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

FORM 10-K/A-1

(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

  o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-52500

Confederate Motors, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
26-4182621
(State or other jurisdiction of
incorporation or organization)
 
(IRS employer
identification number)
 
 
 
2222 5th  Avenue South, Birmingham, AL
 
35233
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code:    (205) 324-9888

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

Securities registered pursuant to Section 12(g) of the Act:    Common Stock, Par Value $0.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o   No  x

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o   No  x
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.    See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
 
Accelerated filer
o
 
Non-accelerated filer
o
 
Smaller reporting company
x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o  No  x
 
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 the last business day of the registrant’s most recently competed second fiscal quarter was $4,041,383.

The number of shares outstanding of the registrant’s common stock on April 5, 2013, was 13,471,277.
 
DOCUMENTS INCORPORATED BY REFERENCE

None
 


 
 

 

EXPLANATORY NOTE
 
The purpose of this Amendment No. 1 is to amend Item 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Item 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, and Item 15, EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
 
Item 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, has been amended to revise the Liquidity and Capital Resources section to include a discussion of the delinquent final payment due to Mr. Terny under the Settlement Agreement discussed in Note 15 to the financial statements included with this Form 10-K amended report and the remaining registration rights liability discussed in Note 5 of the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2013, and how the Company expects to satisfy these obligations.
 
Item 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, has been amended to revise Note 15 to address how the Company considered these items in reaching its conclusion that the substantial doubt regarding the Company’s ability to continue as a going concern has been mitigated.
 
Item 15, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, includes as exhibits the certifications required pursuant to Rule 13a-14(a) under the Exchange Act.
 
This Amendment No. 1 continues to speak as of the date of the original Form 10-K for the year ended December 31, 2012, and the Company has not updated or amended the disclosures contained in the amended items to reflect events that have occurred since the filing of the original Form 10-K, or modified or updated those disclosures in any way other than as described in the preceding paragraphs.  Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the original Form 10-K on April 16, 2013.
 
 
2

 
 
Table of Contents
 

 
3

 
 
Forward-Looking Statements

This report contains forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this report.
 
Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report or to reflect the occurrence of unanticipated events.    You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this report.

Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of our control, and involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially from the statements made, including, but not limited to, the following:

actual or anticipated fluctuations in our quarterly and annual operating results;
actual or anticipated product constraints;
decreased demand for our products resulting from changes in consumer preferences;
product and services announcements by us or our competitors;
loss  of any of our key executives;
regulatory announcements, proceedings or changes;
announcements in the motorcycle community;
competitive product developments;
intellectual property and legal developments;
mergers or strategic alliances in the motorcycle industry;
any business combination we may propose or complete;
any financing transactions we may propose or complete; or
broader industry and market trends unrelated to its performance.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our company” refer to Confederate Motors, Inc., a Delaware corporation.

 
4

 

 

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto as filed with this report.

We produce premium, heavyweight (651+cc) motorcycles. CM manufactures the third generation Hellcat (“X132”).

Overview and Outlook

Net revenue for 2012 was $2,561,260 compared to $1,933,612 for 2011. The Company’s year end financial performance reflected an increase in motorcycle shipments. Net loss was $509,680 in 2012 compared to a net loss of $461,884 in 2011.  Net loss for 2012 includes a non-cash stock option expense of $344,691.
 
Cash flow from operating activities was $16,549 in 2012 compared to a negative cash flow of $441,697 in 2011. Net cash flow from investing activities was $0 and $3,750 for 2012 and 2011, respectively. Net cash flow from financing activities was $34,594 and $249,393 for 2012 and 2011, respectively.
 
We believe that the near-term global economic environment will be challenging for the business and we will continue to make prudent decisions to manage through this uncertain environment.  At the same time, we are optimistic about the Company’s long-term business prospects and plans to continue to expand production and global distribution. The operational focus for 2012 was spent on production of the Hellcat series.  A significant amount of time was also spent making engineering improvements to the new model as well as the strategic repositioning of the direct sales model to a hybrid model of direct domestic sales combined with international distribution and dealer networks. We also established distribution partners in China and Russia. We maintain a sales backlog for which the revenue will be recognized in later periods.
 
Cost of Goods Sold

Cost of goods sold was $1,777,795 in 2012 compared to $1,238,466 in 2011.  The increase in cost of goods sold was primarily due to an increase in motorcycle shipments.

Gross Profit

Gross profit was $783,465 in 2012 compared to $695,146 in 2011. Gross profit was higher due to an increase in motorcycle shipments. Gross profit percentage declined to 30.6% of revenue from 35.9% the prior year due to lower average selling price.
 
Operating Expenses

Selling, general and administrative expenses
 
Selling, general and administrative costs (“SG and A”) was $1,280,252 in 2012 compared to $1,127,927 in 2011. The 2012 and 2011 SG and A expense include stock option expense of $344,691 and $143,621, respectively. Excluding the effect of stock option expense, SG and A expenses decreased 5% over the prior year primarily due to lower Sales and Public Relations salary in 2012.

Research and Development Costs

Research and development costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying statements of operations. Research and development costs totaled $209,592 and $184,165 for the years ended 2012 and 2011, respectively.
 
