# UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-KSB

---

xANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
 Act of 1934 for the Year Ended December 31, 2006.

oTRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
 Act of 1934 for the transition period from ______ to ______.

---

VIPER POWERSPORTS INC.
(Name of Small Business Issuer in its charter)

|Nevada                                                         | 41-1200215              
|-------------------------------------------------------------- | ------------------------
|(State or other jurisdiction of
Incorporation or organization) | (IRS Employer ID Number)

|19950 177th St., Suite F
Big Lake, MN    | 55309     
|---------------------------------------- | ----------
|(Address of principal executive offices) | (Zip Code)

(763) 263-5700(Issuers Telephone Number)

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

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

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

---

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
xNoo

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

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes
oNox

State issuers revenue for its most recent fiscal year:
NONE

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of a specified date
within the past 60 days. $9,879,456 as of March 30, 2007.

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date. 14,549,481 Common Shares as of March 30, 2007.

Transitional Small Business Disclosure Format (check one): YES
oNOx





---

TABLE OF CONTENTS

|PART I  
|--------
|
|        
|Item 1. 
|        
|Item 2. 
|        
|Item 3. 
|        
|Item 4. 
|        
|        
|PART II 
|        
|Item 5. 
|        
|Item 6. 
|        
|Item 7. 
|        
|Item 8. 
|        
|Item 8A.
|        
|Item 8B.
|        
|        
|PART III
|        
|Item 9. 
|        
|Item 10.
|        
|Item 11.
|        
|Item 12.
|        
|Item 13.
|        
|Item 14.
|        
|        
|        
|        
|        
|        

---

PART I

Item 1.   Description of Business

BUSINESS DEVELOPMENT

Viper Powersports Inc. is the
successor to ECCO Capital Corporation (ECCO), which was incorporated in Nevada in 1980 under a former name. Prior to
2001, ECCO was actively engaged for years in the business of leasing used automobiles to individuals with subprime credit ratings.
Because of its inability to achieve profitability, ECCO ceased all active operations in 2001. ECCO remained inactive until its
stock exchange acquisition of Viper Motorcycle Company in early 2005, incident to which it changed its name to Viper Powersports
Inc. on March 11, 2005.

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, the acquisition was a recapitalization conducted as a reverse acquisition of Viper Powersports Inc.,
with Viper Motorcycle Company being regarded as the acquirer. Accordingly, our financial statements reflecting this
reverse acquisition have been prepared to give retroactive effect to the incorporation of Viper Motorcycle Company on November 18,
2002 and represent the operations of Viper Motorcycle Company since its inception. Consistent with reverse acquisition accounting,
all of the assets, liabilities and accumulated deficit of Viper Motorcycle Company are retained on our financial statements as the
accounting acquirer. Since Viper Powersports Inc. had no assets or liabilities upon the effectiveness of the reverse acquisition,
its book value has been stated at zero on our recapitalized balance sheet. The stock exchange for the
reverse acquisition was effected on a one-for-one basis, resulting in the stockholders of Viper Motorcycle Company exchanging all
of their capital stock for a like amount of capital stock of Viper Powersports Inc. Viper Powersports Inc. issued 8,378,324 shares
of common stock and 783,000 shares of preferred stock to shareholders of Viper Motorcycle Company, valued at a total of $7,579,800
based on the book value of Viper Motorcycle Company on the date of acquisition. This resulted in the former shareholders of Viper
Motorcycle Company acquiring approximately 94% of the resulting combined entity.

Viper Performance Inc. is
also a wholly-owned subsidiary of Viper Powersports Inc. Viper Performance Inc. was incorporated in Minnesota in March 2005 for
the purpose of receiving and holding engine development technology and assets acquired by Viper Powersports Inc. effective March
31, 2005.

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.

In 2004 we produced and sold
to our initial dealers a preliminary run of our initial cruiser model powered by a non-proprietary engine, consisting of 25
motorcycles which generated revenues of approximately $600,000. We then discontinued any further production operations in order to
concentrate on acquiring proprietary motorcycle engine technology so that we could have our own engines to power all Viper
motorcycles, as well as to complete certain other material enhancements to our initial cruiser. We completed the development and
extensive testing of our proprietary V-Twin engines in late 2005 and further actual performance testing of the engines on our
motorcycles during 2006. We have been very satisfied with their performance while
powering our cruisers during all kinds of street and highway running conditions.

We have recently ordered all
parts and components necessary to begin our commercial production assembly operations and shipments to dealers of Viper
motorcycles by May 2007. Many of these materials have already been delivered to us and stored in our inventory cage area. We
currently hold approximately 70 orders from our dealers for Viper motorcycles.

1

---

Purchase of Engine Development Technology

Our proprietary engine
development technology was purchased effective March 31, 2005. These strategic assets were acquired from Thor Performance Inc.,
(Thor) a Minnesota corporation in exchange for 2,996,575 shares of common stock of Viper Powersports Inc. issued to
Thor. Related parties of our company own a substantial majority of Thor. See Certain Relationships and Related
Transactions.

Motorcycle technology
acquired by us in this strategic asset purchase included designs and prototypes for three V-Twin engines and other motorcycle
engines, related motorcycle component development, and a commitment to complete engine development still in progress which was
completed by June 2005. Our proprietary engine development technology was designed and developed by Melling Consultancy Design
(MCD), a leading engine design and development firm based in England.

Recent Restructuring

During the first half of 2006,
the Company expended extensive time, efforts and capital in attempting to effect a substantial public offering of its securities,
including underwriter due diligence matters, preparation of and submission to the SEC of a registration statement for the public
offering, and other related activities. After devoting substantial time and resources toward placing this offering in the summer
of 2006, it was terminated primarily due to the inability to create enough brokerage partcipation to complete the offering because
of deteriorating stock market conditions at the time.

We anticipated commencing
commercial production and sales of Viper motorcycles during the second half of 2006, but then were unable to due to lack of
working capital after the proposed public offering of our securities was unsuccessful. We then engaged in a six-month major
restructuring of our Company in order to continue our business, which we successfully completed in early 2007.

Our recently completed
 capital restructuring of the Company primarily included the following transactions:

i) Secured Debt
Conversion -    In late 2006 we satisfied $513,356 of principal and accrued interest owed to a Noteholder,
which Note was secured by all assets of the Company. This Note was satisfied and the related security interest released through
conversion into our common stock on the basis of $.75 per share.

ii) Unsecured Debt
Conversions -    In December 2006, we satisfied a total of $2,237,836 of outstanding debt (including accrued
interest) owed to various Noteholders through conversion into our common stock on the basis of $1.25 per share.

iii) Preferred Stock Conversions
-    In December 2006 we also converted all of our outstanding 8% Preferred Stock (stated value of $2.50 per
share) and related accrued dividends into common stock of the Company on the basis of $1.25 per share, which included outstanding
preferred shares of an aggregate stated value of $1,957,500 plus accrued dividends of $261,286.

iv) Credit Facility
-    In January 2007 we obtained a credit facility from a banking institution in the amount of $250,000, which was
established for the purpose of purchasing inventory parts and components for commercial production of Viper motorcycles. This
credit facility was guaranteed by a director of the Company.

v) Private Placement
-    From December 2006 through March 2007 we raised a total of $961,250 through a private placement of our common
stock to accredited investors at a purchase price of $.75 per share. Proceeds of this private offering have been and are being
used for working capital and general corporate purposes.

Corporate Data

The address of the Company is
19950 177th St., Suite F, Big Lake, MN 55309; its phone number is (763) 263-5700; and its website
address is www.viperpowersports.com.

BUSINESS OF COMPANY

We develop and produce
proprietary motorcycle products targeted toward consumers who purchase upscale luxury products. Any material revenues we generate
initially will be from sale of our Diablo and Diamondback cruisers. Additional anticipated sources of revenues include our Mamba
model scheduled for commercial introduction in late 2007, our touring model in 2008, aftermarket sales of our proprietary V-Twin
engines, and sales of ancillary Viper motorcycle products including aftermarket custom parts and accessories and Viper branded
apparel and other merchandise.

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

2

---

Our Market

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

- standard, which emphasize simplicity and low cost;
- performance, which emphasize handling and speed;
- touring, which emphasize rider comfort and long distance travel; and
- cruisers, which are designed to facilitate customization by owners.

According to publicly
available information contained in annual reports of our competitors, we believe that annual sales of heavyweight motorcycles in
the U.S. have increased from under 100,000 in 1992 to over 500,000 in 2006. Furthermore, we believe that U.S. sales of heavyweight
motorcycles have increased materially each and every year of this 1992-2006 period. We also believe that premium motorcycles have
become popular and well-accepted luxury recreational motorsports products.

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

Our Motorcycles

Viper
Diablo

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

Premium components and distinctive
features of the Diablo include:

- a powerful, billet-cut proprietary V-Twin engine;
- our unique right-side drivetrain providing maximum rider balance;

3

---

- premium HID headlights and LED display functions;
- a 6-speed transmission;
- adjustable rear end air suspension system and front-end Marzocchi forks;
- a proprietary handlebar vibration dampening system; and
- wide high-quality Metzeler tires and premium billet wheels.

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

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

Basic specifications of the Diablo cruiser are as follows:

- Wheelbase length and rake:

68 inches, 34o
- Weight:

570 pounds
- Seat height:

21-25 inches, adjustable
- Engine type:

45o V-Twin, air-cooled
- Engine displacement:

152 cubic inches with later choices of 115 or 128 cubic inches
- Fuel distribution:

Mikuni carburetion
- Frame:

1 1/2" tubular steel
- Transmission/drivetrain:

6-speed, Viper right-side drive
- Final drive:

Belt
- Rear-end suspension:

Adjustable air-ride
- Front-end suspension:

Marzocchi inverted cartridge forks
- Tires:

Metzeler  130mm front and 240mm rear
- Brakes:

4-piston caliper both front and rear
- Power rating ranges:

105-150 bhp and 110-170 ft.lbs. torque depending upon the displacement engine model

Viper
Diamondback

The Viper Diamondback is a
distinct model from our Diablo cruiser primarily due to its different styling features. It is longer and lower than the Diablo,
providing it with a clearly distinguishable look compared to the Diablo. Most of the unique features and premium components used in
the Diablo are also included in our Diamondback model. Suggested retail prices of our Diamondback line are expected to be
approximately 10% more than Diablo cruisers with the same size V-Twin engine.

Viper
Mamba

We have completed development
of the Viper Mamba, a sleek and low-slung pro-street model also including certain chopper-style design features. We
 believe the Mamba includes innovative styling features not available with any other motorcycle, which should enhance its appeal
to motorcyclists desiring an aggressive and unique look. The Mamba is currently undergoing extensive performance testing, and we
anticipate commencing commercial production and marketing of our Mamba model in late 2007.

