UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1O-Q

 

 

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

 

For the quarterly period ended March 31, 2012

 

Commission File No. 000-51632

 

VIPER POWERSPORTS INC.

(Exact name of registrant as specified in its charter)

 

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

 

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

 

(334) 887-4445

(Issuer’s telephone number)

 

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No ¨

 

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

 

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

 

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

 

The number of shares of common stock outstanding was 46,752,303 as of May 9, 2012.

 

 

TABLE OF CONTENTS

  

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			1
Item 2. Management’s Discussion and Analysis			7
Item 4. Controls and Procedures			13
PART II: OTHER INFORMATION
Item 6. Exhibits			14
SIGNATURE:			15
INDEX TO EXHIBITS			16
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

 

 

PART 1: FINANCIAL INFORMATION

 

Item 1:  Financial Statements

Viper Powersports Inc.

Consolidated Balance Sheets

 

		March 31, 2012				December 31, 2011
ASSETS		(unaudited)
Current assets
Cash		$	9,281			$	27,896
Accounts receivable			6,553				8,803
Inventory and supplies			476,709				523,174
Prepaid expenses and other assets			74,043				101,602
Total current assets			566,586				661,475
Fixed assets:
Office and computer equipment			96,733				96,733
Manufacturing and development equipment			242,835				242,835
Vehicles			248,937				248,937
Leasehold improvements			63,363				63,363
Subtotal			651,868				651,868
Accumulated depreciation			(168,574	)			(140,715	)
Total fixed assets			483,294				511,153
Other assets:
Rental deposit			13,400				13,400
Total other assets			13,400				13,400
Total assets		$	1,063,280			$	1,186,028
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable		$	209,744			$	222,319
Accrued liabilities			167,946				205,091
Notes payable, short-term net of discount			225,000				233,621
Notes payable – related party, net of discount			454,933				175,111
Current portion of long-term liabilities			100,000				100,000
Total current liabilities			1,157,623				936,142
Long-term liabilities
Note payable			170,000				170,000
Total long-term liabilities			170,000				170,000
Total liabilities			1,327,623				1,106,142
Stockholders' equity (deficit)
Preferred stock; $0.001 par value; 20,000,000  shares authorized,      366,668 and 1,386,469 issued and outstanding, respectively			367				1,386
Common stock; $0.001 par value; 100,000,000  shares authorized,      33,683,174 and 28,692,252 issued and outstanding, respectively			33,683				28,692
Additional paid-in capital			41,261,113				40,812,394
Accumulated deficit			(41,559,506	)			(40,762,586	)
Total Stockholders' Equity (Deficit)			(264,343	)			79,886
Total liabilities and stockholders' equity (deficit)		$	1,063,280			$	1,186,028

 

See accompanying notes to the financial statements

 

 

Viper Powersports Inc.

Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended
		March 31, 2012				March 31, 2011
Revenue		$	74,172			$	35,773
Cost of revenue			83,412				43,487
Gross profit:			(9,240	)			(7,714	)
Operating Expense:
Research and development costs			30,247				1,205
Selling, general and administrative			605,875				512,974
Total operating expense:			636,122				514,176
Loss from operations:			(645,362	)			(521,893	)
Other (expenses) income:
Interest expense			(101,426	)			(23,676	)
Gain on extinguishment of debt			30,356				0
Accretion of debt discount			(80,488	)			0
Total other (expense) income:			(151,558	)			(23,676	)
Net loss:		$	(796,920	)		$	(545,569	)
Net Loss Per common share:
Basic and diluted		$	(0.03	)		$	(0.03	)
Weighted average shares
Common stock outstanding			30,765,090				18,154,260

 

 

See accompanying notes to the financial statements.

 

 

Viper Powersports Inc.

Consolidated Statement of Cash Flows

(Unaudited)

 