 
5

 
 
Results  of  Operations  for  the  year ended December 31, 2012 Compared  to  the  year ended December 31, 2011
 
 
 
Year Ended
 
 
 
December 31,
2012
 
 
December 31,
2011
 
Revenue from motorcycles  & related products
 
$
2,561,260
 
 
$
1,933,612
 
Gross Profit
 
$
783,465
 
 
$
695,146
 
Operating Expense
 
$
1,489,844
 
 
$
1,312,092
 
Other Income (Expense)
 
$
196,699
 
 
$
155,062
 
Net Income (Loss)
 
$
(509,680
)
 
$
(461,884
)
Earnings (Loss) per Share
 
$
(0.04
)
 
$
(0.04
)
 
Cautionary Statements
 
Our ability to meet the targets and expectations noted depends upon, among other factors, our ability to (i)  continue to realize production efficiencies and manage operating costs including materials, labor and overhead; (ii)  manage production capacity and production changes; (iii)  manage supply chain issues; (iv)  provide products, services and experiences that are successful in the marketplace; (v)  develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace; (vi)  continue to develop the capabilities of its distributor network; (vii)  manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations; (viii)  manage access to reliable sources of capital and adjust to fluctuations in the cost of capital; (ix)  anticipate consumer confidence in the economy; (x)  retain and attract talented employees; (xi)  detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, increased warranty costs or litigation.

Our ability to sell our motorcycles and related products and services and to meet our financial expectations also depends on the ability of our independent distributors to sell our motorcycles and related products and services to retail customers. We depend on the capability and financial capacity of our independent distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from us.
 
In addition, our independent distributors may experience difficulties in operating their businesses and selling our products.

Liquidity and Capital Resources
 
At December 31, 2012, we had cash of $128,916.
 
The Company increased it’s cash position by $51,143 over the prior year.  The increase was a result of $91,000 proceeds from issuance of stock. Cash flow from operations improved to $16,549 from a loss of $441,697 in 2011. The improvement was partially a result of lower inventory balance which the Company will need to replenish with a capital raise from a planned stock offering.

To the extent we are successful in rolling out our product line and increasing demand for our motorcycles, we plan to use our working capital to fund continued expansion. Over the next 12 months, we will focus production on the X132 Hellcat. The Company has a significant backlog of orders; as of the date of this report the Company has 30 orders which represent 4-6 months of production backlog. The projected capital expenditure for inventory to increase production is approximately $350,000.  We intend to raise the capital through the sale and issuance of our capital stock.

Over the long-term, the Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities and return value to shareholders.

 
6

 
 
In 2012 the Company entered into a Mutual Settlement Agreement & General Release (the “Settlement Agreement”) with Francois Xavier Terny to settle an outstanding dispute.  Under the Settlement Agreement, the Company agreed to make scheduled payments to Mr. Terny totaling $350,000 in exchange for the return of 805,000 shares held by Mr. Terny. We paid Mr. Terny $50,000 upon the execution of the Settlement Agreement and an additional $25,000 prior to December 31, 2012. The final payment of $275,000 was required to be paid on or before March 31, 2013, but remained unpaid as of the date of this report.  In addition, at December 31, 2012, we owed $175,000 to investors in a 2009 offering as a penalty in connection with the registration of the shares sold in the offering.  The Company expects to use proceeds from private stock offerings as well as proceeds from backlog order fulfillment to satisfy the current debt to Mr. Terny and to satisfy the registration rights liability, should a payment be demanded.  In connection with the registration penalty, we may also attempt to negotiate a settlement with the parties to satisfy the obligations with shares of our equity securities or installment payments.

Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs.
 
Recent Accounting Pronouncements
 
Various ASU’s up through ASU No. 2013-05 contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

Critical Accounting Policies
 
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates. We continue to monitor significant estimates made during the preparation of our financial statements.
 
Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would affect consolidated results of operations, financial position or liquidity for the periods presented in this report.
 
Significant amounts of our shares of common stock have been issued as payment to employees and non-employees for services. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in our consolidated financial statements for certain of our assets and expenses. For historic fiscal years when there was not an observable active, liquid market for our common stock, the valuation of the shares issued in a non-cash share payment transaction relies on observation of arms-length transactions where cash was received for our shares, before and after the non-cash share payment date.
 
Off-Balance Sheet Arrangements

None.

 
7

 
 
 
 
Russell E. Anderson, CPA
Russ Bradshaw, CPA
William R. Denney, CPA
Sandra Chen, CPA
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To The Board of Directors and Stockholders of
Confederate Motors, Inc.
 
We have audited the accompanying consolidated balance sheets of Confederate Motors, Inc. (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the years then ended. 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.
 
5296 S. Commerce Dr
Suite 300
Salt Lake City, Utah 84107
USA
(T) 801.281.4700
(F) 801.281.4701
 
Suite A, 5/F
Max Share Center
373 Kings Road
North Point
Hong Kong
(T) 852.21.555.333
(F) 852.21.165.222
 
abcpas.net
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Confederate Motors, Inc. as of December 31, 2012 and 2011, and the results of its consolidated operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
/s/Anderson Bradshaw PLLC
Salt Lake City, Utah
April 11, 2013, except for Note 15 which is dated November 4, 2013
 
 
8

 
 
CONFEDERATE MOTORS, INC.
Consolidated Balance Sheets
December 31, 2012 and 2011
 
 
 
December 31,
 
 
December 31,
 
 
 
2012
 
 
2011
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
128,916
 
 
$
77,773
 
Inventory
 
 
345,632
 
 
 
