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EXCEL - IDEA: XBRL DOCUMENT - Confederate Motors, Inc. | Financial_Report.xls |
EX-31.2 - CERTIFICATION - Confederate Motors, Inc. | f10q0914ex31ii_confederate.htm |
EX-32.1 - CERTIFICATION - Confederate Motors, Inc. | f10q0914ex32i_confederate.htm |
EX-32.2 - CERTIFICATION - Confederate Motors, Inc. | f10q0914ex32ii_confederate.htm |
EX-31.1 - CERTIFICATION - Confederate Motors, Inc. | f10q0914ex31i_confederate.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
CONFEDERATE MOTORS, INC.
DELAWARE | 000-52500 | 26-4182621 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File No.) | (IRS Employer Identification No.) |
3029 2nd Avenue South
Birmingham, Alabama 35233
(Address of Principal Executive Offices)
(205) 324-9888
(Issuer’s Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
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 Exchange Act.
Yes o No x
The number of shares outstanding of each of the issuer’s classes of common equity, as of November 14, 2014: 25,629,556 shares of Common Stock.
CONFEDERATE MOTORS, INC.
FORM 10-Q
September 30, 2014
INDEX
Page | |
PART I - FINANCIAL INFORMATION | 3 |
ITEM 1. FINANCIAL STATEMENTS | 3 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 20 |
ITEM 4. CONTROLS AND PROCEDURES | 20 |
PART II - OTHER INFORMATION | 21 |
ITEM 6. EXHIBITS | 21 |
SIGNATURES | 22 |
2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONFEDERATE MOTORS, INC.
Condensed Consolidated Balance Sheets
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 91,044 | $ | 3,113 | ||||
Other Receivables | 111,181 | - | ||||||
Inventory | 711,838 | 374,531 | ||||||
Prepaid inventory | 139,380 | 43,463 | ||||||
Prepaid expenses | 3,065 | 4,834 | ||||||
Note Receivable | 15,570 | 10,223 | ||||||
Total current assets | 1,072,078 | 436,164 | ||||||
Property and equipment, net | 37,567 | 27,450 | ||||||
Total assets | $ | 1,109,645 | $ | 463,614 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 280,863 | $ | 93,978 | ||||
Accrued interest payable | 7,502 | 7,502 | ||||||
Accrued salaries | 86,000 | 306,000 | ||||||
Accrued payroll tax liability | 79,994 | 95,994 | ||||||
Deferred revenue | 553,204 | 792,208 | ||||||
Deferred sales commission and royalty | - | 30,000 | ||||||
Warranty reserve | 8,600 | 8,600 | ||||||
Other accrued expenses | 65,978 | 26,782 | ||||||
Registration rights liability | 175,500 | 175,500 | ||||||
Payable to be settled in stock – Officer | 210,000 | - | ||||||
Settlement Payable | 200,000 | 200,000 | ||||||
Current portion of notes payable | - | - | ||||||
Total current liabilities | 1,667,641 | 1,736,564 | ||||||
Stockholders' deficit | ||||||||
Preferred Stock, $0.001 par value 20,000,000 shares authorized; -0- shares outstanding in 2014 and 2013 | - | - | ||||||
Common Stock, $0.001 par value 200,000,000 shares authorized; 17,504,762 shares outstanding in 2014 and 13,587,556 shares outstanding in 2013 | 17,504 | 13,586 | ||||||
Additional paid-in capital | 10,448,929 | 9,852,846 | ||||||
Stock Subscribed | 1,000,000 | 600,000 | ||||||
Subscriptions Receivable | (363,239 | ) | (113,238 | ) | ||||
Accumulated deficit | (11,347,240 | ) | (11,312,194 | ) | ||||
Treasury Shares | (313,950 | ) | (313,950 | ) | ||||
Total stockholders’ deficit | (557,996 | ) | (1,272,950 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 1,109,645 | $ | 463,614 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
3 |
CONFEDERATE MOTORS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Sales | $ | 803,802 | $ | 358,649 | $ | 1,742,320 | $ | 1,179,356 | ||||||||
Cost of goods sold | (492,831 | ) | (198,644 | ) | (989,567 | ) | (629,593 | ) | ||||||||
Gross profit | 310,971 | 160,005 | 752,753 | 549,763 | ||||||||||||
Operating Expenses | ||||||||||||||||
Research and Development | 79,806 | 63,966 | 205,878 | 133,241 | ||||||||||||