Viper
Touring Bike

Utilizing our Diablo model as its
platform, we recently also have designed and are well into development of a touring model of our Viper motorcycle line. This
bagger model includes features emphasizing rider comfort for long distance travel and specialized permanent baggage or
storage equipment for clothing and other travel provisions. We anticipate introducing our Viper touring model commercially by
early 2008.

4

---

Viper Proprietary Engines

The proprietary engine
technology acquired by us in early 2005 affords us the opportunity to offer multiple displacements of engine size. We have
completed extensive testing for our three initial V-Twin models of 115 cubic inches, 128 cubic inches and 152 cubic inches. Both
our Diablo and Diamondback cruiser lines will initially offer consumers our most powerful 152 engine to
power the motorcycle they purchase. We believe that having our own proprietary engines will distinguish us clearly and favorably
from other upscale custom V-Twin competitors.

Our proprietary V-Twin
engines feature an all-billet aluminum construction including cases, heads, cylinders, rocker boxes and covers, and oil pump
components. Regardless of their varying rated power, our V-Twins will utilize the same crankshaft and stroke dimensions, with only
the size of the cylinder bore creating the different displacements.

Sales and Marketing

We will sell our motorcycles
directly to our authorized Viper dealers. Our dealer network includes well-established, independent full-service dealers
offering more than one motorcycle brand. We currently have 7 Viper dealers located primarily in Southern and Midwestern states,
all of which are experienced in selling and servicing premium heavyweight V-Twin motorcycles. We will continue to recruit
additional qualified Viper dealers to attain our goal of having a nationwide distribution network. Our near-term marketing focus
will emphasize dealer recruitment in regions of the country where we lack dealer representation.

Our dealers must maintain
full-service departments capable of providing quality V-Twin engine and drivetrain maintenance and repair. They also must be able
to perform custom upgrade work on cruisers. Viper dealers enter into a written dealer agreement with us granting them a
designated, non-exclusive location to sell Viper motorcycle products. Dealers have the exclusive right to use and display our
Viper brand in their respective locations in connection with the sale of our products. They must be responsible for warranty
services and general repair and maintenance services, maintain adequate working capital, and conduct material efforts toward
promoting and selling Viper products. Dealer agreements are for a one-year term, and expire automatically unless renewed by us and
consented to by the dealer.

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

5

---

Dealer Floor Plan Financing

We have a written agreement
with GE Commercial Distribution Finance Corporation (CDF) to provide floor plan financing to Viper dealers. Under this facility,
we submit an invoice to CDF describing motorcycles we ship to a dealer if the dealer requests CDF floor plan financing. Provided
CDF accepts the transaction, CDF will pay us 96.7% to 100% of the amount invoiced within 15 days of CDFs receipt of the
invoice. We expect that most of our Viper dealers will purchase products from us financed by this CDF floor plan facility. Each
Viper dealer must qualify independently with CDF to access this financing, and CDF is only obligated to finance products it has
approved on a transactional basis. Four of our dealers have qualified with CDF for this financing, and we expect virtually all of
our dealers to qualify during 2007.

CDFs obligation to
finance dealer purchases of Viper products is also subject to:

- our delivery of products to the dealer within 30 days of CDFs acceptance;
- receipt of a transaction number from CDF; and
- receipt by CDF of the invoice from us within 10 days of product delivery to the Viper dealer.

If for any reason CDF deems
it necessary to repossess Viper products from a Viper dealer, we must repurchase them from CDF at the greater of the dealer unpaid
balance or our original invoice price, regardless of the condition of the merchandise, and we also must pay any repossession
expenses incurred by CDF. Our CDF floor plan financing facility may be terminated anytime by CDF or by us upon 30 days written
notice to CDF.

Design and Development

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

- introduce new Viper motorcycle models on an annual basis;
- improve and enhance existing Viper models; and
- develop and produce or outsource production of ancillary Viper components and accessories for sale in the large custom cruiser aftermarket.

We believe our established
design and development systems, our professional and motivated personnel, and other development equipment and capabilities will
enable us to timely design and develop new Viper products as needed to satisfy the changing needs and tastes of the custom cruiser
market. Our design and development operations are conducted primarily through our in-house development and engineering department
located in our Big Lake, MN facility. Since our November 2002 inception through December 31, 2006 we spent approximately
$3.8 Million on product research, design and development including capital purchases of equipment.

Manufacturing and Suppliers

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

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

We do not have, nor do we
intend to enter into, any written agreements to obtain motorcycle components or parts. Other than our in-house
production, we acquire our components and parts through individual purchase orders submitted to our vendors and manufacturers with
lead times as needed to satisfy our ongoing production. Although we have identified, and in some cases contacted, alternative
suitable sources for obtaining components not produced in-house, the loss of one or more of our major suppliers or manufacturers
could cause material delays in our production operations and result in material harm to our business and financial condition.

6

---

Warranty Policy

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

Competition

The heavyweight motorcycle
market is highly competitive, and most of our competitors have substantially greater financial, personnel, development, marketing
and other resources than us, which puts us at a competitive disadvantage. Our major competitors have substantially larger sales
volumes than we expect to ever realize and in most cases have greater business diversification. Our main competitor is
Harley-Davidson, which for years has dominated the custom cruiser segment of the motorcycle marketplace. Other major competitors
include Polaris with its Victory motorcycle brand, BMW, Honda, Suzuki, Yamaha, Kawasaki, Moto Guzzi, Ducati and Triumph. Direct
competition in the upscale cruiser market includes Big Dog, American IronHorse, Bourgets Bike Works and others. We also
compete with many small companies and sole proprietors who produce custom cruisers on a one-off basis using unbranded components.
Due to the steady growth of cruiser-style motorcycles in recent years, we expect to encounter additional new competitors from time
to time.

We believe that the principal
competitive factors in our industry are styling, performance, quality, product pricing, durability, consumer preferences,
marketing and distribution, brand awareness and the availability of support services. We cannot assure anyone that we will be able
to compete successfully against current or future competitors or that the competitive pressures faced by us will not materially
harm our operations, business and financial condition.

Intellectual Property

We hold a registered
trademark for our Viper logo, and we have registered for trademark protection for the use of the term Viper in connection with
motorcycles and motorcycle products. There is no assurance that we will receive trademark protection from the U.S. Patent and Trademark Office. If we cannot obtain an
official registration of the Viper trademark, however, we believe we hold the right to continue using the Viper name and brand as
it is now used by us for motorcycle products. We are aware of other users of the marks Viper and Diablo for various products, and
there is no assurance one or more of these other users will not succeed in challenging our use.

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

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

7

---

Government Regulation

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

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

We are in the process of
submitting our Viper cruisers and their V-Twin engines to the applicable governmental agencies to satisfy their certification
requirements and standards. We expect to incur material ongoing costs to comply with motorcycle safety and emissions requirements.
As new laws and regulations are adopted, we will assess their effects on current and future Viper motorcycle products.

Employees

We currently employ 9
persons including our management, development, marketing and administrative personnel, all of whom are employed fulltime. We
expect to hire 3-4 assembly personnel and up to 3 additional administrative or marketing employees during 2007 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.

Item 2.   Description of Property

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

Big Lake Facility

In February 2006 we entered into a written
five-year lease to lease 36,000 square feet in a building in an industrial park in Big Lake, Minnesota about 30 miles northwest
of Minneapolis. We have conducted all production, marketing and administrative operations and functions from this facility since moving
there in 2006. Incident to our recent restructuring, we have reduced substantially the amount of space we lease at this Big Lake
facility through an amendment of the initial lease entered into with the Lessor. Our reduced spaces are approximately 12,000 square feet,
and we are currently in the process of moving out of the spaces we will no longer lease. Our monthly payments for rental, utilities, taxes
and other pro rata share of building expenses have been reduced from aproximately $25,000 monthly to $12,000 monthly. Since we are not
manufacturing certain engine and other components in-house as originally intended when we first occupied the Big Lake facility, we
believe the reduced spaces are adequate to conduct all our business, production assembly and development operations for the foreseeable
future.

The Company owns considerable
development and production equipment, computer and office equipment, and business vehicles, all of which have cost it
approximately $415,000 since its inception in November 2002.

8

---

Item 3.   Legal Proceedings

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

Item 4.   Submission of Mattersto a Vote of Security Holders.

No matters were submitted to
a vote of security holders of the registrant during the fourth quarter of the past fiscal year ended December 31, 2006.

PART II

# Item 5.   Market for Common Equityand Related Stockholder Matters.

Market Information

The Companys common
stock is traded in the over-the-counter (OTC) market and since March 12, 2007 has been quoted on the OTC Bulletin Board under
the symbol VPWS. Prior thereto, it was quoted on the Pink Sheets quotation system under the same symbol. The range of
high and low bid prices of the Companys common stock, as reported by Pink Sheets and Bulletin Board quotation systems, are
as follows. These quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent
actual transactions.

|Period                   |  | High Price(Bid) |   | Low Price(Bid)
|------------------------ |  | --------------- | - | --------------
|April  June, 2005       |  |                 | $ | 7.50          
|July  September,  2005  |  |                 | $ | 6.75          
|October  December, 2005 |  |                 | $ | 5.75          
|January  March 2006     |  |                 | $ | 5.25          
|April  June, 2006       |  |                 | $ | 5.00          
|July  September,  2006  |  |                 | $ | 4.60          
|October  December, 2006 |  |                 | $ | 1.75          
|January  March 30, 2007 |  |                 | $ | 2.49          

The closing sales price of our
common stock on March 30, 2007 was $1.50 per share.

9

---

Shareholders

As of March 30, 2007, there
were 366 shareholders of record holding common stock of the Company.

Dividends

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

Securities Authorized for Issuance Under Equity Compensation
Plans

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

There were no issuer
repurchases by the registrant during the fiscal year ended December 31, 2006.

# Equity Securities Sold by the Registrant

Following are all equity
security transactions during the fiscal quarter ended December 31, 2006 involving sales not registered under the Securities Act:

In November 2006 the Company
issued 130,000 shares of its common stock valued at $.75/share to its President, John Lai as a bonus related to his services
rendered to the Company during 2006.

In November-December 2006 the
Company converted a total of $2,751,192 of debt owed to various accredited investors in exchange for a total of 2,474,744 common
shares of the Company, including $513,356 principal and accrued interest owed to a secured creditor on the basis of $.75 per
share, and $2,237,836 principal and accrued interest owed to certain unsecured Noteholders on the basis of $1.25 per share.

In December 2006 the
Company sold a total of 173,333 common shares of the Company in a private placement to four accredited investors at $.75/share,
for a total consideration of $130,000.

10

---

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

Item 6.   Managements Discussionand Analysis and Plan of Operation.