528,662
 
Prepaid expenses
 
 
201,070
 
 
 
545,761
 
Prepaid inventory
 
 
11,015
 
 
 
11,950
 
Notes receivable
 
 
62,500
 
 
 
-
 
Total current assets
 
 
749,133
 
 
 
1,164,146
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 
3,550
 
 
 
7,836
 
Total assets
 
$
752,683
 
 
$
1,171,982
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
Accounts payable
 
$
201,320
 
 
$
167,163
 
Accrued interest payable
 
 
7,502
 
 
 
7,502
 
Accrued salaries
 
 
201,000
 
 
 
  101,000
 
Accrued payroll tax  liability
 
 
67,245
 
 
 
82,669
 
Deferred revenue
 
 
817,582
 
 
 
832,333
 
Deferred sales commission and royalty
 
 
49,982
 
 
 
-
 
Warranty reserve
 
 
8,600
 
 
 
8,600
 
Other accrued expenses
 
 
21,708
 
 
 
24,308
 
Registration rights liability
 
 
175,500
 
 
 
251,250
 
Payable to be settled in stock
 
 
50,000
 
 
 
-
 
Settlement payable
 
 
275,000
 
 
 
-
 
Current portion of notes payable
 
 
18,737
 
 
 
32,306
 
Current portion of capital leases
 
 
2,405
 
 
 
3,885
 
Current portion of deferred exclusive agency fee
 
 
-
 
 
 
60,000
 
Total current liabilities
 
 
1,896,581
 
 
 
1,571,016
 
 
 
 
 
 
 
 
 
 
Notes payable, less current portion
 
 
-
 
 
 
12,234
 
 
 
 
 
 
 
 
 
 
Stockholders' deficit
 
 
 
 
 
 
 
 
Common Stock, $0.001 par value 200,000,000 shares authorized; 13,471,277 and 13,254,998 shares outstanding at December 31, 2012 and 2011, respectively
 
 
13,470
 
 
 
13,254
 
Additional paid-in capital
 
 
9,802,962
 
 
 
9,712,178
 
Treasury shares
 
 
(313,950
)
 
 
-
 
Accumulated deficit
 
 
(10,646,380
)
 
 
(10,136,700
)
Total stockholders’ deficit
 
 
(1,143,898
)
 
 
(411,268
)
Total liabilities and stockholders’ deficit
 
$
752,683
 
 
$
1,171,982
 
 
The accompanying notes are an integral part of these financial statements.
 
 
9

 
 
CONFEDERATE MOTORS, INC.
Consolidated Statements of Operations
Years ended December 31, 2012 and 2011
 
 
 
2012
 
 
2011
 
 
 
 
 
 
 
 
Sales
 
$
2,561,260
 
 
$
1,933,612
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
 
(1,777,795
)
 
 
(1,238,466
)
 
 
 
 
 
 
 
 
 
Gross profit
 
 
783,465
 
 
 
695,146
 
Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
 
209,592
 
 
 
  184,165
 
Selling, general and administrative expenses
 
 
1,280,252
 
 
 
1,127,927
 
Total operating expenses
 
 
1,489,844
 
 
 
1,312,092
 
 
 
 
 
 
 
 
 
 
Loss  from operations
 
 
(706,379
)
 
 
(616,946
)
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
Gain from extinguishment of debt
 
 
-
 
 
 
101,000
 
Gain on litigation settlement
 
 
39,700
 
 
 
 
 
Other income
 
 
160,000
 
 
 
60,000
 
Interest, net
 
 
(3,001
)
 
 
(5,938
)
Total other income
 
 
196,699
 
 
 
155,062
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(509,680
)
 
$
(461,884
)
 
 
 
 
 
 
 
 
 
Net income (loss) per common share - basic and diluted
 
$
(0.04
)
 
$
(0.04
)
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding - basic and diluted
 
 
13,304,178
 
 
 
13,073,344
 
 
The accompanying notes are an integral part of these financial statements.
 
 
10

 

CONFEDERATE MOTORS, INC.
Consolidated Statement of Stockholders’ Deficit
Years ended December 31, 2012 and 2011
 
 
 
Common
Stock
Shares
 
 
Common
Stock
 
 
Treasury
Stock
 
 
Additional
Paid-In
Capital
 
 
Accumulated
Deficit
 
 
Total
Stockholders'
Deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2010
 
 
12,954,998
 
 
$
12,954
 
 
$
-
 
 
$
8,723,096
 
 
$
(9,674,816
)
 
$
(938,766
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock for cash
 
 
300,000
 
 
 
300
 
 
 
 
 
 
 
299,700
 
 
 
 
 
 
 
300,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options issued for services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
689,382
 
 
 
 
 
 
 
689,382
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(461,884
)
 
 
(461,884
)
Balance at December 31, 2011
 
 
13,254,998
 
 
$
13,254
 
 
$
-
 
 
$
9,712,178
 
 
$
(10,136,700
)
 
$
(411,268
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock for cash
 
 
216,279
 
 
 
216
 
 
 
 
 
 
 
90,784
 
 
 
 
 
 
 
91,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Treasury stock
 
 
 
 
 
 
 
 
 
 
(313,950
)
 
 
 
 
 
 
 
 
 
 
(313,950
)
Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(509,680
)
 
 
(509,680
)
Balance at December 31, 2012
 
 
13,471,277
 
 
$
13,470
 
 
$
(313,950
)
 
$
9,802,962
 
 
$
(10,646,380
)
 
$
(1,143,898
)
 
The accompanying notes are an integral part of these financial statements.
 