Selling, general and administrative expenses | 231,738 | 208,966 | 699,932 | 749,898 | ||||||||||||
Total Operating Expenses | 311,544 | 272,932 | 905,810 | 883,139 | ||||||||||||
Loss from operations | (573 | ) | (112,927 | ) | (153,057 | ) | (333,376 | ) | ||||||||
Other income | 1,500 | 1,183 | 117,166 | 1,183 | ||||||||||||
Interest (income / expense) | 233 | (339 | ) | 846 | (894 | ) | ||||||||||
1,733 | 844 | 118,012 | 289 | |||||||||||||
Net income (loss) | $ | 1,160 | $ | (112,083 | ) | $ | (35,046 | ) | $ | (333,087 | ) | |||||
Net income (loss) per common share | ||||||||||||||||
Basic & diluted | $ | 0.00 | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | |||||
Weighted average shares outstanding | ||||||||||||||||
Basic & diluted | 17,356,936 | 13,587,556 | 16,605,194 | 13,579,037 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4 |
CONFEDERATE MOTORS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
Operating activities | ||||||||
Net income (loss) | $ | (35,046 | ) | $ | (333,087 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities | ||||||||
Depreciation | 2,323 | 1,032 | ||||||
Deferred exclusive agency fee | - | - | ||||||
Options issued for services | - | 201,070 | ||||||
Change in operating assets and liabilities | ||||||||
Other Receivables | (111,181 | ) | - | |||||
Inventory | (337,307 | ) | (28,448 | ) | ||||
Prepaid inventory | (95,917 | ) | (16,049 | ) | ||||
Prepaid expenses | 1,769 | (1,662 | ) | |||||
Notes Receivable | (5,347 | ) | (10,212 | ) | ||||
Accounts payable | 186,885 | (130,464 | ) | |||||
Accrued payroll | (10,000 | ) | - | |||||
Accrued payroll tax liability | (16,000 | ) | 31,948 | |||||
Settlement Payable | - | (50,000 | ) | |||||
Other accrued expenses | 39,196 | (143 | ) | |||||
Deferred revenue | (239,004 | ) | (66,682 | ) | ||||
Deferred sales commission and royalty | (30,000 | ) | 39,897 | |||||
Net cash provided (used) by operating activities | (649,629 | ) | (362,800 | ) | ||||
Investing activities | ||||||||
Purchase of property and Equipment – Construction in Progress | (12,440 | ) | - | |||||
Net cash provided (used) by investing activities | (12,440 | ) | - | |||||
Financing activities | ||||||||
Repayment of notes payable | - | (18,737 | ) | |||||
Repayment of capital leases | - | (2,405 | ) | |||||
Proceeds from issuance of stock | 750,000 | 370,355 | ||||||
Net cash provided (used) by financing activities | 750,000 | 349,213 | ||||||
Net increase (decrease) in cash and cash equivalents | 87,931 | (13,587 | ) | |||||
Cash and cash equivalents at the beginning of period | 3,113 | 128,916 | ||||||
Cash and cash equivalents at end of period | $ | 91,044 | $ | 115,329 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Non cash investing & financing activities | ||||||||
Stock issued to retire payable | $ | - | $ | 50,000 | ||||
Payable to be settled in stock | 210,000 | - | ||||||
Cash paid during the period for: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited condensed financial statements.
5 |
Confederate Motors, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(unaudited)
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 production model (the Hellcat Speedster) and one preproduction model (the Combat Fighter). The Hellcat Speedster model started production in August 2014. The Confederate Brand was founded in 1991. The Company has been operational since 2003 and is headquartered in Birmingham, Alabama.
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
The unaudited interim financial statements should be read in conjunction with the Company’s 2013 Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended December 31, 2013 and 2012. The interim results for the period ended September 30, 2014 are not necessarily indicative of results for the full fiscal year.