		Three Months Ended
		March 31,2012				March 31,2011
Cash Flows Used in Operating Activities:
Net loss		$	(796,920	)		$	(545,569	)
Expenses not requiring an outlay of cash:
Depreciation			27,859				6,606
Common stock and warrants issued for compensation and services			162,971				181,675
Accretion of debt discount			80,488				0
Gain on extinguishment of debt			(30,356	)			0
Interest incurred and paid with warrants			43,289				0
Changes to operating assets and liabilities:
Decrease (increase) in accounts receivable – net of bad debts			2,250				(6,240	)
Decrease (increase) in inventory and supplies – net of obsolescence			46,465				(17,902	)
Decrease (increase) in rental deposits			0				(13,400	)
Decrease (increase) in prepaids			27,559				(600	)
Increase (decrease) in accounts payable			(12,575	)			18,511
Increase (decrease) in accrued liabilities			(37,145	)			(1,949	)
Cash flows used in operating activities			(486,115	)			(378,868	)
Cash flows Used in Investing Activities:
Purchase of fixed assets			0				(11,550	)
Cash flows used in investing activities			0				(11,550	)
Cash Flows from Financing Activities:
Net proceeds from sale of stock			93,500				396,700
Proceeds from notes payable			25,000				0
Payments on notes payable			(65,000	)			(50,050	)
Payments on loans from related parties			(7,000	)			0
Proceeds from loans from related parties			421,000				50,000
Cash flows from financing activities			467,500				396,650
Net increase (decrease) in cash			(18,615	)			6,232
Cash at beginning of period			27,896				15,579
Cash at end of period		$	9,281			$	21,811
Supplemental Non-Cash Financing Activities and Cash Flow Information:
Common shares converted from preferred shares			3,824				0
Preferred shares converted into common shares			(1,020	)			0

 

 

 

See accompanying notes to the financial statements

 

 

Viper Powersports Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

 

A. Basis of Presentation

 

The consolidated balance sheet as of March 31, 2012, the consolidated statements of operations for the three month periods ended March 31, 2012 and 2011 and the consolidated statements of cash flows for the three month periods ended March 31, 2012 and 2011 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, 2012 and results of operations and cash flows for the three month periods ended March 31, 2012 and 2011 presented herein have been made.

 

In prior periods, the Company reported as a development stage company. The Company has now elected to discontinue this presentation as it has started its production of premium V-Twin cruiser motorcycles.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2011.

 

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 $591,037 as of March 31, 2012. 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 three months ended March 31, 2012, the Company issued 666,666 shares of common stock for $100,000 in cash.

 

During the three months ended March 31, 2012, 1,019,801 Preferred Shares have been converted into 3,824,255 common shares.

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.

 

D. Stock for Services

 

During the three months ended March 31, 2012, the Company issued 500,000 shares of common stock for $135,000 of services. The market closing price on this date was used to value the stock issued for services.

 

E. Warrants for Services

 

During the three months ended March 31, 2012, the Company issued 100,000 warrants for shares of common stock for $27,971 of services.

 

F. Loans:

 

The Company entered into two 180-day loan agreements for $100,000 each from January 1, 2012 through March 31, 2012. These loans are convertible and carry a 12.0% interest rate. Each agreement also required the Company to issue 650,000 warrants to purchase the applicable number of shares of common stock at $.15 per share. The Company valued the warrants issued using the Black-Scholes model. The relative fair value method was used to allocate the proceeds between the warrants and the loans, resulting in some debt discount, which is then accreted over the life of the loans. Any remaining unamortized debt discount at the time of conversion has been accreted to financing cost.

 

On March 15, 2012, the Company repaid the Convertible Promissory Note to Asher Enterprises, Inc. with a principal amount of $65,000 with accrued interest and prepayment option fees. The discounted carrying value on the Balance Sheet was $33,622.

 

 

Viper Powersports Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

 

The Company entered into three (3) short-term loan agreements for a total of $214,000 with related parties from January 1, 2012 through March 31, 2012. The instruments are non-interest bearing.

 

On March 22, 2012, the Company received $25,000 from an accredited investor from a private placement. As of the date of this statement, the shares were not issued and were classified as a payable.

 

G. Subsequent Events

 

The Company has evaluated subsequent events from March 31, 2012 through the date the financial statements were issued and determined that there is the following events to disclose.

 

Loans:

 

On April 24, 2012, Viper Motorcycle Company (“VMC”), as Borrower and being a wholly owned subsidiary of registrant Viper Powersports Inc., entered into a Loan and Security Agreement (the “Loan Agreement”) with Precious Capital LLC , of New York City, as Lender. The Loan Agreement provides funding through advances to VMC under a line of credit not to exceed $6,000,000, with interest on outstanding principal payable at an annual rate of 15% per annum. All outstanding principal of this loan and any accrued interest is due to Lender in full thirty-six (36) months from the date of the Loan Agreement. The outstanding principal of this loan may be prepaid by VMC, in whole or in part, at any time.