 
11

 

CONFEDERATE MOTORS, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2012 and 2011
 
 
 
2012
 
2011
 
Operating activities
 
 
 
 
 
Net Loss
 
$
(509,680
)
 
$
(461,884
)
Adjustments to reconcile net loss to net cash used by operating activities
 
 
 
 
 
 
 
 
Depreciation
 
 
8,409
 
 
 
19,500
 
Options issued for services
 
 
344,691
 
 
 
143,621
 
Write-off of inventory
 
 
42,483
 
 
 
-
 
Gain on litigation settlement
 
 
(39,700
)
 
 
-
 
Gain on sale of assets
 
 
(62,500
 
 
 
-
 
Change in operating assets and liabilities
 
 
 
 
 
 
 
 
Inventory
 
 
140,547
 
 
 
(95,656
)
Prepaid inventory
 
 
935
 
 
 
3,650
 
Accounts payable
 
 
34,157
 
 
 
24,243
 
Accrued salaries
 
 
100,000
 
 
 
101,000
 
Accrued payroll tax liability
 
 
(15,424
)
 
 
(122,000
)
Other accrued expenses
 
 
(2,600
)
 
 
1,915
 
Deferred revenue
 
 
(14,751
)
 
 
3,914
 
Deferred sales commission and royalty
 
 
49,982
 
 
 
-
 
Net cash provided (used) by operating activities
 
 
16,549
 
 
 
(441,697
)
 
 
 
 
 
 
 
 
 
Investing activities
 
 
 
 
 
 
 
 
Due from related party
 
 
-
 
 
 
3,750
 
Net cash used by investing activities
 
 
-
 
 
 
3,750
 
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
 
 
 
 
 
Repayment of notes payable
 
 
(25,803
)
 
 
(32,308
)
Repayment of capital leases
 
 
(5,603
)
 
 
(18,299
)
Payments for treasury shares
 
 
(25,000
)
 
 
-
 
Proceeds from issuance of stock, net of stock issuance costs
 
 
91,000
 
 
 
300,000
 
Net cash provided by financing activities
 
 
34,594
 
 
 
249,393
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
 
51,143
 
 
 
(188,554
)
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at the beginning of year
 
 
77,773
 
 
 
266,327
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at end of year
 
$
128,916
 
 
$
77,773
 
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
 
 
 
 
Non cash investing & financing activities
 
 
 
 
 
 
 
 
Options issued for services
 
$
-
 
 
$
689,382
 
Equipment obtained with capital lease
 
$
4,123
 
 
$
-
 
Treasury stock
 
$
313,950
 
 
$
-
 
Cash paid during the year for:
 
 
 
 
 
 
 
 
Interest expense
 
$
3,001
 
 
$
5,938
 
Income tax
 
$
-
 
 
$
-
 
 
The accompanying notes are an integral part of these financial statements.
 
 
12

 
 
Confederate Motors, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
NOTE 1 – Summary of Significant Accounting Policies

Nature of Business

Confederate Motors, Inc. (the “Company”) is a manufacturer of American handcrafted street motorcycles. The Company currently offers one model: the X132 Hellcat. The X132 Hellcat model started production in January 2012. The Confederate Brand was founded in 1991. The Company has been operational since 2003 and is headquartered in Birmingham, Alabama.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Management believes that the estimates utilized in preparing the Company’s financial statements are reasonable and prudent; however, actual results could differ from those estimates.
 
Principles of Consolidation

The consolidated financial statements include Confederate Motors, Inc., and Confederate Motor Company, Inc. (collectively, the “Company”).  All intercompany accounts have been eliminated in consolidation.

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition and rapid technological change and is in a state of fluctuation as a result of the credit crisis occurring in the United States.  The Company's operations are subject to significant risks and uncertainties including financial, operational, technological, and regulatory risks including the potential risk of business failure.
 
See Note 7 for a full discussion of commitments, contingencies and other uncertainties.
 
Cash and Cash Equivalents

The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash depository accounts which at times, may exceed federally insured limits. The risk is managed by maintaining all deposits in high quality financial institutions. These amounts represent actual account balances held by the financial institution at the end of the period, and unlike the balance reported in the financial statements, the account balances do not reflect timing delays inherent in reconciling items such as outstanding checks and deposits in transit.

Inventory

Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventory consists of parts inventory, work in process (WIP), finished goods inventory, apparel and direct labor associated with finished goods.
 
   
12/31/12
   
12/31/11
 
Parts
 
$
183,069
   
$
261,657
 
Work in process
   
86,433
     
23,854
 
Motorcycle finished goods
   
67,611
     
229,568
 
Apparel Inventory
   
8,519
     
13,583
 
Total Inventory
 
$
345,632
   
$
528,662
 
  
 
13

 
 
Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and includes expenditures that substantially increase the useful lives of existing property and equipment. Maintenance, repairs, and minor renovations are charged to expense as incurred. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation are eliminated from the respective account and the resulting gain or loss is included in the results of operations. The Company provides for depreciation of property and equipment using the straight-line method over the estimated useful lives or the term of the lease, as appropriate. The estimated useful lives are as follows: vehicles, 5 years; furniture and fixtures, 3 to 5 years; equipment, 3 to 5 years.
 