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., a Delaware corporation, Confederate Acquisitions Corp., a Delaware corporation (Inactive), and Confederate Garage, LLC, a Louisiana limited liability company (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 recent economic downturn in the United States and around the world. The Company's operations are subject to significant risk and uncertainties including financial, operational, technological, and regulatory risks including the potential risk of business failure.
See Note 6 for a full discussion of commitments, contingencies and other uncertainties.
6 |
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 inventory and manufacturing overhead associated with WIP and finished goods.
9/30/2014 | 12/31/2013 | |||||||
Parts | $ | 663,483 | $ | 188,867 | ||||
Work in process | 23,350 | 82,515 | ||||||
Motorcycle finished goods | - | 99,510 | ||||||
Trade In Models | - | - | ||||||
Apparel inventory | 25,005 | 3,639 | ||||||
Total Inventory | $ | 711,838 | $ | 374,531 |
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 expensed as incurred. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation are eliminated from the respective accounts 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, five years; furniture and fixtures, three to five years; equipment, three to five years.
Revenue Recognition
Revenues from the sale of motorcycles and equipment are recognized when products leave the factory for delivery 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. Cash payments received from customers prior to delivery of the motorcycle are recorded as deferred revenue on the balance sheet. Deferred revenue was $553,204 at September 30, 2014 and $792,208 at December 31, 2013.
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 did not have any potential common stock equivalents at September 30, 2014, other than a payable to be settled in stock to an officer.
7 |
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 September 30, 2014, the Company did not record any liabilities for uncertain tax positions. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for tax years before 2010.
Advertising Costs
Advertising costs relate to the Company’s efforts to promote its products and brands. Advertising is expensed as incurred. For the quarters ended September 30, 2014 and 2013, advertising expense was $26,628 and $7,086, respectively. Year-to-date advertising expense totaled $57,895 and $22,021 for 2014 and 2013, respectively.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged against income as incurred and included within operating expenses in the accompanying statements of operations. Research and development (R&D) costs totaled $79,806 and $63,966 for the quarters ended September 30, 2014 and 2013, respectively. Year-to-date R&D expense totaled $205,878 and $133,241 for 2014 and 2013, 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. |
8 |
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 September 30, 2014.
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.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
Vehicles | $ | 36,628 | $ | 36,628 | ||||
Furniture and fixtures | 11,734 | 11,734 | ||||||
Equipment | 80,434 | 80,434 | ||||||
Leasehold improvements | 25,827 | 25,273 | ||||||
CIP - Equipment | 11,886 | - | ||||||
166,509 | 154,069 | |||||||
Less accumulated depreciation | (128,942 | ) | (126,619 | ) | ||||
$ | 37,567 | $ | 27,450 |
NOTE 3 – CAPITAL LEASES
The capitalized cost and accumulated depreciation of the computers and equipment under capital lease totaled $80,434 and $79,289, respectively, at September 30, 2014.
At September 30, 2014 there are no future minimum payments due under capital lease agreements.
NOTE 4 – STOCKHOLDERS’ EQUITY
Sale of Common Stock
In January 2013, the Company converted a payable of $50,000 to 116,279 shares of common stock to an accredited investor.
On May 31, 2013, the Company completed a prior nonpublic offering of its common stock commenced on or about February 22, 2013. The Company received subscriptions from three investors, including H. Matthew Chambers, the Company’s Chief Executive Officer and a director, for $810,000 representing a total of 3,240,000 shares issuable at the original offering price of $0.25 per share. On July 25, 2013, the Board retroactively reduced the purchase price in this offering to $0.125 per share for a total of 6,480,000 shares. As of the date of this report, the Company had received subscription payments of $636,761, with a balance of $363,239 remaining unpaid, and has issued 800,000 shares to one investor. The balance of the subscription amounts is currently due and payable. The Company has paid Mr. Chambers’ subscription in the amount of $210,000, to clear a portion of his unpaid wages.
9 |
On July 31, 2013, the Company offered for sale 6,234,412 shares of Common Stock at $0.1604 per share. As of the date of this report, the Company has received a subscription commitment for 6,234,412 shares. In February 2014, the Company received $500,000 and issued 3,117,206 shares. The Company received $250,000 in June 2014 and the balance of $250,000 remains to be collected.
