UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.  20549





FORM 10-K/A-1








(Mark One)


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





For the fiscal year ended December 31, 2010





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








Commission File Number: 000-52500





Confederate Motors, Inc.


(Exact name of registrant as specified in its charter)





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





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





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





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





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





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. o





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit an post such files).


Yes o No o





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o









Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer o
Accelerated filer oNon-accelerated filer o
Smaller reporting company x





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


Yes o No x




The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as of the last business day of the registrant’s most recently competed second fiscal quarter was $7,910,000.





The number of shares outstanding of the registrant’s common stock on March 24, 2011, was 12,954,998.








DOCUMENTS INCORPORATED BY REFERENCE





None




EXPLANATORY NOTE





The purpose of this Amendment No. 1 is to revise Item 1, BUSINESS, to clarify the products we currently produce and sell and to revise certain definitions and to removing industry jargon.





In addition, we have amended Item 1B, UNRESOLVED STAFF COMMENTS, to clarify that we received comments from the Commission to our report on Form 8-K filed with the Commission on May 21, 2010.





Item 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, has been amended to expand the discussion of liquidity and capital resources to disclose our estimated capital expenditures for the next 12 months and our expected source of funds.  We have also added language in this section to address describe our current and future debt obligations.





Note 14 of our financial statements has been revised to disclose that the Company is not currently engaged in any discussions that could result in additional borrowings.





Item  12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS, has been amended to remove references to footnotes 8, 9, and 10.





Exhibits 31.1 and 31.2 have been amended to remove the reference to “transition” in relation to this annual report.





This Amendment No. 1 continues to speak as of the date of the original Form 10-K for the year ended December 31, 2010, and the Company has not updated or amended the disclosures contained in the amended items to reflect events that have occurred since the filing of the original Form 10-K, or modified or updated those disclosures in any way other than as described in the preceding paragraphs.  Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s filings made with the Commission subsequent to the filing of the original Form 10-K on April 1, 2011.







TABLE OF CONTENTS
  Page
  PART I
4ITEM 1.  BUSINESS
4ITEM 1B.  UNRESOLVED STAFF COMMENTS
8PART II
8ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
8ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
11PART III
11ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
11PART IV
13ITEM 15.   EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
13SIGNATURES
14




3




Forward Looking Statements





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





Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this report.





Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report or to reflect the occurrence of unanticipated events.  You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this report.





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


▪        actual or anticipated fluctuations in our quarterly and annual operating results;


▪        actual or anticipated product constraints;


▪        decreased demand for our products resulting from changes in consumer preferences;


▪        product and services announcements by us or our competitors;


▪        loss of any of our key executives;


▪        regulatory announcements, proceedings or changes;


▪        announcements in the motorcycle community;


▪        competitive product developments;


▪        intellectual property and legal developments;


▪        mergers or strategic alliances in the motorcycle industry;


▪        any business combination we may propose or complete;


▪        any financing transactions we may propose or complete; or


▪        broader industry and market trends unrelated to its performance.





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





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








PART I





ITEM 1.  BUSINESS





Historical Development





We are a publicly held company incorporated in the State of Delaware in May of 2005.  On February 12, 2009, we entered into an Agreement and Plan of Merger and Reorganization by which we acquired all of the outstanding stock of Confederate Motor Company, Inc., a Louisiana corporation (“CMCI”).  CMCI was thereafter merged into our company.




4




Industry Overview





The premium heavyweight (651+cc) street motorcycle industry is a niche market targeting high net worth individuals.  In the past, the motorcycle industry has been subject to significant changes in demand due to changing social and economic conditions affecting discretionary consumer income, such as employment levels, business conditions, taxation rates, fuel costs, interest rates and other factors. The factors underlying such changes in demand are beyond our control, and demand for our products may be adversely affected by a sustained economic downturn, which could have a further negative impact on our business, prospects, results of operations or financial condition.





Our Motorcycle Business





We are engaged in the design and assembly of premium, heavyweight motorcycles geared for high net worth customers.. We currently produce a single model line, known as the P120 Fighter and have designed a new C3 Hellcat line for production in the near future.   Our design and assembly operations are based in Birmingham, Alabama.  Rather than making capital investments in manufacturing equipment, the Company’s operations are limited to assembly of the motorcycles from outsourced parts resulting in a relatively low fixed cost structure.  All motorcycles are designed and assembled under the direction of our CEO and founder, H. Matthew Chambers.