Revenue Recognition

Revenues from the sale of motorcycles and equipment are recognized when products are delivered or shipped. Advance payments from customers are typically required to secure the order and are shown as deferred revenue in the accompanying balance sheets and are non-refundable. The Company recognizes revenue from repair services in the same month the service is provided.  Sales, use and other excise taxes are not recognized in revenue.  Cash payments received from customers prior to delivery of the motorcycle are recorded as deferred revenue on the Balance Sheet.  Deferred revenue was $817,582 at December 31, 2012 and $832,333 at December 31, 2011.
 
Earnings per Share

In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,”  basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period.  Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

The Company had the following potential common stock equivalents at December 31, 2012:

Common stock warrants
   
105,000
 
Common stock options
   
2,000,000
 
Total common stock equivalents
   
2,105,000
 

Since the Company reflected a net loss in 2012 and 2011, respectively, the effect of considering any common stock equivalents outstanding would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
 
Income Taxes
 
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC Topic 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
 
Accounting guidance now codified as FASB ASC Topic 740-20, “Income Taxes – Intraperiod Tax Allocation,” clarifies the accounting for uncertainties in income taxes recognized in accordance with FASB ASC Topic 740-20 by prescribing guidance for the recognition, de-recognition and measurement in financial statements of income tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a particular jurisdiction. FASB ASC Topic 740-20 requires that any liability created for unrecognized tax benefits is disclosed. The application of FASB ASC Topic 740-20 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets. The Company would recognize interest and penalties related to unrecognized tax benefits in income tax expense. At December 31, 2012 and 2011, respectively, the Company did not record any liabilities for uncertain tax positions.
 
 
14

 
 
Advertising Costs

Advertising is expensed as incurred.  For 2012 and 2011, advertising expense was $62,067 and $31,014, respectively.

Shipping and Handling Costs

The Company records shipping and handling costs billed to the customer and shipping and handling expenses in cost of sales.

Fair Value Measurements

We have categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP.

The levels of fair value hierarchy are as follows:

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access;

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we categorize such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs.
 
There are no fair value measurements as of December 31, 2012 and December 31, 2011.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.  The results of these reclassifications did not materially affect financial position, results of operations or cash flows.
 
 
15

 
 
NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

   
December 31,
   
December 31,
 
   
2012
   
2011
 
Vehicles
 
$
36,628
   
$
36,628
 
Furniture and fixtures
   
11,734
     
11,734
 
Equipment
   
123,191
     
119,068
 
Leasehold improvements
   
39,886
     
39,886
 
     
211,439
     
207,316
 
Less accumulated depreciation
   
207,889
     
199,480
 
   
$
3,550
   
$
7,836
 
 
NOTE 3 – NOTES PAYABLE

Notes payable consisted of the following as of:
 
   
December 31,
   
December 31,
 
   
2012
   
2011
 
 
           
Government agency note payable due August 12, 2013, prime plus 2.75 % rate of interest (6.00% and 6.00% at December 31, 2012 and 2011, respectively), principal and interest payable monthly, unsecured
 
$
18,737
   
$
39,482
 
 
               
Bank note payable due July 18, 2012, 7.95% fixed rate of interest, principal and interest payable monthly, secured by Company vehicle
   
-
     
5,058
 
     
18,737
     
44,540
 
Less current portion
   
18,737
     
32,306
 
   
$
-
   
$
12,234
 
Principal Maturities of Notes Payable
     
2013
 
18,737
 
         
   
$
18,737
 
 
NOTE 4 – CAPITAL LEASES

The capitalized cost and accumulated amortization of the computers and equipment acquired under capital leases totaled $123,191 and $119,641, respectively at December 31, 2012.  The capitalized cost and accumulated amortization of the computers and equipment acquired under capital leases totaled $108,807 and $105,241, respectively at December 31, 2011.  Amortization expense is included in depreciation expense.

At December 31, 2012, future minimum payments due under the capital lease agreements are as follows:
 
2013
       
Future minimum lease payments
   
2,642
 
Less amount representing interest
   
237
 
Present value of minimum lease payments
   
2,405
 
Less current portion
   
2,405
 
Long-term capital leases
 
$
-
 
 
NOTE 5 – STOCKHOLDERS’ EQUITY
 
Sale of Common Stock

On August 9, 2011, we raised $300,000 through the sale of 300,000 shares of common stock to an accredited investor.

 
16

 
 
In July 2012, the Company raised $41,000 through the sale of 100,000 shares of common stock to accredited investors.

In December 2012, the Company raised $50,000 through the sale of 116,279 shares of common stock to an accredited investor

Warrants

During the twelve months ended December 31, 2009, the Company issued 105,000 stock purchase warrants to purchase the Company’s common stock at an exercise price of $1.50. These warrants expire on January 30, 2014.  The Company valued these warrants utilizing a Black-Scholes option pricing model utilizing the following assumptions: fair market value per share -$1.50, exercise price -$1.50, expected volatility -115%, risk free interest rate -1.73%. The fair value of $127,050 was recorded to additional paid-in capital.
 