Warrants
During the year 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 with an exercise term of five years. 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, 2011 | 105,000 | $ | 1.50 | |||||
Granted | - | $ | - | |||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – March 31, 2012 | 105,000 | $ | 1.50 | |||||
Exercisable – March 31, 2012 | 105,000 | $ | 1.50 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – September 30, 2012 | 105,000 | $ | 1.50 | |||||
Exercisable – September 30, 2012 | 105,000 | $ | 1.50 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – September 30, 2012 | 105,000 | $ | 1.50 | |||||
Exercisable – September 30, 2012 | 105,000 | $ | 1.50 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – December 31, 2012 | 105,000 | $ | 1.50 | |||||
Exercisable – December 31, 2012 | 105,000 | $ | 1.50 | |||||
Granted | - | $ | - | |||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – March 31, 2013 | 105,000 | $ | 1.50 | |||||
Exercisable – March 31, 2013 | 105,000 | $ | 1.50 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – September 30, 2013 | 105,000 | $ | 1.50 | |||||
Exercisable – September 30, 2013 | 105,000 | $ | 1.50 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – September 30, 2013 | 105,000 | $ | 1.50 | |||||
Exercisable – September 30, 2013 | 105,000 | $ | 1.50 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding – December 31, 2013 | 105,000 | $ | 1.50 | |||||
Exercisable – December 31, 2013 | 105,000 | $ | 1.50 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | (105,000 | ) | 1.50 | |||||
Outstanding – March 31, 2014 | - | $ | - | |||||
Exercisable – March 31, 2014 | - | $ | - | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | 1.50 | ||||||
Outstanding – June 30, 2014 | - | $ | - | |||||
Exercisable – June 30, 2014 | - | $ | - | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Forfeited | - | 1.50 | ||||||
Outstanding – September 30, 2014 | - | $ | - | |||||
Exercisable – September 30, 2014 | - | $ | - |
10 |
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 | 0 | 0.0 years | $ | 1.50 | 0 | $ | 1.50 |
At September 30, 2014, the total intrinsic value of warrants outstanding and exercisable was $0. The exercise period has expired.
Registration Rights Penalty
In connection with the issuance of common stock and convertible debt, which converted into common stock in 2009, the 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 September 12, 2009. Furthermore, the Company was required to have the 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 6 for disclosure of the settlement agreement.
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 |
11 |
NOTE 5 – RELATED PARTY TRANSACTIONS
Pamela Miller (life partner of Matthew Chambers, Chairman, CEO), handles patent and trade name filings/renewals and administrative support for the Company. There is no formal contract between the Company and Pamela Miller. Her compensation was $18,000 and $11,000 for the quarters ended September 30, 2014 and 2013, respectively. YTD compensation was $45,000 and $22,500 for September 2014 and 2013 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 purchased shares in the amount of $210,000 for H. Matthew Chambers. This purchase was in lieu of salary and wages owed him in 2012 and 2013. See Note 4.
The term sheet dated July 31, 2013 specifies that the Company will issue up to $236,250 in shares for H. Matthew Chambers for unpaid salary once the second half of the July 31, 2013 offering is complete. These are unpaid wages from 2009, 2010, and 2011. See Note 4 and Note 6.
NOTE 6 – 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 lawsuit discussed in more detail below, the Company is currently not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
We have one legal action – Confederate Motors, Inc. v. Francois-Xavier Terny, et al.
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 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 September 30, 2013. On April 4, 2013, counsel for Francois-Xavier Terny filed a stipulated judgment in connection with the final payment under the Mutual Settlement Agreement & General Release between the Company and Mr. Terny. Management believes the judgment may be defective and is seeking legal clarification concerning same.
A payment of $275,000 on the settlement with Francois Xavier Terny was due on September 30, 2013. The Company paid $50,000 to Mr. Terny’s designee on July 17, 2013 and $25,000 to Mr. Terny’s designee on November 25, 2013. On June 19, 2014, Mr. Terny filed a Process of Garnishment in the Circuit Court of Jefferson County, Alabama against the Company with Iberia Bank in the amount of $200,251. As of the date of this report the Company still has recorded a balance due of $200,000.
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.