It is the foundational philosophy of the Confederate brand that our motorcycle lines reflect the heritage of the American hot rod motorcycle tradition.  Our original Hellcat line was inspired by the post WWII fighter pilot who, upon return from service in the military, promptly bought an American V-Twin motorcycle, stripped it to its barest essentials and souped up the motor to the farthest extent possible without compromising reliability.  This formula, along with Bauhaus influenced minimalist avant-guard approach has consistently been applied to our motorcycle lines.





Our P120 Fighter Motorcycle Line





We currently produce a single line of motorcycle, namely the P120 Fighter has been in production and marketed since January 2010.  This line was launched as a limited series of 50 bikes and we are nearing the end of production of the first 50 units.  We continue to take orders for this line, but we do not anticipate significant orders after we launch our new line.  The P120 Fighter was the featured item in the Neiman-Marcus Christmas fantasy gift catalogue. It features a thin wall 5-inch outer diameter aluminum chassis, our triple load path modular architecture, and a large diameter mating surface architecture.





Our C3 Hellcat Motorcycle Line in Development





We have developed a third generation of our Hellcat line known as the C3 Hellcat.  This design incorporates absolute chassis and power train rigidity along with complete resistance to core fatigue.  For this model we have developed a new unitized power train casing, which is precision carved from a 400 pound block of 6061 aircraft grade aluminum which management believes provides superior structural integrity at low weight.  The new casing encapsulates a big-boned, large diameter chassis/power train mounting system based on experience gained from twenty years of Hellcat design.





A strategic alliance between S&S Cycle and Confederate has yielded a new motor providing maximum off-idle broadband torque delivery.  In order to increase low RPM torque, we have fused our patented power train system to the new motor.  This system is designed to maintain specific crankshaft to output shaft alignment, irrespective of the suddenness or the volume of torque application.





Motorcycle Related Products





In addition to our motorcycles, we offer a select variety of wearing apparel and other related accessories displaying the Confederate name.  These products are marketed through our online website.




5




Our Business Strategy





Strengthen our position in our core market





We intend to strengthen and grow our niche position in our target market of high net worth customers.  To this end we are introducing the C3 Hellcat, which management believes it tougher, stronger, lighter and more efficient than our previous designs.





We intend to develop and introduce new products to appeal to the changing needs of our target clients and to bring new clients to the Confederate brand.  We believe we can expand our traditional market niche by combining hot rod street credibility, avant-guard American design and quality hand craftsmanship.  We believe that the aesthetics of our new third generation architecture simplified to a slightly more conventional level will both solidify and grow our present target audience and open our Confederate brand to high net worth individuals.





Strengthen our Distribution Network





We believe our U.S. sales deployment strategy will create the most proximate relationship between our target 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 approximately 14,000 unique visitors per month in 2005 to approximately 50,000 per month in 2010.  Management believes these statistics point to an improvement in quality and relevance of referrals to our site.  Going forward our plan is to spread and 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 accessories 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.





For calendar year 2011, we intend to launch a campaign to showcase a new simplified version of the Hellcat as our unique vision of the perfected American roadster.





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 Forbes, The New York Times, Fast Company, The Robb Report, The Men’s Journal, DuPont Registry, GQ, Maxim, Popular Science, 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.




6




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, and seats.  Other key components are purchased off-the-shelf from various independent suppliers mostly located in the United States, including brake and suspension systems, drive belts, ignition starters, wheels, tires, lights and batteries.  Components manufactured by us in-house include electrical harnesses and wiring and welded motorcycle frames, fuel tanks and exhaust.





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.





Competition





The market for premium heavyweight motorcycles is highly competitive.  Our principal competitors are custom motorcycle manufacturers, and, to a more limited extent, Harley-Davidson of the United States and three European manufacturers (Ducati, Triumph and BMW).  Additional competitors, including Big Dog and Big Bear Choppers, also produce custom motorcycles that compete with ours.  Most of our competitors have substantially greater financial resources, are more diversified and have significantly higher sales volumes (allowing for greater economies of scale) and market share than us.