The following is a summary of the Company’s warrant activity:
 
   
Warrants
   
Weighted Average
Exercise Price
 
             
Exercisable - December 31, 2010
   
105,000
   
$
1.50
 
Granted
         
$
   
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – December 31, 2011
   
105,000
   
$
1.50
 
Exercisable – December 31, 2011
   
105,000
   
$
1.50
 
Granted
   
-
     
 -
 
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – December 31, 2012
   
105,000
   
$
1.50
 
Exercisable – December 31, 2012
   
105,000
   
$
1.50
 
 
Warrants Outstanding
   
Warrants Exercisable
Range of
Exercise Price
   
Number
Outstanding
   
Weighted Average
Remaining Contractual
Life (in Years)
   
Weighted Average
Exercise Price
   
Number
Exercisable
   
Weighted Average
Exercise Price
$1.50    
105,000
   
1.08 years
   
$1.50
   
105,000
   
$1.50

At December 31, 2012 and December 31, 2011, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.
 
Stock Options

On August 9, 2011, the Company entered into a Management Consulting Agreement with Confederate Strategic Partner Fund, LLC (hereinafter referred to as “Service Provider”).  In consideration for services provided by the Service Provider to the Company, the Company granted to the Service Provider an option to purchase up to 2,000,000 shares of common stock of the Company at $1.50 per share.  The options vest immediately and expire on August 9, 2013.
 
The Company valued these options utilizing a Black-Scholes option pricing model utilizing the following assumptions: fair market value per share -$1.40, exercise price -$1.50, expected volatility -68.9%, risk free interest rate -0.19%. The fair value of $689,382 was recorded to additional paid-in capital.

 
17

 
 
The following is a summary of the Company’s options activity:
 
  
 
Options
   
Weighted
Average
Exercise Price
 
             
Exercisable – June 30, 2011
   
-
   
$
-
 
Granted
   
2,000,000
     
1.50
 
Exercised
               
Forfeited
               
Outstanding – December 31, 2011
   
2,000,000
     
1.50
 
Exercisable – December 31, 2011
   
2,000,000
     
1.50
 
Granted
   
-
   
$
-
 
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – December 31, 2012
   
2,000,000
   
$
1.50
 
Exercisable – December 31, 2012
   
2,000,000
   
$
1.50
 
 
Options Outstanding
   
Options Exercisable
Range of
Exercise Price
   
Number
Outstanding
   
Weighted Average
Remaining Contractual
Life (in Years)
   
Weighted Average
Exercise Price
   
Number
Exercisable
   
Weighted Average
Exercise Price
$1.50
   
2,000,000
   
0.61
   
$1.50
   
2,000,000
   
$1.50
 
Registration Rights Penalty

In connection with the issuance of common stock and convertible debt, which converted into common stock in 2009, these equity holders were entitled to liquidated damages, which provide for a payment in cash equal to a maximum of 10% of the total offering price for all equity proceeds raised.  The convertible note holders were entitled to liquidated damages which provide for a payment in cash equal to a maximum of 15% of the total offering price for all equity proceeds raised. The Company was required to file an S-1 registration statement 120 days after the offering closed.  The closing date of the offering was February 12, 2009; therefore the 120th day was June 12, 2009.  Furthermore, the Company was required to have this S-1 registration declared effective within 150 days (July 12, 2009). The Company never filed a registration statement.  In 2012, the Company entered into a settlement agreement with a shareholder for cash in exchange for shares, which reduced the equity subject to registration rights penalty. See Note 7 for disclosure of the settlement agreement.

The Company has evaluated the registration rights provision and has determined the probability of incurring liquidated damages. The Company recorded the full penalty.

Liquidated damages are as follows:

Equity subject to registration rights penalty
 
$
1,417,500
 
Maximum penalty
   
10
%
Convertible debt subject to registration rights penalty
 
$
225,000
 
Maximum penalty
   
15
%
Registration Rights Penalty
 
$
175,500
 
 
 
18

 
 
NOTE 6 – RELATED PARTY TRANSACTIONS

Pamela Miller (life partner of Matthew Chambers, Chairman, CEO), handles patent and tradename filings/renewals and administrative support for the Company.  There is no formal contract between the Company and Pamela Miller.  Her compensation was $14,000 and $13,500 for the years ended December 31, 2012 and 2011, respectively.  Additionally, Pamela Miller is the guarantor for the majority of the loans and leases, vendor open accounts and the corporate credit card.
 
The Company has an employment agreement with its CEO.
 
NOTE 7 – COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES:

Contingencies and Uncertainties

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. With the exception of the one lawsuit discussed in more detail below, the Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.
 
We have one legal action – Confederate Motors, Inc. v. Francois-Xavier Terny, et al, which was pending in 2011.
 
On November 26, 2012, the Company entered into a Mutual Settlement Agreement & General Release (the “Settlement Agreement”) with Francois Xavier Terny.  The purpose of the Settlement Agreement was to settle the outstanding dispute and settle all claims between the parties.  Under the Settlement Agreement, the Company agreed to make scheduled payments to Mr. Terny totaling $350,000 in exchange for 805,000 shares held by Mr. Terny.  The Company agreed to pay Mr. Terny $50,000 upon the execution of the Settlement Agreement.  An additional $25,000 was required to be paid to Mr. Terny on or before December 31, 2012 and the final payment of $275,000 was required to be paid on or before March 31, 2013. The payment is delinquent.

The Company’s basis in the treasury shares is $313,950.  The Company used the market value on November 26, 2012, the date of settlement, to value the shares.
 