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On August 3, 2013, the Board of Directors resolved that following receipt of equity financing of at least $1,000,000 pursuant to the private offering initiated in July 2013 or upon collection of the remaining subscriptions from the private offering initiated in May 2013, the Company will issue up to 3,742,000 shares of common stock at a value of $0.125 per share as follows: 1,890,000 shares to Mr. Chambers as satisfaction in full, including interest and penalties, for 75% of the unpaid salary and bonus for each of 2009, 2010, and 2011; and 2013 bonuses to the directors payable under the 2008 Incentive Plan (the “Plan”) on January 1, 2014, as follows: 768,000 shares to Paolo Chiaia and 384,000 shares for Patrick Aisher. The value of the 1,890,000 shares to be issued to Mr. Chambers at $.125 equates to $236,250.
On August 3, 2013, the employment agreement dated February 15, 2012, with Mr. Chambers was amended to extend the term of the employment for an additional two years. As a bonus for extending the term of the employment agreement Mr. Chambers will be issued 200,000 fully-vested shares pursuant to the Plan, provided that the Company receives equity financing of at least $1,000,000 pursuant to the July 2013 private offering or upon collection of the remaining subscriptions for the May 2013 private offering.
Operating Lease
The Company has entered into a lease for a 24,179 square foot office and warehouse located in Birmingham, Alabama. The lease was executed on October 21, 2013 with commencement on November 1, 2013. The Company sub-leased the premises for the term of ten years with the option of an additional ten years provided 180 days prior written notice is given. The monthly base rental is $7,059 for the first year with a 2% increase each year after. The Company prepaid the December 2013 rent and the security deposit; equal to the first month’s rent. The lessor waived the November 2013 rent as an incentive to enter into the lease.
Rent expense under the new operating lease totaled $21,179 for the quarter ended September 30, 2014 and $14,938 for the quarter ended September 30, 2013. Future minimum payments due under the operating lease agreements are as follows:
October 1 through September 30, 2015 | $ | 86,269 | ||
Future minimum lease payments | ||||
October - September | ||||
2015-2016 | 87,995 | |||
2016-2017 | 89,754 | |||
2017-2018 | 91,550 | |||
2018-2019 | 93,381 | |||
2019-2020 | 95,248 | |||
Remaining | 314,370 | |||
$ | 858,567 |
NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS
Various ASU’s up through ASU No. 2014 - 16 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.
NOTE 8 – 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 common stock options and common stock warrants. The common stock warrants and common stock options were not included in the computation of the per share loss for the current periods because the effect would be anti-dilutive. These items could be dilutive in the future.
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NOTE 9 – NOTE 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 two installment payments of $12,500 each and a final payment of $50,000 due on September 30, 2013.
As of the date of this report the two installments have been received, through prepayment credits and certified funds, and no interest has been paid. As of September 30, 2014, interest has accrued an additional $213 totaling $847 YTD. Accumulated fees for 2014 are $4,500.
The current amount due on the promissory note is $15,570.
In addition to the promissory note balance; the Company has incurred additional expenses due to non-performance by the promisor. The Company has invoiced the promisor $107,587 (Other Receivables) for parts, labor, services, and fees.
The Other Receivable balance of $111,181 on the balance sheet contains $3,594 in parts sales.
NOTE 10 – CONCENTRATION OF CREDIT RISK
At September 30, 2014, the Company had funds in bank accounts not exceeding the federally insured limits. The Federal Deposit Insurance Corporation (FDIC) insures deposit account balances to at least $250,000 per insured bank.
NOTE 11 – GOING CONCERN
As shown in the accompanying financial statements, the Company had an accumulated deficit incurred through September 30, 2014, which raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The Company will need significant funding to continue operations and increase development through the next fiscal year. The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for expansion through affiliations and other business relationships. Management intends to continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.
If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.
NOTE 12 – SUBSEQUENT EVENTS
The Company paid an additional $40,000 to Mr. Terny’s designee in October 2014.
The remaining funds from the July 31, 2013 stock offering were received in October 2014. The Company has released the $20,000 to an affiliate of the investor which was paid in January 2014 as a good faith payment to extend the offer. The remaining 3,117,206 shares were issued on October 10, 2014. Additionally, the Company issued 1,765,584 shares to Rhiti Sports Management per agreement.
