. We anticipate that our future revenues for the next 12 months will be primarily from sale of Viper cruisers, although we expect to begin obtaining sales of our proprietary engines in the aftermarket by the fourth quarter of 2011. We anticipate receiving additional revenues from our planned line of custom parts and accessories for the motorcycle aftermarket as well as our Viper branded apparel and other merchandise.

 

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

 

 Operating Expenses

 

From our inception in November 2002 through March 31, 2011, we have incurred total operating expenses of $34,482,583 including $6,032,004 of research and development expenses and $20,869,262 of selling, general and administrative expenses.

 

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

 

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

 

Comparison of Quarter Ended March 31, 2011 to Quarter Ended March 31, 2010.

 

Revenues and Gross Profit

 

There was $35,773 of motorcycle and parts revenue for the first quarter of 2011 as compared to $20,975 for the same period 2010. There was only one bike sold during the first quarter of 2011 as compared to one bike in the same period of 2010.

 

 Research and Development Expenses

 

Research and development expenses were $1,205 for the first quarter of 2011, down from $316,949 for the same period 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 activities.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses increased to $512,974 for the first quarter of 2011 from $413,120 for the same period of 2010. Our selling and general administrative expenses increased due to the increase of financing consulting charges related to warrant pricing.

  

Loss from operations

 

Operational loss for the first quarter of 2011 was $521,893 compared to $727,545 for the same period in 2010. This decreased loss in the first quarter of 2011 was due primarily from the shift from development cost with Ilmor Engineering to improve our V-Twin engine to production related activities.

 

Interest expense

 

Interest expense for the first quarter of 2011 was $23,676 compared to $21,313 for the same period in 2010. This slight increase during the 1st quarter of 2011 was due to securing equity financing to replace loans for operations and inventory.

 

No income tax benefit was recorded regarding our net loss for the 1st quarters of 2011 and 2010; since we could not determine that it was more likely than not that any tax benefit would be realized in the future.

 

Since we are beginning commercial operations, our operations are subject to all of the risks inherent in the development of a new business enterprise, including the ultimate risk that we may never commence full-scale operations or that we may never become profitable. We do not expect to make material shipments of our motorcycles to dealers until spring of 2011. Our historic spending levels are not indicative of future spending levels since we are entering a period requiring increased spending for commercial operations including significant inventory purchases, increased marketing and dealer network costs, and additional general operating expenses. Accordingly, our losses could increase until we succeed in generating substantial product sales, which may never happen.

 

The Company currently employs 7 persons including our management, development, marketing and administrative personnel. We expect to hire 2-5 assembly and administrative personnel during 2011 to support our anticipated commercial production and sales of Viper cruisers. Other than these additional anticipated personnel, we do not anticipate needing any additional personnel during the next twelve months. None of our employees belongs to a labor union, and we consider our relationship with our employees to be good.

 

Liquidity and Capital Resources

 

Since our inception, we have financed our development, capital expenditures, and working capital needs through sale of our common stock to investors in private placements and substantial loans from our principal shareholders. We raised a total of approximately $12 million through the sale of our common stock in private placements, and in excess of $6.4 million through loans from our principal shareholders.

 

As of March 31, 2011, we had cash resources of $21,811, total liabilities of $764,862, and a negative working capital position of $455,049.

 

Future Liquidity

 

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

 

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

 

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

 

Cash Flow Information

 

Net cash consumed by operating activities was $378,868 during the three months ended March 31, 2011 compared to consuming cash in the amount of $781,799 for the same period in 2010. There was cash used in investing activities for the first quarter of 2011 of $11,550 as compared to no cash used during the same period in 2010. Cash generated from financing activities for the three months ended March 31, 2011 was $396,650 compared to $914,355 for the same period in 2010. There was less debt financing for this period than in the same period of 2010.

 

Business Seasonality

 

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

 

Recent Accounting Pronouncements

 

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU No. 2011-02 amends the guidance within ASC Topic 310, “Receivables” to clarify how creditors determine when a restructuring constitutes a troubled debt restructuring. In addition, ASU No. 2011-02 clarifies the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties even though the debtor may not be in payment default.

 

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 clarifies the application of existing guidance within ASC Topic 820, “Fair Value Measurement” to ensure consistency between U.S. GAAP and IFRS. ASU No. 2011-04 also requires new disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements and also requires new disclosures around transfers into and out of Levels 1 and 2 in the fair value hierarchy. The Company is required to adopt ASU No. 2011-04 beginning in the first quarter of 2012 and is currently evaluating the impact the new disclosure requirements will have on its financial statements and notes.

 

In September 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 amends the guidance within ASC Topic 220, “Comprehensive Income” to eliminate the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. ASU No. 2011-05 requires that all nonowner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company is required to adopt ASU No. 2011-05 beginning in the first quarter of 2012 and the adoption of ASU No. 2011-05 will only impact the format of the current presentation.

 

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

 

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q/A contains “forward-looking statements.” Statements expressing expectations regarding our future and projections we make relating to products, sales, revenues and earnings are typical of such statements. All forward-looking statements are subject to the risks and uncertainties inherent in attempting to predict the future. Our actual results may differ materially from those projected, stated or implied in our forward-looking statements as a result of many factors, including, but not limited to, our overall industry environment, customer and dealer acceptance of our products, effectiveness of our dealer network, failure to develop or commercialize new products, delay in the introduction of products, regulatory certification matters, production and or quality control problems, warranty and/or product liability matters, competitive pressures, inability to raise sufficient working capital, general economic conditions and our financial condition.

 

Our forward-looking statements speak only as of the date they are made by us. We undertake no obligation to update or revise any such statements to reflect new circumstances or unanticipated events as they occur, and you are urged to review and consider all disclosures we make in this and other reports that discuss risk factors germane to our business, including those risk factors in our Form 10-K/A for the period ended December 31, 2010.

 

Item 3. Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

As of March 31, 2011, management assessed the effectiveness of our internal control over financial reporting. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company's Principal Executive Officer and Chief Financial Officer and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America and includes those policies and procedures that:

i)

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;

ii)

Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors;

iii)

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

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

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

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our financial statements as of March 31, 2011.

 

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

 

Changes in internal controls

 

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

 

PART II - OTHER INFORMATION

 

Item 6. Exhibits

 

See Index of Exhibits.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duty authorized.

 

 

		VIPER POWERSPORTS INC.
		By:	/s/ Timothy C. Kling
			Timothy C. Kling Principal Financial Officer

 

 

May 8, 2012

Auburn, Alabama

 

VIPER POWERSPORTS INC.

INDEX TO EXHIBITS

 

Form 10-Q/A for Quarter Ended March 31, 2011

Commission File No. 000-51632

 

 

Exhibit
Number	Description
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002