Operating Lease

The Company currently occupies a leased building in Birmingham, AL. The Company signed an amendment in October 2010 to extend the lease term to October 31, 2013.  The Company may terminate the lease on or after April 30, 2011 with a 180 days prior written notice.  The monthly base rental for the extension period is $4,320, $4,450, and $4,580 for the years 2011, 2012 and 2013.  From November 1, 2010 through January 31, 2011 the rent was half the normal base rental.  The minimum rental payments for 2013 is $45,800.

Rent expense paid under the operating lease obligation totaled $58,450 and $54,753 for the years ended December 31, 2012 and 2011, respectively.

The Company assumed a sublease agreement to rent a facility in New Orleans.  The short term lease expired on September 2011 and the Company has accrued for the remaining rent obligation.
 
Liquidity

Over the long-term, the Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities and return value to shareholders. The Company believes the motorcycle operations will continue to be primarily funded through cash flows generated by operations.
 
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS
 
Various ASU’s up through ASU No. 2013-05 that contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.
 
 
19

 
 
NOTE 9 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed giving effect to all potential dilutive common stock, including convertible debentures and common stock warrants and options. For all periods presented, convertible debentures and common stock warrants and options were not included in the computation of diluted loss per share because the effect would be anti-dilutive. These items could be dilutive in the future.

NOTE 10 – NOTES RECEIVABLE

On September 27, 2012, the Company sold the design and manufacturing rights to the discontinued Fighter model to a third party for $100,000. The full asset purchase price was recorded as other income.  In conjunction with the sale an initial payment of $25,000 was received and a promissory note for the balance was issued.  The term of the promissory note is one year with an interest rate of 7%  The promissory note calls for 2 installment payments of $12,500 each and a final payment of $50,000 due on September 30, 2013.

NOTE 11 – DEFERRED EXCLUSIVE AGENCY FEE

A distribution agreement, starting on January 1, 2008, was signed in 2007 with a group based in Dubai to distribute Confederate branded motorcycles in the Middle East region.  During 2008, a $300,000 fee was received for the exclusive selling rights within the Middle East region.  The contract is for 5 years ending on December 31, 2012.  The fee is being amortized to other income over the life of the agreement.

NOTE 12 – CONCENTRATION OF CREDIT RISK

At December 31, 2012 the Company had monies in bank accounts not exceeding the federally insured limits.  The Federal Deposit Insurance Corporation (FDIC) insures deposit account balances to $250,000 per insured bank. 

NOTE 13 – INCOME TAXES
 
The Company adopted the provisions of uncertain tax positions as addressed in ASC 740-10-65-1. As a result of the implementation of ASC 740-10-65-1, the Company recognized approximately no increase in the liability for unrecognized tax benefits.

The Company has no tax position at December 31, 2012 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December 31, 2012. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its intended activities.

The Company recognized deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. The Company will establish a valuation allowance to reflect the likelihood of realization of deferred tax assets.  Tax years 2009, 2010 and 2011 are still open for examination by the taxing authorities.
 
The valuation allowance at December 31, 2012 was approximately $2,263,863. The net change in valuation allowance during the year ended December 31, 2012 was an increase of approximately $196,280. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2012.
 
 
20

 
 
The Company has a net operating loss carryforward for tax purposes totaling approximately $5,383,570 at December 31, 2012, expiring through 2032. There is a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally greater than a 50% change in ownership). Temporary differences, which give rise to a net deferred tax asset, are as follows:
 
   
Year Ended December 31,
 
   
2012
   
2011
 
Non-current deferred tax assets:
           
  Net operating loss carryforward
 
$
(2,111,975
)
 
$
(2,007,318
)
  Stock based compensation
 
(135,222
 
(56,342
  Inventory obsolescence
 
$
(16,666
)
 
$
(3,923
                 
  Total deferred tax assets
 
$
(2,263,863
)
 
$
(2,067,583
)
  Valuation allowance
 
2,263,863
   
2,067,583
 
    Net deferred tax assets
 
$
-
   
$
-
 
  
The actual tax benefit differs from the expected tax benefit for the year ended December 31, 2012 and the year ended December 31, 2011 (computed by applying the U.S. Federal Corporate tax rate of 35% to income before taxes and 6.5% for State income taxes, a blended rate of 39.23%) as follows:
 
   
Year Ended December 31,
 
   
2012
   
2011
 
Computed "expected" tax expense (benefit) - Federal – net of State benefit
 
$
(178,388
)
 
$
(161,659
)
Computed "expected" tax expense (benefit) - State -
 
(21,560
)
 
(19,538
)
Penalties and fines and meals and entertainment
 
$
3,668
   
3,923
 
Change in valuation allowance
 
$
196,280
   
$
177,274
 
Actual tax expense  (benefit)
 
$
-
   
$
-
 
 
NOTE 14 – ACCRUED PAYROLL TAX LIABILITIES

In March 2010, the Company identified additional payroll tax liabilities related to individuals, including our CEO and CFO paid incorrectly as independent contractors in prior periods. The Company has accrued for the payroll tax liabilities including penalties and interest. The Company is making scheduled payments to the IRS to resolve the liability.
 
NOTE 15 – GOING CONCERN CONSIDERATIONS

Management has evaluated the Company’s ability to continue as a going concern.  The following considerations suggest that the Company will continue in business for the foreseeable future. The Company has minimal debt obligations, except as set forth below, of $18,737 in notes payable and $2,405 in lease obligations which results in negligible debt service payments.  We are currently not engaged in any discussions that could result in additional borrowings.