Upon completion of the July 31, 2013 offering the Board of Directors issued 3,242,000 shares to management and others for unpaid salaries and fees, employment agreements, and board service. The shares are valued at $0.125 per share. The amounts include 2,090,000 shares to H. Matthew Chambers, the Company’s Chairman and CEO for $236,250 in unpaid salary, a 2.5 year extension of his employment agreement, and past director fees. It also includes 768,000 shares issued to Paolo Chiaia, a director and 384,000 shares issued to Patrick Aisher for director fees
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ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This report contains forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” 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; |
● | 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; |
● | 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 our 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.
The Company’s ability to meet the targets and expectations noted depends upon, among other factors, the Company’s 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; and (xi) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, increased warranty costs or litigation.
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The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent distributors to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company.
In addition, the Company’s independent distributors may experience difficulties in operating their businesses and selling our products.
Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” “the Company”, “CM” and “our company” refer to Confederate Motors, Inc., a Delaware corporation, and its consolidated subsidiaries.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
We produce premium, heavyweight (651+cc) motorcycles. We currently manufacture the third generation Hellcat (“X132 Hellcat Speedster”). We began production of the Speedster model in August 2014. Reservations are now accepted for the second generation Fighter Combat with production scheduled for early 2015.
Overview and Outlook
Net revenue for the quarterly period ended September 30, 2014 was $803,802 compared to $358,649 for the quarterly period ended September 30, 2013. Net revenue is greater primarily because we were able to fund inventory growth. Year-to-date net revenue was $1,742,320 compared to $1,179,356 for the period ended September 30, 2013. Net income for the quarter ended September 30, 2014 was $1,160 compared to a net loss of $112,083 for the quarter ended September 30, 2013. Year-to-date net loss was $35,045 compared to net loss of $333,087 for the period ended September 30, 2013. Net loss was lower due to increased production efficiency and decreased expenses. However, the swing arm supplier failed to provide the required number of swing arms needed to produce the number of bikes anticipated. This backorder cost us four units of production in the first quarter and 12 units in the second quarter. We have terminated this supplier. We were able to produce and deliver 14 bikes in August and September 2014.
Cash flow from operating activities was $(649,629) for the nine months ended September 30, 2014 compared to $(362,796) for the nine months ended September 30, 2013. Net cash flow required for investing activities was $(12,440) and $0 for the nine months ended September 30, 2014 and 2013, respectively. Net cash flow from financing activities was $750,000 and $349,213 for the nine months ended September 30, 2014 and 2013, respectively.
We believe that the global economic environment is improving for our business. We are optimistic about our long-term business prospects and plans to continue to expand production and global distribution. The operations for the first quarter of 2014 focused on building the remaining pre-sold X132 Hellcat models, completing design work on the new Hellcat Speedster and finalizing the concept work for the new second generation Fighter Combat. In the second quarter 2014, Hellcat Speedster procurement for 60 motorcycles began and Fighter concept work evolved. All but ten remaining sold X132 Hellcats were built. For the third quarter 2014, all remaining pre-sold X132 Hellcats were produced and delivered except for one and Speedster production began. In addition, Fighter design evolved; procurement is scheduled to begin by the end of 2014.
Cost of Goods Sold
Cost of goods sold was $492,831 for the quarterly period ended September 30, 2014 compared to $198,644 for the quarterly period ended September 30, 2013. Cost of goods sold was higher mainly due to increased production of motorcycles. Year-to-date cost of goods sold totaled $989,567 for the period ended September 30, 2014 compared to $629,593 for the period ended September 30, 2013.
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Gross Profit
Gross profit was $310,971 for the quarterly period ended September 30, 2014, compared to $160,005 for the quarterly period ended September 30, 2013. Gross profit as a percentage of revenue was 39% and 45% for the quarterly periods ended September 30, 2014 and 2013, respectively. Gross profit was down in the third quarter of 2014 due to multiple unit sales being channeled through our Australia distributor during the third quarter. These units required additional unexpected costs for homolgation to meet the Australian equivalent of DOT. Year-to-date gross profit was $752,753 and $549,763 for 2014 and 2013, respectively. Year-to-date gross profit as a percentage of revenue was 43% and 47% for 2014 and 2013, respectively.