# Forward-Looking Statements

This Annual Report on
Form 10-KSB contains forward-looking statements within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934. Forward-looking statements sometimes include the words may,
will,estimate, intend, continue, expect, anticipate or
other similar words. Statements expressing expectations regarding our future and projections we make relating to products, sales,
revenues and earnings are typical of such statements.

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

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

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

Results of Operations for the Fiscal Year Ended December 31, 2006
Compared to the Fiscal Year Ended December 31, 2005.

Comparison of Operations for Fiscal Years 2006 and 2005 Ended December 31.

Revenues.   
We reported negative revenue of $(48,745) in 2006 due to product returns related to certain sales of a product discontinued in
2004, compared to revenue of $1,171 in 2005 represented by the sale of motorcycle parts.

11

---

Research and Development.   Research
 and development costs were not materially different in 2006 compared to 2005, being $983,864 in 2006 and $978,501 in 2005.

Selling, General and
Administrative Expenses.   Selling, general and administrative costs decreased $1,686,385 to $2,324,487
in 2006 from $4,010,872 in 2005, due both to personnel reductions and reduced marketing expenses in 2006.

Loss from
Impairment of Assets.   Engine technology assets of $7,371,689 were written off in 2006 as compared to zero for
2005.

Loss from
Operations.   Operational losses were $10,680,040 in 2006 compared to $4,989,542 for 2005, which increase in
2006 was due primarily to the impairment of engine development cost.

Interest
Expense.   Interest expense increased by $453,056 to $616,645 in 2006 compared to $163,589 in 2005, which
increase was due primarily to the substantially larger outstanding loans held by us during most of 2006 compared to 2005.

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:

Commercialize the Diablo
and Diamondback  Our primary focus during 2007 will be to establish permanent production operations for our motorcycle
products to be manufactured by us on a commercial scale. We have recently obtained the necessary working capital and inventory financing
for this purpose. 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 and touring models to offer them commercially as soon
as possible.

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 recruit and retain one or more Canadian motorcycle
dealers to sell our products. Moreover, in 2008 we 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 2007, 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 2008 we anticipate obtaining substantial revenues from Viper engine sales in this active
aftermarket. We also intend to develop and offer for sale certain billet parts and components to be manufactured by us in-house.
We also will outsource production of ancillary Viper items from third-party suppliers including various motorcycle parts and
accessories, collectibles, and other Viper branded merchandise. For example, we have recently 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.

We anticipate spending
approximately the following amounts in the next twelve months to support our operating expenses regardless of the number of
motorcycles we sell or the revenues we receive:

|                                                                      | 
|--------------------------------------------------------------------- | 
|Sales and marketing expenses including dealer support and recruitment | 
|Research and development activities                                   | 
|General and administrative expenses including management compensation | 
|Rent payments and fixed overhead expenses                             | 
|Obtaining governmental regulatory certifications                      | 

Due to our recent private
placement, we anticipate having sufficient cash to support our operating expenses until we commence commercial deliveries of Viper
motorcycles by the summer of 2007. Thereafter we will need additional working capital, which there is no assurance will be
available as needed.

12

---

Liquidity and Capital Resources

Since our inception, we have
financed our development, capital expenditures and working capital needs through the sale and issuance of our capital stock or through
loans from our principal shareholders. Financing through issuance of our common or preferred stock has included private placements
for cash, common stock issued for employee compensation and consulting services, common stock issued to satisfy accounts payable,
and common and preferred stock issued to convert outstanding loans and other liabilities into capital stock of our company. We
have raised a total of approximately $5.9 Million through the sale of our common stock in private placements, and at least $3.5
Million in loans from our management or principal shareholders.

We have also relied on
satisfying substantial employee compensation, consulting fees, product development, marketing and administrative expenses directly
through issuance of our common stock. From inception through the end of 2006, we paid a total of approximately $2.5 Million for
such expenses with our common stock.

As of December 31, 2006,
we had cash resources of $111,000, total current liabilities of approximately $838,000 and a negative working capital position of
approximately ($270,189).

13

---

Future Liquidity

Based on our current cash
position along with our production inventory financing facility, we believe we will be able to fund our ongoing operations until
the summer of 2007. To provide working capital thereafter, we need to obtain substantial additional financing through loans
and/or sales of our equity securities. Although we believe such additional financing will be
available to us as needed, there is no assurance we will raise any such additional funds on terms acceptable to us, or at all, or
that any future financing transactions will not be dilutive to our stockholders.

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

The report of our
independent registered accounting firm for our audited financial statements included in this registration states that there is
substantial doubt about the ability of our business to continue as a going concern. Accordingly, our ability to continue our
business as a going concern is in question.

Critical Accounting Policies

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

14

---

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

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

| |  |  | motorcycle products are delivered, which is upon shipment;
| | - |  | ----------------------------------------------------------

| |  |  | title to products passes to the dealer, also upon shipment;
| | - |  | -----------------------------------------------------------

| |  |  | collection is reasonably assured; and
| | - |  | -------------------------------------

| |  |  | the sales price is fixed or determinable.
| | - |  | -----------------------------------------

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

We provide a floorplan
financing program to our dealers through a written agreement with a leading finance company which requires us to repurchase any
products repossessed from our dealers by the finance company, including any costs related to the repossession. Regarding revenue
recognition for dealers who take advantage of our dealer floorplan facility, we have established a reserve allowance for the
estimated liability related to such repossessions. We will review this repurchase allowance on a quarterly
basis, and to the extent current experience differs materially with previous allowance estimates, we will make appropriate
adjustments. Our dealer agreement
provides the dealer has no right of return unless the return is authorized by us.

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

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

Inventories of motorcycle
components and raw materials represent a large percentage of our tangible assets, and we expect this percentage to increase
substantially in the future. We have established an enclosed and secure cage area in our facility for storage and
recording of our component and raw material inventories immediately upon their delivery to us. We also employ an inventory control
manager dedicated to and responsible for safeguarding, monitoring and recording our inventory assets. All incoming and outgoing
items to and from our cage area are recorded upon their movement in or out of the cage.

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

15

---

For the purpose of
determining issuances of our common stock for goods and services and the exercise prices of our options or warrants, we have based
the value of our common stock primarily on the offering price used in our most recent private placement to the grant date of such
securities. Offering prices with respect to our private placements have been based on various factors including arms length
negotiations with unaffiliated representatives of private investors or independent placement agents and our valuation beliefs
based on the development of our company and motorcycle products at the respective times of the private placements.

Impairment 
Soon after the end of each fiscal year and each interim quarter, we will conduct a thorough impairment evaluation of our engine
development technology and any other material intangible assets. If the results of any such impairment analysis indicates our
recorded values for any such assets have declined a material amount, we will adjust our recorded valuations on a discounted cash
flow basis to reflect any such decline in value in all our financial statements. Each impairment test will be based on a
comparison of the carrying amount of an asset to future net undiscounted cash flows
and the engine technology costs will be fully impaired in 2006.

Off-Balance Sheet Arrangements

Other than a guarantee of
our floor plan financing by a principal shareholder and another guaranty of our bank credit facility by one of our directors, we
have no off-balance sheet arrangements. See Certain Relationships and Related Transactions.

Recent Accounting Pronouncements

In December 2004, the FASB
issued SFAS No. 123(R) (Share Based Payment) which establishes accounting standards for transactions in which an entity issues
equity securities for goods or services. SFAS No. 123(R) replaces the former requirements of SFAS No. 123 and eliminates the
ability to account for share-based compensation transactions using APB Opinion No. 25. SFAS No. 123(R) requires all share-based
payments, including stock options, to be reflected at fair value on the date of grant and to be expensed over the applicable
vesting period. We have adopted the provisions of SFAS No. 123(R) which will be reflected in all of our future financial
statements.

We have considered other
recent accounting pronouncements of which we are aware, and we believe their adoption has not had, and will not have, any material
impact on our financial position or results of operations.

Risk Factors

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

Because of our development status and the nature of our business,
our securities are highly speculative.

Our securities are
speculative and involve a high degree of risk, generally because of our being in the development stage from our 2002 inception
until the middle of 2007. There is no assurance we will ever generate any material commercial revenues from our operations.
Moreover, we do not expect to realize any material profits from our operations in the short term. Any profitability in the future
from our business will be dependent upon realizing production and sales of our motorcycle products in material commercial
quantities, which there is no assurance will ever happen.

We have a limited operating history primarily involved in product
development, and we have not generated any ongoing commercial revenues to date or attained any profitable operations.

From our inception in late
2002 through December 31, 2006, we have experienced cumulative losses of approximately $25 Million, and we will continue to
incur losses until we produce and sell our motorcycle products in sufficient volume to attain profitability, which there is no
assurance will ever happen. Our operations are particularly subject to the many risks inherent in the early stages of a business
enterprise and the uncertainties arising from the lack of a commercial operating history. There can be no assurance that our
business plan will prove successful.

16

---

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

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

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

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

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

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

We have limited experience in manufacturing motorcycle products.

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

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

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

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

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

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

17

---

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

Sales of Viper motorcycles are substantially dependent upon our ability
to provide and maintain a source of reliable "floor plan" financing to our dealers.

We have a significant
agreement with a leading financial institution to provide floor plan financing to our dealers for their purchase of Viper
products. Under this floor plan facility, we will receive payment for our motorcycles upon their shipment to our dealers. If we
are unable to continue effective floor plan financing for our dealers, they would have to pay cash or obtain other financing to
purchase Viper products, which most likely would result in substantially lower sales of our products, and lack of sufficient cash
flow to support our business.

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

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

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

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

We may experience significant returns or warranty claims.

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

Our exposure to product liability claims could harm us seriously.

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

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

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

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

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

18

---

The future growth and success
of our business will depend materially on our ability to protect our trademarks, trade names and any future patent rights, and to
preserve our trade secrets. We hold trademark rights including our logo design and the use of our "Viper" brand for motorcycle
products, and we have applied for certain additional trademark protection. There is no assurance, however, that any future or
current trademark registrations will result in a registered and protectable trademark. Moreover, there is no assurance that other
users of the Viper mark or other marks used by us will not challenge our brands. If one or more challenges against us are
successful, we could be forced to discontinue use of our motorcycle brands, which would cause serious harm to our business and
brand image.

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

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

In our premium heavyweight
motorcycle market, our main competitor is Harley-Davidson Inc. which dominates the market for V-Twin cruiser motorcycles. Other
significant competitors include Suzuki, Honda, Yamaha, Kawasaki, Ducati, Triumph, BMW, Moto Guzzi and Polaris with its Victory
motorcycle line. We also face particularly direct competition from a number of V-Twin custom cruiser manufacturers concentrating
on the same upscale market niche where we are situated, including Big Dog, American IronHorse, Bourgets Bike Works and
others. Additional competition exists from the numerous small companies and individuals throughout the country which build
"one-off" custom cruisers from non-branded parts and components available from third parties. We also expect additional
competitors to emerge from time to time in the future. There is no assurance that we will be able to compete successfully against
current and future competitors.

