The accompanying notes are an integral part
of these unaudited condensed financial statements.
The accompanying notes are an integral part
of these unaudited condensed financial statements.
The accompanying notes are an integral part
of these unaudited condensed financial statements.
Notes to Condensed Consolidated Financial Statements
June 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 X132 Hellcat) and two preproduction models (the Hellcat Speedster and the Pierre Tereblanche P51 Fighter).
The X132 Hellcat model started production in January 2012. The Confederate Brand was founded in 1991. The Company has been operational
since 2003 and is headquartered in Birmingham, Alabama.
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 June 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.
|
|
6/30/2014
|
|
|
12/31/2013
|
|
Parts
|
|
$
|
436,187
|
|
|
$
|
188,867
|
|
Work in process
|
|
|
190,245
|
|
|
|
82,515
|
|
Motorcycle finished goods
|
|
|
-
|
|
|
|
99,510
|
|
Trade In Models
|
|
|
30,000
|
|
|
|
-
|
|
Apparel inventory
|
|
|
20,505
|
|
|
|
3,639
|
|
Total Inventory
|
|
$
|
676,937
|
|
|
$
|
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, 5 years;
furniture and fixtures, 3 to 5 years; equipment, 3 to 5 years.
Revenue Recognition
Revenues from the sale of motorcycles and equipment
are recognized when products are delivered or shipped. Advance payments from customers are typically required to secure the order
and are shown as deferred revenue in the accompanying balance sheets and are non-refundable. The Company recognizes revenue from
repair services in the same month the service is provided. Cash payments received from customers prior to delivery of
the motorcycle are recorded as deferred revenue on the balance sheet. Deferred revenue was $689,473 at June 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 June 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 June 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 June
30, 2014 and 2013, advertising expense was $28,948 and $4,593, respectively.
Year-to-date
advertising expense totaled $31,267 and $14,935 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 $76,004 and $46,111 for the quarters ended June 30,
2014 and 2013, respectively.
Year-to-date R&D expense totaled $126,072 and $69,274 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
June 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:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Vehicles
|
|
$
|
36,628
|
|
|
$
|
36,628
|
|
Furniture and fixtures
|
|
|
11,734
|
|
|
|
11,734
|
|
Equipment
|
|
|
80,434
|
|
|
|
80,434
|
|
Leasehold improvements
|
|
|
25,826
|
|
|
|
25,273
|
|
CIP - Equipment
|
|
|
11,867
|
|
|
|
-
|
|
|
|
|
166,489
|
|
|
|
154,069
|
|
Less accumulated depreciation
|
|
|
(127,307
|
)
|
|
|
(126,619
|
)
|
|
|
$
|
39,182
|
|
|
$
|
27,450
|
|
NOTE 3 – CAPITAL LEASES
The capitalized cost and accumulated depreciation
of the computers and equipment under capital lease totaled $80,434 and $79,945, respectively, at June 30, 2014.
At June 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, our 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 $486,762, with a balance of $113,238 remaining unpaid. 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 remaining 50% was to be
paid to the Company on a future date mutually agreed by the investor and the Company.
As of the date of this report, an additional
$250,000 has been received from the investor. The Company also holds $20,000 an affiliate of the investor paid in January 2014
as a good faith payment to extend the offer. The balance of $230,000 is due prior to issuing the remaining 3,117,206 shares.
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 – June 30, 2012
|
|
|
|
105,000
|
|
|
$
|
1.50
|
|
Exercisable – June 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 – June 30, 2013
|
|
|
|
105,000
|
|
|
$
|
1.50
|
|
Exercisable – June 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
|
|
|
|
-
|
|
|
$
|
-
|
|
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 June 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 June 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 $12,000 and $8,000 for the quarters ended
June 30, 2014 and 2013, respectively. YTD compensation was $24,000 and $11,000 for June 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 $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 on January 1, 2014, as follows: 768,000 shares to
Paolo Chiaia and 384,000 shares for Patrick Aisher. The 1,890,000 shares at $.125 equate 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 Company’s 2008 Incentive 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 $7,059.67 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 June 30, 2014 and $14,938 for the quarter ended June 30, 2013. Future minimum payments due
under the operating lease agreements are as follows:
July 1 through June 30, 2015
|
|
$
|
85,987
|
|
Future minimum lease payments
|
|
|
|
|
July - June
|
|
|
|
|
2015-2016
|
|
|
87,707
|
|
2016-2017
|
|
|
89,461
|
|
2017-2018
|
|
|
91,250
|
|
2018-2019
|
|
|
93,075
|
|
2019-2020
|
|
|
94,936
|
|
Remaining
|
|
|
330,271
|
|
|
|
$
|
872,687
|
|
NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS
Various ASU’s up through ASU No. 2014-13
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 June 30, 2014, interest
has accrued an additional $213 totaling $613 YTD. Accumulated fees for 2014 are $3,000.
The current amount due on the promissory note
is $13,837.
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
(A/R Other Receivables) for parts, labor, services, and fees.
The A/R Other Receivable balance of $476,867
on the balance sheet contains $280 in parts sales.
NOTE 10 – CONCENTRATION OF CREDIT
RISK
At June 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 June 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
has evaluated subsequent events through the date of issuance of the financial statements, and did not have any material recognizable
subsequent events.