Operating Expenses
Selling, General and Administrative Expenses
SG&A expenses were $231,738 for the quarterly period ended September 30, 2014, compared to $208,966 in 2013. SG&A expenses were $699,932 and $749,898 for the first nine months of 2014 and 2013, respectively. The decrease in SG&A expenses is attributed to our attempt to operate more efficiently by limiting and consolidating overhead while maximizing the use of all resources. Additionally, amortization of option expense expired in 2013.
Research and Development Costs
Research and development costs are expensed as incurred and are included in operating expenses in the accompanying statements of operations. Research and development costs totaled $79,806 and $63,966 for the quarters ended September 30, 2014 and 2013, respectively. Research and development expenditures were $205,878 and $133,241 for the first nine months of 2014 and 2013, respectively. The increased R&D costs are related to our push to complete the new Hellcat Speedster and the new Fighter model. R&D costs are expected to remain elevated as we continue to work on the all new fourth generation Hellcat, the second generation Combat Fighter, and second generation Wraith.
Results of Operations for the quarter ended September 30, 2014 compared to the quarter ended September 30, 2013
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
(in whole dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenue from motorcycles & related products | $ | 803,802 | $ | 358,649 | $ | 1,742,320 | $ | 1,179,356 | ||||||||
Gross Profit | $ | 310,971 | $ | 160,005 | $ | 752,753 | $ | 549,763 | ||||||||
Operating Expense | $ | 311,544 | $ | 272,932 | $ | 905,810 | $ | 883,139 | ||||||||
Other Income (Expense) | $ | 1,733 | $ | 844 | $ | 118,012 | $ | 289 | ||||||||
Net Income (Loss) | $ | 1,160 | $ | (112,083 | ) | $ | (35,045 | ) | $ | (333,087 | ) | |||||
Earnings (Loss) per Share | $ | 0.00 | $ | (0.01 | ) | $ | 0.00 | $ | (0.02 | ) |
Plan of Operation
Strengthen our Position in our Core Market
In the first quarter of 2014 we committed to a new product strategy and production strategy for growth. New plant facilities, and tooling were acquired. New procurement specialists, assemblers, and fabricators were hired. New AutoCAD specialists were hired. A new Hellcat, the Speedster, is now entering production at two motorcycles per week. This production level will facilitate us to achieve cash flow positive operations and to fund critical design to achieve our sales goals.
In late winter (2015) a new Fighter is planned to go into production. In mid-spring (2015) a new Wraith is planned to go into production. These two models are projected to grow sales to a minimum of three units per week. This production level should allow us to achieve a minimum 15% EBITDA while contributing 12% to design and marketing to achieve our future sales goals.
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Strengthen our Distribution Network
We believe our U.S. sales strategy will create the most proximate relationship between our client and our Confederate team. We plan to open a small servicing center, retail environment, and design boutique in a large metropolitan market, but no definitive plans have been made. This facility will serve as a template for expansion as demand for our motorcycles increases.
Develop our Internet Business
As our current and only web presence, www.confederate.com encompasses a wealth of information on our brand and products. Activity on our website has increased from an average of approximately 14,000 unique visitors per month in 2005 to an average of approximately 22,746 per month in 2013. We have received in excess of an average of 30,000 unique visitors per month in 2014. We believe these statistics point to an improvement in energy and relevance of our brand and products site. Going forward, our plan is to better organize and classify information about our products and brand by separating information across a total of three web presences, in order to pull in more web traffic and widen our sales demographic. The goal of this diversification is not just intended to increase motorcycle sales but specifically to create an entirely new revenue stream in apparel, parts, and accessory sales.
We anticipate that www.confederate.com will be a more streamlined and informative site where the motorcycle consumer will be able to review specs, details, and product photos. This site will be intended to serve as a “nuts and bolts” information source on Confederate motorcycles.
Marketing Activities and Brand Development
We believe the Confederate motorcycle brand is perceived to be one of the most authentic in the motoring industry. This belief is predicated upon the absolute consistency of the brand message since its launch in the December issue of Motorcyclist Magazine in 1993. The brand exists to communicate a cerebral and spiritual rebel initiative inspired by fierce American pure objective individuality through the creation of uncompromised handcrafted motoring works of art.