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

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

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

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

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

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

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

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

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

19

---

We must comply with numerous environmental and safety regulations.

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

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

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

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

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

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

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

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

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

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

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

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

20

---

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

Item 7.   Financial Statements.

The information required by
this Item 7 is included in this Annual Report as a separate section following the Signature page and commencing on page F-1.

Item 8.   Changes In and Disagreements WithAccountants on Accounting and Financial Disclosure.

None.

Item 8A.   Controls and Procedures.

As of the end of the period
covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive
officer and principal financial officer, of our disclosure controls and procedures in accordance with Rule 13a-15 under the
Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by Viper
Powersports Inc. in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms. There was no change in our internal control over financial reporting during our
most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

Item 8B.   Other Information.

None.

# PART III

Item 9.   Directors, Executive Officers,Promoters and Control Persons; Compliance With Section 16(a)
of              the Exchange Act.

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

|Name                |  | Age |  | Position
|------------------- |  | --- |  | --------
|John Lai            |  |     |  | 43      
|John R. Silseth II  |  |     |  | 44      
|Robert O. Knutson   |  |     |  | 70      
|Jerome Posey        |  |     |  | 58      
|Terry L. Nesbitt    |  |     |  | 57      
|Robert Van Den Berg |  |     |  | 72      
|Duane Peterson      |  |     |  | 57      

JOHN LAI has been a director of the Company since its inception in 2002, and
he also served as our President since January 2005. Since 1992, Mr. Lai has owned and operated Genesis Capital Group, Inc., a
provider of corporate development and venture capital consulting. From 1996 to 1998, he was Chief Financial Officer and a director
of Buyitnow.com, Inc., an internet retailer.

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

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

JEROME POSEY has been the Chief Financial Officer of the company since
November 2005. From December 2001 until October 2005, Mr. Posey was Vice President/ Finance & Chief Financial Officer of
Intravantage Inc., which manufactured a drug delivery device for the dental industry. From 1997 to November 2001, he was
the Chief Financial Officer and Shareholder of Robin Lees, Inc., a retailer of collectibles, home decor and greeting cards.

TERRY L. NESBITT has been a director of the Company since February 2005,
and he currently consults in our industry. Until January 2007, Mr. Nesbitt was our Executive Vice President of Sales and Marketing
of the Company, since our inception in 2002. During 2001 and most of 2002, Mr. Nesbitt was an independent consultant in the
motorcycle industry. Prior to 2001, he served in several key sales management positions over a fifteen-year period with Polaris
Industries Inc., including national sales manager for Polaris line of Victory V-Twin cruiser motorcycles.

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

DUANE PETERSON is a founder of Peterson, Beyenhof & Zahler, Ltd. and has
been a principal CPA with this accounting firm since 1978. Mr. Peterson has extensive experience in business and financial
consulting, complex tax accounting, and tax and financial planning for many corporate and individual clients.

21

---

# Audit Committee

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

# Section 16(a) Beneficial
Ownership Reporting Compliance

Based upon a review of copies
of reports furnished to us during our fiscal year ended December 31, 2006, which reports are filed under Section 16(a) of the
Securities Exchange Act of 1934, we know of no director, officer, or beneficial owner of more than 10% of our common stock who
failed to file on a timely basis any report required by Section 16(a).

# Code of Ethics

We have adopted a Code of
Ethics that applies to our principal executive officer, our principal financial and accounting officer, or persons performing
similar functions. We will provide any person without charge who requests, a copy of our Code of Ethics. Any copy requests may be
directed to Viper Powersports Inc., 19950 177th St., Suite F,  Big Lake, MN 55309, attention Jerome Posey, or by calling (763)
263-5700.

Item 10.   Executive Compensation

The following table sets
forth the executive compensation of the executive officers of the Company during the two fiscal years ended December 31, 2005 and
2006.

SUMMARY COMPENSATION TABLE

|Name and Position                     |  | Year |  | Salary ($) |  | StockAwards ($) |         | SharesUnderlying Options (#)
|------------------------------------- |  | ---- |  | ---------- |  | --------------- | ------- | ----------------------------
|                                      |  |      |  |            |  |                 |         |                             
|John Lai, President                   |  |      |  | 2006       |  | $               | 84,000  |                             
|                                      |  |      |  | 2005       |  | $               | 84,000  |                             
|John Silseth II, Managing Director(2) |  |      |  | 2006       |  | $               | 102,000 |                             
|                                      |  |      |  | 2005       |  | $               | 120,000 |                             
|Terry Nesbitt, Vice President         |  |      |  | 2006       |  | $               | 111,260 |                             
|                                      |  |      |  | 2005       |  | $               | 110,060 |                             

|(1) |  | This stock grant to Mr. Lai was for 130,000 common
shares valued at $.75 per share at the time of the grant.                                                                             
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Mr. Silseth receives his compensation through
consulting payments made to his wholly-owned corporation. See Certain Relationships and Related Transactions.                            
|(3) |  | In February 2005, Mr. Lai was granted a five-year
stock option for 150,000 common shares exercisable at $2.50 per share, and Mr. Nesbitt was granted a similar option for 125,000
shares.

22

---

Options/SAR Grants

The Company did not issue
any stock options or SAR grants in fiscal 2006. None of the stock options issued by the Company since its inception have been
exercised. The following tables contain certain information relating to unexercised options.

|Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
|--------------------------------------------------------------------------------
|                                                                                
|
|
|                                                                                
|John Lai                                                                        
|Terry Nesbitt                                                                   

Compensation of Directors

The Company did not compensate
 any of its directors for their services provided during 2006 as a director of the Company.

Employment Contracts and Change-in-Control Arrangements

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

23

---

Item 11.   Security Ownership ofCertain Beneficial Owners and Management and Related Stock Matters.

The following table sets forth as of March 15, 2007 certain information
regarding beneficial ownership of the common stock of the Company by (a) each person or group known by the Company to be the
beneficial owner of more than 5% of the outstanding common stock of the Company, (b) each director and executive officer of the
Company, and (c) all directors and executive officers of the Company as a group. Each shareholder named in the below table has
sole voting and investment power with respect to shares of common stock shown in the table. Shares underlying any options or
warrants included in the table are all currently exercisable. Unless otherwise indicated, the address of each listed shareholder
is 19950 177thSt., Suite F, Big Lake, MN 55309. This table is based on 14,994,481 common shares outstanding
on March 15, 2007.

|Shareholder                   |  | Shares OwnedBeneficially |  | Percent ofClass
|----------------------------- |  | ------------------------ |  | ---------------
|                              |  |                          |  |                
|Title of Class  Common Stock |  |                          |  |                
|                              |  |                          |  |                
|John Lai (l)                  |  |                          |  | 867,966        
|Terry L. Nesbitt (2)          |  |                          |  | 425,000        
|Robert O. Knutson (3)         |  |                          |  | 249,353        
|John R. Silseth II            |  |                          |  | 2,038,433      
|Robert Van Den Berg           |  |                          |  | 160,000        
|Duane Peterson                |  |                          |  | 5,000          
|David Palmlund III (4)        |  |                          |  | 4,903,509      
|5323 Swiss Avenue             |  |                         
|Dallas, TX 75214              |  |                         
|Garry Lowenthal (5)           |  |                          |  | 868,916        
|1836 Prior Avenue             |  |                         
|Falcon Heights, MN 55113      |  |                         
|All directors and officers    |  |                          |  | 3,740,752      
|as a group (6 persons) (6)    |  |                          |  |                

|(1) | Includes 150,000 shares underlying an option.                             
|--- | --------------------------------------------------------------------------
|(2) | Includes 125,000 shares underlying an option.                             
|(3) | Includes 75,000 shares underlying an option.                              
|(4) | Includes an aggregate of 335,000 shares underlying
warrants and an option.
|(5) | Includes 75,000 shares underlying an option.                              
|(6) | Includes 350,000 shares underlying options.                               

24

---

Item 12.   Certain Relationshipsand Related Transactions.

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

Private Placements

In connection with certain
private placements of our common stock, related parties have participated on the same terms as unrelated parties, including the
following:

December 2006  March
2007  Related parties purchased a total of 70,000 shares at $.75 per share including 50,000 shares by John Lai
(our President),  20,000 shares by Robert Van Den Berg (one of our directors).

June  August 2005
Placement  Related parties purchased a total of 186,937 shares at $3.90 per share including 33,000 shares by John
Silseth II (a founder and principal shareholder) and 153,937 shares by David Palmlund III (a principal shareholder).

Loans From Related Parties

From December 2003 through
August 2004, David Palmlund III, a principal shareholder, loaned the Company a total of $2 Million, for which he received various
notes bearing interest rates from 10% to 35% and having maturity dates from August 2004 to September 2005. All of this Palmlund
debt was outstanding as of December 31, 2004. In early 2005, Mr. Palmlund converted all of this debt except $150,000 (which
continued to be held as a Note),
including accrued interest, at $2.50 per share into 740,000 shares of preferred stock of the Company and 64,635 common shares of
the Company.

From time to time,
related parties other than Mr. Palmlund have made substantial cash advances or loans to the Company for working capital
purposes. These related party lenders have included our President (John Lai), our Managing Director (John Silseth), one of our
directors (Robert Van Den Berg) and a principal shareholder (Gary Lowenthal). For these loans, they received unsecured notes
paying interest at 8% per annum. As of December 31, 2004, $673,237 of such related party debt was outstanding, including accrued
interest. In 2005, all of these outstanding 8% notes and their accrued interest were converted into common shares of the Company
at $2.50 per share.

Certain David Palmlund III Transactions

During a period of
approximately one year ending in October 2006, Mr. Palmlund provided us with development production and inventory financing in the
aggregate amount of $1,700,000, for which we issued him secured Notes with monthly interest rates of 2% on average monthly
outstanding balances. These Notes were secured by all Viper motorcycle components and finished goods inventory. All of these Notes
were fully satisfied through their conversion into our common stock as described in the following paragraph.

Incident
to our capital restructuring during late 2006 and early 2007, David Palmlund (a principal shareholder of the Company) converted
preferred stock and outstanding Note owed to him into our common stock as follows:

i)  
He converted 740,000 shares of 8% Preferred Stock with a stated value of $1,850,000 along with related accrued dividends of
$246,937 into a total of 1,677,550 common shares on the basis of $1.25 per share.

ii) 
He converted outstanding Notes and related accrued interest in the total amount of $2,030,588 into a total of 1,624,471 common
shares on the basis of $1.25 per share.