 

•	Upon closing this loan, VMC received an initial loan advance of $2,500,000.  The Loan Agreement required the funds from this initial advance to be used by VMC as follows:  payment of outstanding debt of $280,000 including $80,000 owed to a director of the Company;  payment of $640,000 to acquire the assets and business of PMFR, a manufacturer and marketer of high performance  motorcycle components based in suburban Minneapolis;  prepaid payment of loan interest to the Lender of $375,000; payment of $330,000 to complete acquiring engine development IP technology from Ilmor; payment not to exceed $450,000 for manufacturing equipment and tooling and completing two high quality production paint booths;  payment of $180,000 for loan brokerage commissions;  payment not to exceed $128,000 for motorcycle components inventory and other immediate operational expenditures;  and the balance for miscellaneous permitted expenditures  including payment of professional and other expenses of VMC and the Lender related to this loan transaction and its closing.
•	Under the terms of the Loan Agreement, any further advances to VMC beyond the initial $2,500,000 shall be in the Lender’s sole and absolute discretion, and no advance may be requested by VMC after April 24, 2014.  The loan terms also require that at no time shall the outstanding balance of this loan exceed a “Balancing Formula” as defined in the Loan Agreement, which formula basically represents 60% of the values of certain defined tangible and intangible assets of VMC and the Company.
•	To provide the required collateral for this loan, both VMC and the Company entered into various security, pledge and guaranty agreements to guarantee payment to the Lender and secure the Lender with all tangible and intangible assets of VMC and the Company as set forth in the Loan Agreement and its supporting documents, including the Company’s 100% ownership of VMC.  In addition, the future payment to the Lender of all outstanding principal and accrued interest of this loan was guaranteed unconditionally by the Chief Executive Officer and Chief Financial Officer of the Company.
•	The Loan Agreement, which is filed as an exhibit hereto, also contains numerous representations, warranties and covenants of VMC, detailed terms for the opening and operation of certain banking Special Deposit Accounts as required by the Lender, default provisions and other standard loan contract provisions.
•	As an inducement to the Lender to make this loan to VMC, the Company issued a total of 9,694,128 unregistered shares of its common stock to the Lender, which common shares were offered and sold by the Company in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended.
•	The Loan Agreement also provides that none of the common stock of the Company owned by the Lender or by the Chief Executive Officer and Chief Financial Officer of the Company can be sold or otherwise disposed of during the three-year term of this loan.

 

 

Viper Powersports Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

 

Common Stock Transactions:

 

During the period from March 31, 2012 through the filing date, the Company issued 2,500,001 shares of common stock and 145,000 in warrants under a private placement for $375,000 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.

 

During the period from March 31, 2012 through the filing date, 233,333 Preferred Shares have been converted into 874,999 common shares. 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.

 

During the period from March 31, 2012 through the filing date, the Company issued 3,681,668 shares of unregistered common stock to seven accredited investors in consideration for their conversion of debt and other financial obligations owed to them by the Company in the total amount of $552,250.

 

Warrants for Services:

 

During the period from March 31, 2012 through the filing date, the Company issued 30,000 warrants for shares of common stock for $4,500 of services. 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 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.

 

 

Item 2: Management’s Discussion and Analysis

 

The following discussion should be read and considered along with our consolidated financial statements and related notes included in this 1O-Q. These financial statements were prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in these forward-looking statements as a result of various factors including those set forth in the “Risk Factors” section of our Form 10-K filing for December 31, 2011.

 

Business Development Overview

 

Viper Powersports Inc., formerly ECCO Capital Corporation (“ECCO”), was incorporated in Nevada in 1980 under a former name. ECCO ceased all active operation in 2001 and remained inactive until its stock exchange acquisition of Viper Motorcycle Company in early 2005, incident to which it changed 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 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 commenced commercial marketing, very limited production and commercial shipment of Viper motorcycles in 2009, and we currently hold material orders from our Viper dealer base of fifteen first class motorcycle dealers. Our current firm orders from Viper dealers exceed our remaining available production capacity for 2012.

 

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 were 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 the production model of this engine based on specifications jointly developed by Ilmor and Viper. The Company paid Ilmor a total of $745,000 for the design, development and testing of this V-Twin engine. Ilmor was paid upon reaching certain milestones and successful testing. If Ilmor is not paid upon reaching certain 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 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.

 

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 2012 is 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 2012 and the “trike” soon thereafter.