We are also utilizing social media sites such as Facebook, Twitter, and Instagram to keep current and potential customers up to date with company events or promotions as well as share some of the day to day workings and current philosophies.
Media
We do not invest substantially in paid advertising. We believe that our motorcycles are aspirational products that create a significant demand “pull.” The primary source of publicity comes from articles written about Confederate in a broad range of motorcycle publications and the luxury goods press. Articles and broadcast segments featuring Confederate have appeared in The Wall Street Journal, Forbes, The New York Times, Fast Company, The Robb Report, The Men’s Journal, DuPont Registry, GQ, Maxim, Popular Science, Ralph Lauren Magazine, I.D.(which deemed the Wraith the “Worlds Sexiest Motorcycle”) and have recently been featured in the Discovery Network’s series “World’s Most Expensive Rides”. In addition, management believes that Confederate enthusiasts, including Hollywood celebrities, music stars and international athletes add to the overall brand exposure.
Manufacturing and Suppliers
Our manufacturing operations consist of in-house production of certain components and parts, assembly of motorcycle components and conducting quality control of finished motorcycles. Certain motorcycle components specific to our bikes are outsourced for production to our specifications to various vendors, including engines, machined frame components, transmission gears, belt drives, fenders, fuel tanks and seats. Other key components are purchased off-the-shelf from various independent suppliers mostly located in the U.S., including brake and suspension systems, drive belts, ignition starters, wheels, tires, lights and batteries. Components manufactured by us in-house include welded motorcycle frames and exhausts.
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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. Finished motorcycles are subjected to performance testing under running conditions and to final quality inspection.
Liquidity and Capital Resources
At September 30, 2014, we had cash of $91,044.
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 operations. 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.
As disclosed in Note 11 of our financial statements, management has evaluated our ability to continue as a going concern. The following considerations suggest that we will continue in business for the foreseeable future. We have minimal debt obligations, except as set forth below, and we are currently not engaged in any discussions that could result in additional borrowings.
As of September 30, 2014, we owed a remaining balance of $200,000 concerning the stock buyback agreement for 805,000 shares of the Company outstanding with Mr. Terny. On September 19, 2014, Mr. Terny filed a Process of Garnishment in the Circuit Court of Jefferson County, Alabama against us with Iberia Bank in the amount of $200,251. Although delinquent, we continue to make payments as funding becomes available. An additional $40,000 was paid to Mr. Terny’s designee in October 2014.
At September 30, 2014, we had a remaining registration rights’ liability of $175,500. We have received no demands 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.
At September 30, 2014, we maintained a backlog of orders represented by deferred revenue totaling $553,204. This account is a revolving account with funding added as new orders are placed and relieved to revenue as motorcycles are shipped. At September 30, 2014, backlog production represents approximately $1.0 million in gross revenue. Assuming our average gross profit margin of 30%, we would earn $700,000 in gross profit. We project an additional 50 to 75 orders with the unveiling of the C4 Hellcat this fall and the Limited Edition Combat Fighter in November of this year. The required inventory has been ordered and presold production is being fulfilled.
Management determined to increase inventory and HR resources to facilitate a two motorcycle per week production capability. As of August 14, 2014 we believe we have achieved this goal.
Recent Accounting Pronouncements
Various ASU’s up through ASU No. 2014 - 16 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 us 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.
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our principal executive officer, H. Matthew Chambers, and our principal financial officer, Jay Etheridge, have concluded, based on their evaluation, that our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company is currently undertaking measures including software upgrades and individual accountability to ensure timely and accurate reporting.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
31.1 | Rule 13a-14 Certification by Principal Executive Officer | |
31.2 | Rule 13a-14 Certification by Principal Financial Officer | |
32.1 | Section 1350 Certification of Principal Executive Officer | |
32.2 | Section 1350 Certification of Principal Financial Officer | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CONFEDERATE MOTORS, INC. | ||
Date: November 14, 2014 | By: | /s/ H. Matthew Chambers |
H. Matthew Chambers, CEO Principal Executive Officer |
Date: November 14, 2014 | By: | /s/ Jay Etheridge |
Jay Etheridge, Controller Principal Financial Officer |
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