In January 2004 (as amended
February 2005, 2006 and 2007), we obtained a Letter of Credit (LOC) from Compass Bank of Dallas, Texas in the amount of $200,000 in favor of GE
Commercial Distribution Finance Corporation for the purpose of securing our floor plan financing facility. This LOC was guaranteed
by Mr. Palmlund, who is being paid $3,000 monthly by us so long as this guaranty is outstanding.

25

---

Consulting Compensation

During 2005 and 2006
we paid cash compensation to Racing Partners Management Inc., a corporation wholly owned by John R. Silseth II (a founder,
principal shareholder and Managing Director of the Company) for consulting services related to management operations, motorcycle
development, procurement of third party suppliers, creation of an assembly manufacturing system and preparing for commercial
production. These consulting expenses included $120,000 in 2005 and $102,000 in 2006. Such consulting payments were all approved
by resolutions of the Board of Directors, and we believe that the terms of our consulting arrangements with Racing Partners were
no less favorable than those we would have obtained from an unrelated consulting arrangement negotiated at arms length.

Purchase of Motorcycle Engine Technology

In March 2005, the Company
acquired its motorcycle engine technology and related prototypes from Thor Performance Inc. (Thor), a corporation
controlled by related parties of the Company. In this acquisition, the Company issued 2,996,575 shares of its common stock in
exchange for these engine development assets. Due to this transaction, four related parties of the Company, Messrs. Palmlund,
Silseth, Lai and Lowenthal, beneficially acquired an aggregate of 2,401,192 shares of common stock of the Company based on their
ownership of Thor. Mr. Palmlund acquired 913,306 shares, Mr. Silseth acquired 945,530 shares, Mr. Lai acquired
200,009 shares, and Mr. Lowenthal acquired 526,203 shares. All of these shares have been transferred to these four persons
since the acquisition.

Because Thor is controlled
by persons who as a group owned 44% of our outstanding capital stock prior to this transaction, our purchase of engine technology
assets was not an arms-length transaction. Accordingly, before closing the transaction, Thor obtained and provided us with an
independent fair market value appraisal from Value Incorporated, a business appraisal firm based in Dallas, Texas. For accounting
purposes, the acquisition was valued by us at $7,491,438 based on $2.50 per share, whereas the independent appraisal valued our
engine development intellectual property at $19,616,400.

Options and Warrants

We have issued options from
time to time in consideration for financing services or as an incentive to our employees. None of our options or warrants have
been exercised. Related parties hold an aggregate of options to purchase 535,000 common shares including 460,000 shares
exercisable at $2.50/share for five years and 75,000 exercisable at $2.00/share for five years.

We also have issued warrants
to David Palmlund III for providing us with financing services, which warrants have granted him the right to purchase a total of
225,000 of our common shares exercisable at $2.50 per share for a five-year term.

Credit Facility Guaranty

In January 2007, Robert Van
Den Berg, a director of the Company, guaranteed a $250,000 credit facility we obtained from a banking institution, which was
established in order to purchase inventory parts and components for upcoming commercial production of Viper motorcycles. In
consideration for Mr. Van Den Berg providing this guaranty, we issued him 100,000 shares of our common stock.

26

---

# Item 13.   Exhibits.

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

# Item 14.   Principal Accountant Feesand Services.

Pre-Approval of Audit Fees

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

Auditor Fees

The aggregate fees billed by
our auditors for professional services rendered in connection with the audited financial statements included in this 10-KSB annual
report were $15,000.

Our auditor also billed us a
total of $8,500 for professional services rendered to us in connection with audited financial statements included in our 10-SB
registration filed in 2006.

There were no other fees
billed to us by our auditors for tax matters, additional audit-related fees or any non-audit services.

27

---

# SIGNATURES

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

| | VIPER POWERSPORTS INC.(Registrant)
| | ----------------------------------
|
| | By:                               
| |                                   
| | Date:                             
|

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

| | By:   | /s/   Robert O. Knutson       
| | ----- | ------------------------------
| |       | Robert O. Knutson  Director  
| | Date: | April 13, 2007                
|
|
| | By:   | /s/   John Lai                
| |       | John Lai  Director           
| | Date: | April 13, 2007                
|
|
| | By:   | /s/   Robert Van Den Berg     
| |       | Robert Van Den Berg  Director
| | Date: | April 13, 2007                

28

---

# Viper Powersports, Inc.
(A Development Stage Company)Consolidated Financial StatementsFor the Years Ended December 31, 2006and 2005

---

Viper Powersports, Inc.
(A Development Stage Company)
Index to Consolidated Financial Statements

|                                                       
|-------------------------------------------------------
|                                                       
|Report of Independent Registered Public Accounting Firm
|                                                       
|Consolidated Balance Sheets                            
|                                                       
|Consolidated Statements of Operations                  
|                                                       
|Consolidated Statements of Stockholders Equity        
|                                                       
|Consolidated Statements of Cash Flows                  
|                                                       
|Notes to Consolidated Financial Statements             

F-1

---



Douglas W. Child, CPA
Marty D. Van Wagoner, CPA
J. Russ Bradshaw, CPA
William R. Denney, CPA
Roger B. Kennard, CPA
Russell E. Anderson, CPA
        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors
Viper Powersports, Inc.
Big Lake, Minnesota 55309

We have audited the accompanying consolidated balance sheets of Viper Powersports, Inc. (a development stage company) and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended, and the period from November 18, 2002 (inception) to December 31, 2006. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Viper Powersports, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, and the period from November 18, 2002 (inception) to December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and net cash outflows from operations since inception. These factors raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Child, Van Wagoner & Bradshaw, PLLC
Salt Lake City, Utah
April 11, 20071284 W. Flint Meadow Dr. #D
Kaysville, Utah 84037
Telephone 801.927.1377
Facsimile 801.927.1344



5296 S. Commerce Dr. #300
Salt Lake City, Utah 84107
Telephone 801.281.4700
Facsimile 801.281.4701



Suite B, 4F
North Cape Commercial Bldg.
388 Kings Road
North Point, Hong Kong








F-2

---

Viper Powersports, Inc.

(A Development Stage Company)



Consolidated Balance Sheets



Assets
        
        December 31,2006
        
        December 31,2005Current Assets:Cash
        
        $
        110,854
        
        $
        690,352Accounts receivable
        
        
        10,138
        
        
        55Inventory and supplies
        
        
        430,794
        
        
        178,547Prepaid Expenses and other
        
        
        15,547
        
        
        75,578Total Current Assets
        
        
        567,333
        
        
        944,532Fixed Assets:Office & computer equipment
        
        
        115,809
        
        
        112,446Manufacturing and development equipment
        
        
        476,903
        
        
        275,470Vehicles
        
        
        101,799
        
        
        101,799Leasehold improvements
        
        
        54,835
        
        
        38,770Accumulated depreciation
        
        
        (294,995
        )
        
        (169,047
        )Total Fixed Assets
        
        
        454,351
        
        
        359,438Other Assets:Engine development costs
        
        
        0
        
        
        7,341,438Rental deposit and other
        
        
        16,449
        
        
        49,342Total Other Assets
        
        
        16,449
        
        
        7,390,780Total Assets
        
        $
        1,038,133
        
        $
        8,694,750Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
        
        
        599,567
        
        
        45,521Accrued liabilities
        
        
        52,656
        
        
        67,859Shareholder note
        
        
        100,000
        
        
        250,000Current portion of capital lease
        
        
        85,299
        
        
        30,795Total Current Liabilities
        
        
        837,522
        
        
        394,175Long-Term Liabilities:Capital lease, less current portion
        
        
        168,271
        
        
        86,881Total Long-Term Liabilities
        
        
        168,271
        
        
        86,881Total Liabilities
        
        
        1,005,793
        
        
        481,056Stockholders EquityPreferred stock,
$.001 par value; authorized 20,000,000 shares;0 and 783,000 issued and outstanding at December 31, 2006
andDecember 31, 2005; liquidation preference $2.50 per share
        
        
        
        
        
        783Common Stock, $.001
par value; authorized 100,000,000 shares;14,549,481 issued and outstanding at December 31, 2006
and10,126,375 issued and outstanding at December 31, 2005
        
        
        14,549
        
        
        10,126Paid in Capital
        
        
        25,433,197
        
        
        22,294,359Accumulated deficit during the development stage
        
        
        (25,415,406
        )
        
        (14,091,574
        )Total Stockholders Equity
        
        
        32,340
        
        
        8,213,694Total Liabilities and Stockholders Equity
        
        $
        1,038,133
        
        $
        8,694,750






See notes to consolidated financial statements.

F-3

---

Viper Powersports, Inc.

(A Development Stage Company)



Consolidated Statements of Operations



Year EndedDecember 31,2006
        
        Year EndedDecember 31,2005
        
        Cumulative fromInceptionNovember 18, 2002through12/31/2006Revenue
        
        $
        (48,745
        )
        $
        1,171
        
        $
        593,378Cost of revenue
        
        
        3,379
        
        
        1,340
        
        
        505,442Gross profit
        
        
        (52,124
        )
        
        (169
        )
        
        87,936Operating Expenses:Research and development costs
        
        
        983,864
        
        
        978,501
        
        
        3,809,279Selling, general and administrative
        
        
        2,324,487
        
        
        4,010,872
        
        
        13,689,641Loss on impairment of assets
        
        
        7,371,689
        
        
        
        
        
        7,371,68910,680,040
        
        
        4,989,373
        
        
        24,870,609Loss from operations
        
        
        (10,732,164
        )
        
        (4,989,542
        )
        
        (24,782,673
        )Other (expenses) income:Interest expense
        
        
        (616,645
        )
        
        (163,589
        )
        
        (940,422
        )Other income
        
        
        24,977
        
        
        167,112
        
        
        307,689Net Loss
        
        $
        (11,323,832
        )
        $
        (4,986,019
        )
        $
        (25,415,406
        )Net Loss Per Common Share(Basic and diluted)
        
        $
        (1.06
        )
        $
        (0.91
        )Weighted Average SharesCommon Stock Outstanding
        
        
        10,730,231
        
        
        5,452,000








See notes to consolidated financial statements.

F-4

---

Viper Powersports, Inc.