At December 31, 2012, the Company owed a remaining balance of $275,000 in the Settlement Agreement with Mr. Terny. (See above, Note 7—Commitments, Contingencies and Uncertainties.)  Although delinquent, the Company continues to make payments to Mr. Terny and/or his designee as funding becomes available. The Company paid $50,000 during the third quarter 2013. As of the date of this amendment, our current obligation to Mr. Terny is $225,000.

 
21

 
 
At December 31, 2012, the Company had a remaining registration rights liability of $175,000.  (See above, Note 5—Stockholders’ Equity.)  No demands have been made in the past for repayment of this penalty.  In the event demands for payment are made in the future, management intends to seek a negotiated settlement with the holders of the penalty rights and to satisfy the obligation through the issuance of equity shares or an installment payment plan from operating revenues or equity offerings.
 
Strengthening its ability to continue operations, the Company has a significant backlog of orders; as of the date of this report the Company has 30 orders which represent 4-6 months of production and approximately $1.2 million in revenue.  Assuming the Company’s average gross profit margin of 30%, the company will earn $360,000 in gross profit. The Company projects an additional 50 to 100 orders with the unveiling of the F4 Hellcat at the 2013 year end.  Accordingly, management is of the opinion that the substantial doubt regarding the Company’s ability to continue as a going concern has been mitigated.
 
NOTE 16 – SUBSEQUENT EVENTS
 
On February 22, 2013, the Company offered for sale 3,600,000 shares of Common Stock at $0.25 per share.  As of the date of this report, the Company has received subscription commitments for 3,340,000 shares, 840,000 of which will be used to pay Matthew Chambers, CEO, for wages owed to him.  Funds received in the amount of $120,000 have been placed in the trust account.
 
A payment on settlement payable of $275,000 was due on March 31, 2013. The payment is delinquent.
 
 
22

 
 
 

Financial Statements Index

Report of Independent Registered Public Accounting firm
 
Consolidated Balance Sheets, December 31, 2012 and 2011
 
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011
 
Consolidated Statement of Stockholders’ Deficit for the years ended December 31, 2012 and 2011
 
Consolidated Statements of Cash Flows, for the years ended December 31, 2012 and 2011
 
Notes to Consolidated Financial Statements for the years ended December 31, 2012 and 2011
 
  
Exhibits
 
   
Incorporated by Reference
 
Exhibit 
Number
Exhibit Description
Form
File No.
Exhibit
Filing Date
Filed Herewith
             
2.1
Agreement and Plan of Merger dated February 12, 2009
8-K
000-52500
2.1
2/12/09
 
3.1
Amended and Restated Certificate of Incorporation
10-K
000-52500
3.1
4/16/13
 
3.2
Certificate of Merger filed March 13, 2009
10-K
000-52500
3.2
4/1/11
 
3.3
Bylaws
10-K
000-52500
3.3
4/1/11
 
4.1 & 10.1
2008 Stock Incentive Plan *
8-K
000-52500
10.1
2/12/09
 
4.2
Securities Purchase Agreement dated January 30, 2009
8-K
000-52500
4.1
2/12/09
 
4.2
Registration Rights Agreement dated February 12, 2009
8-K
000-52500
4.2
2/12/09
 
10.2
Employment Agreement with H. Matthew Chambers *
8-K
000-52500
10.2
2/12/09
 
10.3
Employment Agreement with H. Matthew Chambers effective February 15, 2012 *
10-K
000-52500
3.1
4/16/13
 
10.4
Employment Agreement with Joseph Mitchell *
8-K
000-52500
10.3
2/12/09
 
10.5
Terny Settlement Agreement
10-K
000-52500
3.1
4/16/13
 
10.6
Promissory Note dated September 27, 2012
10-K
000-52500
3.1
4/16/13
 
14.1
Code of Ethics
8-K
000-52500
14.1
2/12/09
 
16.1
Letter from CVB Dated August 6, 2012 Regarding Change in Certifying Accountant
8-K
000-52500
16.1
8/7/12
 
21.1
List of Subsidiaries
10-K
000-52500
21.1
4/1/11
 
31.1
Rule 13a-14(a) Certification by Principal Executive Officer
       
X
31.2
Rule 13a-14(a) Certification by Principal Financial Officer
       
X
32.1
Section 1350 Certification of Principal Executive Officer
10-K
000-52500
3.1
4/16/13
 
32.2
Section 1350 Certification of Principal Financial Officer
10-K
000-52500
3.1
4/16/13
 
101.INS
XBRL Instance Document
10-K
000-52500
3.1
4/16/13
 
101.SCH
XBRL Taxonomy Extension Schema Document
10-K
000-52500
3.1
4/16/13
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
10-K
000-52500
3.1
4/16/13
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
10-K
000-52500
3.1
4/16/13
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
10-K
000-52500
3.1
4/16/13
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
10-K
000-52500
3.1
4/16/13
 
* Management contract on compensatory plan or arrangement required to be filed as an exhibit.
 
[SIGNATURE PAGE FOLLOWS]
 
 
23

 
 

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

 
Confederate Motors, Inc.
     
Date: February 10, 2014
By:
/s/ H. Matthew Chambers
   
H. Matthew Chambers, Chief Executive Officer
 
 
24