 

Expansion of Distribution Network – We will continue to identify and recruit qualified independent motorcycle dealers to become Viper dealers until we achieve our goal of having a nationwide network of Viper dealers. We will only select full-service dealers which we determine possess a successful V-Twin motorcycle sales history, a solid financial condition, a good reputation in the industry, and a definite desire to sell and promote Viper products. We also intend to commence initial efforts to enter overseas foreign markets including identifying effective overseas motorcycle distributors and attracting them to our products and Viper brand.

 

Expansion of Sales and Marketing Activities – We will continue and expand upon our marketing activities which are primarily focused toward supporting our dealer network and building Viper brand awareness. We will participate in leading consumer and dealer trade shows, rallies and other motorcycle events. We also will engage in ongoing advertising and promotional activities to develop and enhance the visibility of our Viper brand image.

 

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 in 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.

 

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, the Company relocated its operations and administration functions from Big Lake, MN to Hopkins, MN, a suburb of Minneapolis. In July 2011, the Company relocated its entire headquarters and manufacturing operations from Hopkins, Minnesota to Auburn, Alabama. The Company now leases a modern facility in Auburn for all of our motorcycle development, marketing, production and administrative functions. This facility contains 63,000 square feet with ample future expansion capability

 

 

Results of Operations

 

Revenues

 

We anticipate that our future revenues for the next 12 months will be from the sale of Viper super-cruisers, although we expect to begin obtaining sales of our proprietary engines in the aftermarket by the fourth quarter of 2012. We anticipate receiving additional revenues from our planned line of custom parts and accessories for the motorcycle aftermarket as well as our Viper branded apparel and other merchandise.

 

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

 

Operating Expenses

 

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

 

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

 

Comparison of Quarter Ended March 31, 2012 to Quarter Ended March 31, 2011.

 

Revenues and Gross Profit

 

There was $74,172 of motorcycle and parts revenue for the first quarter of 2012 as compared to $35,773 for the same period of 2011. There were two bikes sold during the first quarter of 2012 as compared to one bike during the same period of 2011.

 

Research and Development Expenses

 

There was $30,247 of research and development for the first quarter of 2012 as compared to $1,205 for the same period of 2011. This increase was due to increased development expense as the Company moved to finalize and produce its new model.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses increased to $605,875 for the first quarter of 2012 from $512,974 for the same period of 2011. Our selling and general administrative expenses were increased as a result of increases in salaries and leasehold costs over the prior period.

 

Loss from operations

 

Operational loss for the first quarter of 2012 was $645,362 compared to $521,893 for the same period of 2011. This increased loss in the first quarter of 2012 was due to increased operational costs as the Company moves into a production company.

 

Interest expense

 

Interest expense for the first quarter of 2012 was $101,426 compared to $23,676 for the same period of 2011. This increase was due to the various debt discount and loan conversion costs.

 

No income tax benefit was recorded regarding our net loss for the first quarters of 2012 and 2011; since we could not determine that it was more likely than not that any tax benefit would be realized in the future.

 

We currently employ 11 persons including our management, development, marketing and administrative personnel. We expect to hire 2-5 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.

 

 

Liquidity and Capital Resources

 

As of March 31, 2012, we had cash resources of $9,281, total liabilities of $1,327,623, and a negative working capital position of $591,037.

 

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 on our audited financial statements as of December 31, 2011 and for the year then ended 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 $486,115 during the first quarter of 2012 compared to consuming cash in the amount of $378,870 for the same period of 2011. There was zero cash used or generated from investing activities for the first quarter of 2012 as compared to $11,550 cash used during the same period of 2011. Cash generated from financing activities for the first quarter of 2012 was $467,500 compared to $396,652 for the same period of 2011.

 

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 December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013. The adoption of this ASU is not expected to have a material impact on the Company’s disclosures to the consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

 

Forward-Looking Statements

 

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

 

Our forward-looking statements speak only as of the date they are made by us. We undertake no obligation to update or revise any such statements to reflect new circumstances or unanticipated events as they occur, and you are urged to review and consider all disclosures we make in this and other reports that discuss risk factors germane to our business, including those risk factors in our Form 10-K for the period ended December 31, 2011..

 

 

Item 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

As of March 31, 2012, 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, 2012.

 

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 11, 2012

Auburn, Alabama

 

 

VIPER POWERSPORTS INC.

INDEX TO EXHIBITS

 

Form 10-Q for Quarter Ended March 31, 2012

Commission File No. 000-51632

 

 

Exhibit
Number	Description
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	Definition Linkbase Document
101.LAB	Label Linkbase Document
101.PRE	Presentation Linkbase Document