(A Development Stage Company)



Consolidated Statements of Stockholders Equity

For the Period from November 18, 2002 (Inception) to December 31, 2006



Activity
        
        PreferredStockShares
        
        PreferredStockAmount
        
        CommonStockShares
        
        CommonStockAmount
        
        CommonStockSubscribed
        
        Paid-InCapital
        
        AccumulatedDeficit
        
        AccumulatedEquity (Deficit)TotalBALANCE at November 18, 2002 (inception)
        
        
        
        $
        
        
        
        
        $
        
        
        $
        
        
        $
        
        
        $
        
        
        $
        Common stock for services and accounts payable - $.40/share
        
        
        
        
        
        
        425,000
        
        
        170,000
        
        
        
        
        
        
        
        
        
        
        
        170,000Common stock for cash at $.40/share
        
        
        
        
        
        
        294,478
        
        
        117,791
        
        
        
        
        
        
        
        
        
        
        
        117,791Net Loss from inception through December 31, 2002
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (344,612
        )
        
        (344,612
        )Balances at December 31, 2002
        
        
        
        
        
        
        719,478
        
        
        287,791
        
        
        
        
        
        
        
        
        (344,612
        )
        
        (56,821
        )Common stock for services at $.40 to $1.00/share
        
        
        
        
        
        
        1,219,250
        
        
        1,095,500
        
        
        
        
        
        
        
        
        
        
        
        1,095,500Common stock for cash at $.40/share
        
        
        
        
        
        
        855,522
        
        
        342,209
        
        
        
        
        
        
        
        
        
        
        
        342,209Common stock for services and accounts payable at $2.00/share
        
        
        
        
        
        
        42,500
        
        
        85,000
        
        
        
        
        
        
        
        
        
        
        
        85,000Common stock for cash at $2.00 per share net of issuance costs
        
        
        
        
        
        
        457,399
        
        
        884,549
        
        
        
        
        
        
        
        
        
        
        
        884,549Value of warrants issued with convertible debt
        
        
        
        
        
        
        
        
        
        110,168
        
        
        
        
        
        
        
        
        
        
        
        110,168Net loss for year ended December 31, 2003
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (2,999,735
        )
        
        (2,999,735
        )Balances at December 31, 2003
        
        
        
        
        
        
        3,294,149
        
        
        2,805,217
        
        
        
        
        
        
        
        
        (3,344,347
        )
        
        (539,130
        )Value of warrants issued with convertible debt
        
        
        
        
        
        
        
        
        
        22,033
        
        
        
        
        
        
        
        
        
        
        
        22,033Common stock for cash at $2.50/share
        
        
        
        
        
        
        98,000
        
        
        245,000
        
        
        
        
        
        
        
        
        
        
        
        245,000Common stock for services and software at $2.50/share
        
        
        
        
        
        
        61,000
        
        
        152,500
        
        
        
        
        
        
        
        
        
        
        
        152,500Common stock for employment agreement services at $2.50/share
        
        
        
        
        
        
        175,000
        
        
        437,500
        
        
        
        
        
        
        
        
        
        
        
        437,500Common stock issued with May 2004 Notes at $2.50/share)
        
        
        
        
        
        
        133,334
        
        
        333,335
        
        
        
        
        
        
        
        
        
        
        
        333,335Common stock grants to employees at $2.50/share)
        
        
        
        
        
        
        189,700
        
        
        474,250
        
        
        
        
        
        
        
        
        
        
        
        474,250Value of warrants and options issued for services
        
        
        
        
        
        
        
        
        
        175,363
        
        
        
        
        
        
        
        
        
        
        
        175,363Net loss for year ended December 31, 2004
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (5,761,208
        )
        
        (5,761,208
        )Balances at December 31, 2004
        
        
        
        
        
        
        3,951,183
        
        
        4,645,198
        
        
        
        
        
        
        
        
        (9,105,555
        )
        
        (4,460,357
        )Common stock for cash at $2.50/share
        
        
        
        
        
        
        305,212
        
        
        763,030
        
        
        
        
        
        
        
        
        
        
        
        763,030Common stock for payables and debt converted at $2.50/share
        
        
        
        
        
        
        1,125,354
        
        
        2,813,379
        
        
        
        
        
        
        
        
        
        
        
        2,813,379Preferred stock for outstanding debt converted at $2.50/share
        
        783,000
        
        
        1,957,500
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        1,957,500Value of warrants and options issued for services
        
        
        
        
        
        
        
        
        
        497,700
        
        
        
        
        
        
        
        
        
        
        
        497,700Common stock for engine development technology (Note 3)
        
        
        
        
        
        
        2,996,575
        
        
        7,491,437
        
        
        
        
        
        
        
        
        
        
        
        7,491,437Recapitalization from March 31, 2005 reverse merger (Note 4)
        
        
        
        
        (1,956,717
        )
        613,093
        
        
        (16,201,753
        )
        
        
        
        
        18,158,470
        
        
        
        
        
        Common stock for cash at $3.90/share, net of offering costs of $513,124
        
        
        
        
        
        
        1,000,038
        
        
        1,000
        
        
        
        
        
        3,386,024
        
        
        
        
        
        3,387,024Common stock to Cornell Capital Partners, LP issued for SEDA equity agreement
        
        
        
        
        
        
        134,920
        
        
        135
        
        
        
        
        
        749,865
        
        
        
        
        
        750,000Net loss for year ended December 31, 2005
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (4,986,019
        )
        
        (4,986,019
        )Balances at December 31, 2005
        
        783,000
        
        
        783
        
        10,126,375
        
        
        10,126
        
        
        
        
        
        22,294,359
        
        
        (14,091,574
        )
        
        8,213,694Preferred stock converted to Common Stock @$1.25/share
        
        (783,000
        )
        
        (783
        )
        1,566,000
        
        
        1,566
        
        
        
        
        
        (783
        )
        
        
        
        
        Common Stock for equity @ $.75 /share
        
        
        
        
        
        
        173,333
        
        
        173
        
        
        
        
        
        129,827
        
        
        
        
        
        130,000Conversion of Notes payable @ $1.25/share
        
        
        
        
        
        
        1,790,269
        
        
        1,790
        
        
        
        
        
        2,236,046
        
        
        
        
        
        2,237,836Conversion of Notes payable @ $.75/share
        
        
        
        
        
        
        684,475
        
        
        685
        
        
        
        
        
        512,671
        
        
        
        
        
        513,356Dividends for Preferred converted @$1.25/share
        
        
        
        
        
        
        209,029
        
        
        209
        
        
        
        
        
        261,077
        
        
        
        
        
        261,286Net loss for the period ended December 31, 2006
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (11,323,832
        )
        
        (11,323,832
        )Balances at December 31, 2006
        
        
        
        $
        
        
        14,549,481
        
        $
        14,549
        
        $
        
        
        $
        25,433,197
        
        $
        (25,415,406
        )
        $
        32,340






See notes to consolidated financial statements.

F-5

---

Viper Powersports, Inc.

(A Development Stage Company)



Consolidated Statements of Cash Flows



Year EndedDecember 31,2006
        
        Year EndedDecember 31,2005
        
        Cumulative fromInception(November 18, 2002)to December 31, 2006Cash Flows Used in Operating Activities:Net Loss
        
        $
        (11,323,832
        )
        $
        (4,986,019
        )
        $
        (25,415,406
        )Expenses not Requiring an Outlay of Cash:Depreciation
        
        
        125,948
        
        
        87,228
                                
                                
                                294,198Common stock and warrants issued for compensation and expenses
        
        
        3,142,478
        
        
        1,247,700
        
        
        7,088,727Impairment loss
        
        
        7,371,689
        
        
        0
        
        
        7,371,689Changes to Operating Assets and Liabilities:Decrease (Increase) in accounts receivable
        
        
        (10,082
        )
        
        9,355
                                
                                
                                (10,137
        )Decrease (Increase) in supplies and prepaids
        
        
        (224,148
        )
        
        29,948
                                
                                
                                (478,274
        )Decrease (Increase) in rental deposits and other
        
        
        2,642
        
        
        (24,563
                                )
                                
                                (52,959
        )Increase (decrease) in accounts payable
        
        
        554,046
        
        
        (48,132
                                )
                                
                                599,568Increase (decrease) in accrued liabilities
        
        
        3,229
        
        
        (383
                                )
                                
                                88,382Cash Flows Used in Operating Activities
        
        
        (358,030
        )
        
        (3,684,866
                                )
                                
                                (10,514,212
        )Cash Flows Used in Investing Activities:Funding from Thor Performance for engine development
        
        
        0
        
        
        150,000
                                
                                
                                150,000Purchase of intellectual property
        
        
        
        
        
        0
                                
                                
                                (35,251
        )Purchase of fixed assets
        
        
        (220,860
        )
        
        (69,934
                                )
                                
                                (707,040
        )Cash Flows Used in Investing Activities
        
        
        (220,860
        )
        
        80,066
                                
                                
                                (592,291
        )Cash Flows from Financing Activities:Net proceeds from sale of stock
        
        
        0
        
        
        4,150,054
                                
                                
                                5,957,104Checks in excess of bank balance (reduction)
        
        
        0
        
        
        (18,515
                                )
                                
                                Stockholder loan and capital lease payments
        
        
        149,394
        
        
        (529,424
                                )
                                
                                (447,986
        )Loans from  stockholders
        
        
        (150,000
        )
        
        693,000
                                
                                
                                5,708,239Cash Flows from Financing Activities
        
        
        (606
        )
        
        4,295,115
                                
                                
                                11,217,357Net Increase (decrease) in Cash
        
        
        (579,497
        )
        
        690,315
                                
                                
                                110,854Cash at Beginning of Period
        
        
        690,352
        
        
        36
                                
                                
                                Cash at End of Period
        
        $
        110,854
        
        $
        690,352
                                
                                $
                                110,854Supplemental Non-Cash Financing Activities and Cash Flow Information:Common Stock issued for accounts payable  (expenses)
        
        $
        
        
        $
        1,268,698
                                
                                $
                                1,323,698Common Stock issued for accrued liabilities (expenses)
        
        $
        
        
        $
        553,521
                                
                                $
                                553,521Preferred Stock issued for Debt
        
        $
        
        
        $
        1,957,500
                                
                                $
                                1,957,500Common Stock issued for Debt
        
        $
        2,751,192
        
        $
        991,160
                                
                                $
                                3,852,520Common Stock issued for software (assets)
        
        $
        
        
        $
        
                                
                                $
                                50,000Common Stock Issued for Engine Development Technology and engine development obligation of $ 150,000
        
        $
        
        
        $
        7,491,437
                                
                                $
                                7,341,437Equipment Acquired via capital lease
        
        $
        232,144
        
        $
        
                                
                                $
                                304,740Stock Warrants Issued with Convertible Debt
        
        $
        
        
        $
        110,168
                                
                                $
                                132,201Interest Paid
        
        $
        327,106
        
        $
        
                                
                                $
                                483,790Income Taxes Paid
        
        $
        
        
        $
        
                                
                                $
                                






See notes to consolidated financial statements.

F-6

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



1.
        NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Viper Powersports Inc. was incorporated in Nevada in 1980 under a different name, and was inactive for years. On March31, 2005 the Company was recapitalized through a merger with Viper MotorcycleCompany, a Minnesota corporation. The former shareholders of Viper Motorcycle Company acquired 93.5% of the capital stock of Viper Powersports Inc. in exchange for all of the capital stock of Viper Motorcycle Company. This transaction was effected as a reverse merger for financial statement and operational purposes, and accordingly Viper Powersports Inc. regards its inception as being the incorporation of Viper Motorcycle Company on November 18, 2002.(See Note 4 - Recapitalization).Upon completion of this reverse merger, Viper Motorcycle Company became a wholly-owned
subsidiary of Viper Powersports Inc.



