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 |
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.
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.
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.
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.
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.
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. |
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.
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 | |
| - | | |
$ | - | |
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 | |
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.
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.
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
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.
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.
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.
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.
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.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
31.1 |
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Rule 13a-14 Certification by Principal Executive Officer |
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31.2 |
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Rule 13a-14 Certification by Principal Financial Officer |
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32.1 |
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Section 1350 Certification of Principal Executive Officer |
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32.2 |
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Section 1350 Certification of Principal Financial Officer |
|
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101.INS |
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XBRL Instance Document |
|
|
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
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.
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CONFEDERATE MOTORS, INC. |
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|
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 |
22
Exhibit 31.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, H. Matthew Chambers, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Confederate Motors, Inc. for the quarter ended September 30, 2014; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
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|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
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|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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|
d) |
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
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|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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|
|
|
b) |
Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date November 14, 2014 |
By: |
/s/ H. Matthew Chambers |
|
|
H. Matthew Chambers
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Jay Etheridge, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Confederate Motors, Inc. for the quarter ended September 30, 2014; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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|
|
|
b) |
Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014 |
By: |
/s/ Jay Etheridge |
|
|
Jay Etheridge, Controller
Principal Financial Officer |
Exhibit 32.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with this Quarterly Report of
Confederate Motors, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014, as filed with
the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, H. Matthew Chambers, Chief Executive
Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of
the Sarbanes-Oxley Act of 2002, that:
1. |
Such Quarterly Report on Form 10-Q for the period ended September 30, 2014, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2014 fairly presents, in all material respects, the financial condition and results of operations of Confederate Motors, Inc. |
Date: November 14, 2014 |
By: |
/s/ H. Matthew Chambers |
|
|
H. Matthew Chambers, CEO
Principal Executive Officer |
Exhibit 32.2
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with this Quarterly Report of
Confederate Motors, Inc. (the “Company”) on Form 10-Q for the period September 30, 2014, as filed with the Securities
and Exchange Commission on the date hereof (the “Quarterly Report”), I, Jay Etheridge, principal financial officer
of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley
Act of 2002, that:
1. |
Such Quarterly Report on Form 10-Q for the period ended September 30, 2014, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2014, fairly presents, in all material respects, the financial condition and results of operations of Confederate Motors, Inc. |
Date: November 14, 2014 |
By: |
/s/ Jay Etheridge |
|
|
Jay Etheridge, Controller
Principal Financial Officer |
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