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



Viper Performance Inc., also a wholly-owned subsidiary of Viper Powersports Inc., was incorporated in Minnesota in March 2005 for the purpose of receiving and holding engine development technology and related assets acquired by Viper Powersports Inc. These assets were acquired from Thor Performance Inc., a Minnesota corporation in March 2005 in exchange for 2,996,575 shares of common stock of Viper Powersports Inc.(See Note 3 - Purchase of Engine Development Technology.)



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



The Company is a development stage company engaged in design and development of premium V-Twin cruiser motorcycles. The Company has sold its capital stock and debt securities in various private placements to fund its development, marketing and other operations.  The Company also has issued substantial shares of its common stock to compensate officers and other employees, consultants, and vendors, and to satisfy outstanding debt and other obligations. The Company continues to rely upon loans and sales of its equity securities to fund current operations. The Companys executive and administrative offices, and its engineering and development operations, are located in a 35,990 square foot facility in Big Lake, Minnesota.



F-7

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



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




Going Concern The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown
in the accompanying consolidated financial statements, the Company has incurred a net loss of $25,415,406 since inception, and
currently has no sales. The future of the Company is dependent upon its ability to obtain financing and upon future profitable
operations from the production of its motorcycles. Management has plans to seek additional capital through private placements of
its common stock. The consolidated financial statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the
Company cannot continue in existence.



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



Debt Conversions During
2006, Viper Motorcycle Company substantially reorganized its financial position by converting a total of $2,751,192 of its debt,
including interest, into 1,790,269 shares of common stock at $1.25 per share and 684,475 shares of common stock at $.75 per share.



Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



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



Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method (FIFO). Demonstration motorcycles are stated at manufacturing cost and reserves are recorded to state the demonstration motorcycles at net realizable value. The Company reviews inventory for obsolescence and excess quantities to determine that items deemed obsolete or excess are appropriately reserved.



F-8

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



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




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



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



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




        Motorcycles are delivered, which is at the time they are shipped;





        Title of the motorcycle passes to the dealer, generally at the time of shipment;





        Collection of the relevant receivable is probable;





        Persuasive evidence of an arrangement exists; and





        The sales price is fixed or determinable.




The exception to the above statement is if the sale(s) to the dealer(s) are financed through dealer financing. At that point the company records revenue for the bike sold and a receivable from GE Commercial Finance.



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



F-9

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



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




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



A provision for the costs related to warranty expense will be recorded as a charge to cost of goods sold when revenue is recognized. The estimated warranty cost will be based on industry averages and the stage of production life cycle of the Companys motorcycles. The warranty reserve will be evaluated on an ongoing basis to ensure its adequacy. At the same time the company calculates a Fair Market value of the risk associated with the dealer financing liability and records the entry. The liability exposure is based on using an industry average of ten percent (10%) for the motorcycle sales for the reporting period. Up to 2005 the company used a rate of five percent (5%) but now has adjusted to ten percent (10%).

Warranty information is detailed in the following table:



December 31,2006
        
        December 31,2005
        
        December 31,2004Beginning balance
        
        $
        15,584
        
        $
        27,591
        
        $
        Warranties issued
        
        
        
        
        
        
        
        
        29,515Warranty payments
        
        
        (5,584
        )
        
        (12,007
        )
        
        (1,924
        )Ending balance
        
        $
        10,000
        
        $
        15,584
        
        $
        27,591




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



Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income taxes, if any, are recognized for the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred income taxes, if any, will be recorded at the tax rates expected to be in effect when amounts are to be included in future taxable income. A valuation allowance is recorded to reduce the deferred tax assets to the amounts believed to be realizable. Due to the uncertainty regarding the Companys future profitability, the future tax benefits of its losses have been fully reserved and no net tax benefit has been recorded in these financial statements.



F-10

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



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




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



Stock Options and Stock Based Compensation The Company has elected to expense options granted to its employees under the provisions of SFAS 123 (Accounting for Stock-Based Compensation) with respect to employee stock options. There were no options issued from inception through December 31, 2003.



The fair values of the employee stock options granted during the years ending December 31, 2004 and 2005 were $29,863 and $497,700, respectively. The fair values of these option grants were determined using the Black-Scholes model with the following assumptions: a risk-free interest rate of 4.25%, an expected life of five years, 18% volatility, and no expected dividend yield.



The Company also issued common stock for services to employees, certain contractors and financing companies. As such, common stock was granted during the years ending December 31, 2004 and 2005 were $1,301,783 and $750,000 respectively.



The Company accounts for equity instruments issued to non-employees for services and goods under SFAS 123; EITF 96-18 (Accounting for Equity Instruments Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services); and EITF 00-18 (Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to other than Employees.)  Generally, the equity instruments issued for services or goods are for common shares or common stock purchase warrants. These shares or warrants are fully vested, non-forfeitable and fully paid or exercisable at the date of grant and require no future performance commitment by the recipient. The Company expenses the fair market value of these securities over the period in which the Company receives the related services.



Dealer Floor Plan Financing In May 2003, the Company entered into a floor plan financing agreement with GE Commercial Distribution Finance Corporation (CDF) to establish a financing facility for the Companys independent dealers. Under this agreement, the Company submits an invoice to CDF describing the merchandise it ships to a dealer when the dealer requests floor plan financing from CDF. If CDF accepts the obligation to finance the merchandise, CDF pays the Company 97.6% to 100% of the amount invoiced. The Company must provide to CDF certain covenants when invoices are submitted for floor plan financing, relating to the bona fide nature of the order, title and salability of the merchandise being financed.



F-11

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



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




Dealer Floor Plan Financing (Continued) Dealers of the Company also must each qualify independently with CDF to obtain financing through this facility, and CDF must accept each financing transaction prior to CDF being obligated to finance the merchandise. CDFs obligation is also subject to certain conditions including delivery of the merchandise by the Company to the dealer within 30 days of CDFs acceptance, receipt by CDF of the invoice within 10 days shipment to the dealer, and no revocation of CDFs acceptance prior to shipment of the merchandise.



If CDF deems it necessary to repossess any merchandise financed by CDF, the Company must repurchase the merchandise from CDF at the greater of the unpaid balance on such merchandise or the Companys original invoice price, regardless of the condition of the merchandise. The Company also must pay any expenses incurred by CDF relating to any repossession.  The Company calculates a Fair Market Value of the risk associated by reserving ten percent (10%) based on the industry average for the motorcycle sales for the reporting period.



Either party upon 30 days written notice may terminate the Companys floor plan financing facility with CDF anytime, and CDF may terminate the agreement anytime upon an event of default by the Company.



2.
        EQUITY FINANCING AGREEMENTS




The Company incurred a net loss of $11,323,832,
$4,986,019 and $25,415,406, for the years ending December 31, 2006 and 2005 and the period from inception (November 18, 2002)
through December 31, 2006, respectively. Viper produced 25 motorcycles in 2004 as a Development Stage Company while
producing only one bike per dealer (considered a one-time R&D production on the new bike). The current
business plan is to commence commercial production in the second quarter 2007. No additional capital infusion will be required to
start commercial production of motorcycles and engines.



The Company has completed the following financing transactions to fund the anticipated cash flow shortfall. On August 31, 2005 the Company completed a private placement of 1,000,038 shares at $3.90 per share resulting in net proceeds to the Company of $3,387,024.



In December 2006 the Company sold a total of 173,333 common shares of the Company in a private placement to four accredited investors at $.75 per share, for a total consideration of $130,000.



F-12

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



3.
        PURCHASE OF ENGINE DEVELOPMENT TECHNOLOGY




Effective March 31, 2005, Viper Powersports Inc.,
acquired substantial motorcycle engine technology and related assets from Thor Performance Inc., a Minnesota corporation. These
assets were acquired in exchange for 2,996,575 shares of common stock of Viper Powersports Inc. issued to Thor Performance, Inc.
The Company valued the engine development technology at $2.50 per share and capitalized $7,341,438 for the value of the motorcycle
engine development. This motorcycle development was designed and developed over the past 6 to 7 years by Melling Consultancy
Design (MCD), an engine development firm based in the United Kingdom, which has previously designed both motorcycle and auto
racing engines.



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



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



F-13

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



4.
        RECAPITALIZATION




On March 31, 2005 Viper Powersports Inc. was merged with Viper Motorcycle Company pursuant to a merger agreement dated March 11, 2005. Upon consummation of this merger, Viper Motorcycle Company became a wholly-owned subsidiary of Viper Powersports Inc. Prior to the merger Viper Powersports Inc. was an inactive publicly-held company.



Immediately after completion of the merger, the former stockholders of Viper Motorcycle Company owned 93.5% of the outstanding shares of capital stock of Viper Powersports Inc. Accordingly, this transaction constituted a reverse merger which is regarded as if Viper Motorcycle Company had acquired Viper Powersports Inc. These financial statements present operations of Viper Motorcycle Company from its inception on November 18, 2002, and do not include any prior operations of Viper Powersports Inc.



For accounting and financial reporting purposes, this reverse merger was treated as a recapitalization of Viper Powersports Inc. Viper Powersports Inc. had no assets or liabilities and no business other than the search for a suitable merger target, and accordingly its book value has been stated at zero on the recapitalized balance sheet.



Pursuant to the one-for-one share exchange basis of
this merger, the stockholders of Viper Motorcycle Company exchanged all of their capital stock for a like amount and type of
capital stock of Viper Powersports Inc. Common stockholders of Viper Motorcycle Company acquired a total of 8,272,324 shares of
common stock of Viper Powersports Inc., including shares issued for engine development technology. Preferred stockholders of Viper
Motorcycle Company acquired a total of 783,000 shares of preferred stock of Viper Powersports Inc., which preferred shares were
convertible into common shares on a one-for-one basis. All preferred shares were converted, in December 2006, on the basis
of $1.25 per share.



Additionally under this reverse merger, all outstanding options and warrants to purchase common stock of Viper Motorcycle Company were converted into like options and warrants to purchase common stock of Viper Powersports Inc.



5.
        RELATED PARTY TRANSACTIONS




Since inception, the Company has entered into many transactions with related parties consisting of officers, directors and beneficial owners of more than 10% of its common stock, including the following:



Debt Conversions Incident to reorganizing the Company during January-March 2005, outstanding debt of the Company in the aggregate amount of $4,770,879 was converted into capital stock of the Company based on $2.50 per share. These debt conversions included $3,476,547, owed to officers, directors and shareholders consisting of $2,694,418 in outstanding loans and interest thereon, accrued compensation and accounts payable of $344,629, and $437,500 to settle and terminate an employment contract with a former officer.



F-14

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



5.
        RELATED PARTY TRANSACTIONS (Continued)




Thor Performance, Inc. Effective March 31, 2005 the Company acquired substantial motorcycle and engine development technology and related assets from Thor Performance, Inc. in exchange for 2,996,575 shares of common stock of the Company valued at $2.50 per share.(See Note 3). Due to this transaction, an officer and three (3) principal shareholders of this Company beneficially acquired 2,401,192 common shares of the total issued for Thor Performance, Inc.



Common Stock Issued for Services In December 2004, the Company granted a total of 189,700 shares of its common stock, valued at $2.50 per share, to employees as additional compensation for 2004. These common shares were fully vested and fully paid upon their grant, and included 125,000 shares granted to the President of Viper Motorcycle Company.



Prior to December 2004, the Company had issued other stock grants from time to time for services including officers, directors and shareholders. These transactions included stock grants in November 2002 to March 2003 of 411,250 common shares of $.40 per share, in May 2003 of 822,500 common shares at $1.00 per share, in December 2003 of 42,500 common shares at $2.00 per share, and in May 2004 of 16,000 common shares at $2.50 per share.



The value of common shares issued in all these stock grants for services was determined by the Companys Board of Directors based on concurrent sales of the Companys common stock to unrelated parties as well as the development status of the Companys business at the time of these stock grants.



Private Placements In connection with various private placements of the Companys common stock since inception, officers, directors and shareholders have purchased its common stock on the same terms under which unrelated parties have participated in these placements. Sales to officers, directors and shareholders in private placements has included a total of 504,750 common shares at $.40 per share in a placement from November 2002 to March 2003 a total of 70,000 common shares at $2.00 per share in a June to December 2003 placement, and a total of 40,212 common shares at $2.50 per share in a February to March 2005 placement.



F-15

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



5.
        RELATED PARTY TRANSACTIONS (Continued)




Indebtedness to Principal Shareholders From December 2003 to August 2004, David Palmlund III (a principal shareholder) loaned a total of $2,000,000 to the Company, for which he received various notes bearing interest rates from 10% to 35% and having maturity dates from August 2004 to September 2005. All of this debt was outstanding as of December 31, 2004. In March 2005, except for $150,000 of a Series A Convertible Secured Note, Mr. Palmlund converted all of his debt, including accrued interest, into 740,000 shares of preferred stock of the Company and 64,635 shares of common stock of the Company, all based on the share price of $2.50. The unconverted $150,000 Series A Note bears an interest rate of 18% per annum, and is convertible into common shares of the Company on the basis of $2.50 per share. The Series A note matures on September 30, 2005. This Series A Note is also
secured by tangible and intangible assets of the Company. On November 30, 2006 David Palmlund agreed to convert the $150,000 plus accrued interest to common stock at $1.25 per share thereby removing the security agreement.



Indebtedness to Related Parties Five other related parties, including an officer, two directors, and two principal shareholders have made substantial cash advances or working capital loans to the Company from time to time since its inception. They have received unsecured 8% notes for these advances and loans. As of December 31, 2004 $673,237 of these 8% notes was outstanding, including accrued interest. In February to March 2005, all outstanding 8% notes of the Company, including accrued interest thereon, were converted into shares of common stock of the Company based the price of $2.50 per share.



Guarantee of Letter of Credit In February
of 2007 the Letter of Credit was renewed in the amount of $200,000. In January 2004, the Company obtained a $100,000 Letter of
Credit from Compass Bank of Dallas Texas in favor of GE Commercial Distribution Finance Corporation and increased to $200,000 in
February 2005. This Letter of Credit also was guaranteed by David Palmlund III (a principal shareholder), who is being paid $3,000
per month as long as the guarantee is outstanding.



Employment Agreement In January 2004, the Company entered into a 3-year employment agreement with Terry Nesbitt to pay him an annual salary on the basis of $94,600 until April 2004 and thereafter on an annual basis of $104,060. This agreement also provided for him to be paid total bonuses of $25,000 in 2004. The agreement also obligates the Company to provide his medical insurance, a monthly fuel expense allowance, a vehicle for his travel purposes, and reimbursement of his reasonable out-of-pocket expenses. Mr. Nesbitts agreement also provides that if his employment is terminated without cause, he will receive a



F-16

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



cash severance payment equal to 75% of his annual compensation for 24 months. The employment agreement was not renewed with Terry Nesbitt as of January 1, 2007.



Settlement of Employment Contract In January 2005 the Company issued a total of 175,000 shares of common stock expensed on a per share price of $2.50, for the termination of an officers employment contract.



Inventory Financing In November 2005 the Company entered into an Inventory Financing Arrangement with one of its principal shareholders, David Palmlund, to provide a total of $800,000 for securing inventory related to starting production. Through August of 2006 the inventory financing amount was increased to $1,700,000. Interest of two percent (2%) per month was to be paid on the average outstanding balance during each month. On November 30, 2006 the principal shareholder, David Palmlund, agreed to convert the debt, plus any accrued interest, to common stock at $1.25 per share.



6.
        COMMON STOCK WARRANTS AND OPTIONS




The Company has issued warrants to purchase a total of 2,383,639 shares of its common stock, and also has granted options to purchase a total of 932,000 of its common shares.



Warrants Outstanding warrants of the Company to purchase 53,635 common shares at a price of $2.00 per share have three-year terms, expiring from June 2006 to January 2007; and outstanding warrants to purchase 330,000 common sharesat the price of $2.50 per share have five-year terms, expiring from December 2008 to March 2010; outstanding warrants to purchase 150,000common shares at a price of $6.00 per share have a five-year term expiring in January 2010; outstanding warrants to purchase 1,750,000 common shares at a price of $4.60 per share have a three-year term expiring August 2008; and outstanding warrants to purchase 100,004 common shares at a price of $3.90 per share have a five year term expiring August 2010. Related parties hold warrants to purchase 262,500 of these warrant shares,
with the other warrants being held by persons who have provided financial or consulting services to the Company. No warrants issued by the Company have been exercised so far.



Stock Options Outstanding stock options all have five-year terms expiring from January 2009 to November 2010. They consist of options to purchase 782,000 common shares at a price of $2.50 per share, an option to purchase 75,000 common shares at a price of $2.00 per share, and options to purchase 75,000 common shares at a price of $5.00 per share. Related parties hold options to purchase 647,000 common shares, and the balance of options to purchase 285,000 common shares are held by current and former employees and directors of the Company. No stock options granted by the Company have been exercised so far.



F-17

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements







VIPER POWERSPORTS, INC.COMMON STOCK WARRANTS & OPTIONSOptions
        
        Warrants12/31/2006
        
        12/31/2005
        
        12/31/2006
        
        12/31/2005Beg Bal
        
        932,000
        
        165,000
        
        2,383,639
        
        283,635Issued
        
        0
        
        767,000
        
        0
        
        2,100,004Exercised
        
        
        
        
        
        
        
        Cancelled
        
        
        
        
        
        
        
        End Bal
        
        932,000
        
        932,000
        
        2,383,639
        
        2,383,639Exercisable
        
        882,000
        
        882,000
        
        2,383,639
        
        2,383,639




7.
        LEASING ACTIVITIES




On July 2, 2004, the Company entered into a capital lease with CNC Associates for a HAAS VF2-SS CNC milling machine for a term of 60 months. Monthly payments of $1,421.58 are required under the lease.



On October 17, 2005, the Company entered into a capital lease with Citizen Automobile Finance for the acquisition of a 2004 delivery van for a term of 60 months and an interest rate of 7.99%. Monthly payments of $407.36 are required under this lease.



On December 7, 2005, the Company entered into a capital lease agreement with Venture Bank for the acquisition of a 2004 Chevy Truck for the term of 48 months and an interest rate of 8.5%. Monthly payments of $802.92 are required under this lease.



On June 1, 2006, the Company entered into a capital lease with GE Capital Finance for a compressor for a term of 24 months. Monthly payments of $1,572.46 are due under this lease.



On July 1, 2006 the Company entered into a capital lease with CNC Associates for a Hass VF5 Axis Maching Center for a term of 60 months. Monthly payments of $3,162.47 are required under the lease.



F-18

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



On February 6, 2006, the Company entered into an
operating lease for manufacturing and office space to accommodate the Companys future manufacturing operations. The term of
the lease is sixty (60) months beginning March 1, 2006. Future minimum lease payments under this agreement have been included in
the schedule of minimum operating lease payments.



Minimum lease payments are as follows:



For the years ending December 31,
        
        Capital Lease
        
        Operating Lease2007
        
        
        32,769
        
        $
        124,3062008
        
        
        21,856
        
        
        102,1472009
        
        
        14,523
        
        
        102,1472010
        
        
        4,073
        
        
        102,1472011
        
        
        0
        
        
        17,025Total
        
        
        73,221
        
        $
        447,772Amount for interest
        
        
        6,324Net
        
        
        66,897Less: Current portion
        
        
        30,883Long term portion
        
        $
        36,014




8.
        PREFERRED STOCK




The Company has authorized 20,000,000 shares of
preferred stock with par value of $.001 per share. Of these, 783,000 have been designated as Series A Preferred Stock with a
stated value of $2.50 per share. The 783,000 shares were issued for debt at $2.50 per share, and are issued and outstanding as of
August 31, 2005. Each share of Series A Preferred Stock has one voting right, cumulative annual dividend rights of $.20 per share,
conversion rights for one share of common stock, liquidation preference of $2.50 per share, and a provision for antidilution in
the case of stock splits, dividends, recapitalizations, mergers or other business combinations. As of November 30, 2006 the
holders of the preferred stock of 783,000 shares agreed to convert their postion to common stock at $1.25 per share. Twenty months
of dividend in the amount of $261,286 plus the principal amount of $1,957,500 was converted into 1,775,029 shares of common
stock.



F-19

---

Viper Powersports, Inc.

(A Development Stage Company)



Notes to Consolidated Financial Statements



9.
        SUBSEQUENT EVENTS




On January 20, 2007 the Company sold its two machining
centers, the VF2 and VF5, to an unrelated third party. These machining centers were sold to a vendor that is currently
manufacturing parts for the motorcycles.



On March 23, 2007 the Company restructured its lease
with the Landlord, Big Lake Partners, by reducing the occupied space down to 15, 715 sq. ft. This will be effective April 1, 2007
and will result in a base lease payments of $8,512.29 per month for the remaining term of the lease. Approximately $4,300.00 in
other cost such as CAM and Taxes will be paid monthly. A long term note for the lease payments for January, February and March
2007 in the amount of $75,848.91 was set up. This note is at simple interest of 8.0% and is payable in total on June 30,
2008.





F-20

---