Insurance





The nature of our retail business exposes us to a low degree of risk of liability.  Of primary concerns are product and design flaws which may expose us to claims by customers or third parties for product liability, personal injury or property damage. We manage our exposure with general and product liability coverage obtained through independent insurance companies.





Seasonality





The high performance street motorcycle industry is generally not subject to the normal ebbs and flows associated with general commerce.  There is a slight increase in sales corresponding to the beginning of spring riding season.





Research and Development





During the year ended December 31, 2010, we spent $167,348 on research and development related to development of new motorcycle models.  During the year ended December 31 2009, we spent $145,333 also on research and development of new motorcycle models.  We anticipate continuing these research and development activities on an ongoing basis.





Trademarks and Trade Names





We hold or have applied for several federal trade names used in our business, including “Hellcat,” “Confederate,” “Fighter,” “Bohemian,” “Speedster,” “D'Orleans,” “El Bandito,” “Rake,” “Renovatio” and “Art of Rebellion.”  We also hold a patent (U.S. Patent No. 5,857,538 issued on January 12, 1999) for the frame rigidity of our motorcycles.  We also have website URLs for “Confederate.com” and “Workandcycle.com.”




7




Government Regulation





Vehicles intended for use on public roadways must satisfy regulations implemented by the United States Department of Transportation (“DOT”) and by the corresponding agencies in other countries.  Our vehicles and our manufacturing and repair facility are also subject to environmental regulations.





We plan to submit the C3 Hellcat to the various applicable governmental agencies for certification requirements and standards.  For this purpose, we have retained a leading certified motorcycle testing lab.  We expect to incur costs of approximately $50,000 to comply with motorcycle safety and emissions requirements.  As new laws and regulations are adopted, we will assess their effects on current and future Confederate motorcycle products.





Employees





At December 31, 2010, we had a total of 11 full time employees, consisting of 5 personnel in production and procurement and 6 personnel in management, design, sales and marketing.  None of our employees belongs to a labor union, and we consider our relationship with our employees to be good.





ITEM 1B.  UNRESOLVED STAFF COMMENTS





We are not an accelerated filer, a large accelerated filer or a well-known seasoned issuer and therefore have elected not to provide the information required by this item.  Nevertheless, we received a letter dated May 24, 2010, from the Securities and Exchange Commission staff with regard to our current report on Form 8-K filed on May 21, 2010.  On June 10, 2010, we received a letter from the Commission staff that it had completed its review of our Form 8-K and had no further comments at that time.





PART II





ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





We produce premium, heavyweight (651+cc) motorcycles. Currently we produce and market the P120 Fighter.  A third generation Hellcat (“C3”) is in the development stage.





Overview and Outlook





Net revenue for 2010 was $1,860,680 compared to $620,390 for 2009. The Company’s yearend financial performance reflected an increase in motorcycle shipments.  Net loss was $507,395 in 2010 compared to a net loss of $6,277,862 in 2009.  Non cash stock based compensation of $4,753,050 contributed to the loss for 2009.





Cash flow from operating activities was negative $17,157 in 2010 compared to a negative cash flow of $1,284,549 in 2009.  Net cash flow from investing activities was $(3,750) and $21,100 for 2010 and 2009, respectively. Net cash flow from financing activities was $(77,801) and $1,593,521 for 2010 and 2009, respectively.





We believe that the near-term global economic environment will be challenging for the business and we will continue to make prudent decisions to manage through this uncertain environment.  At the same time, we are optimistic about the Company’s long-term business prospects and plans to continue to expand production and global distribution. The operational focus for 2010 was spent on production of the P120 Fighter.  A significant amount of time was also spent in the development of the new model as well as the strategic repositioning of the direct sales model to a hybrid model of direct domestic sales combined with international distribution and dealer networks. We also established distribution partners in China and Canada. We maintain a sales backlog for which the revenue will be recognized in later periods.





Cost of Goods Sold





Cost of goods sold was $1,195,847 in 2010 compared to $533,536 in 2009. Cost of goods sold was higher due to an increase in motorcycle shipments.




8




Gross Profit





Gross profit was $664,833 in 2010 compared to $86,854 in 2009. Gross profit was higher due to an increase in motorcycle shipments. Gross profit percentage improved to 35.7% of revenue from 14% the prior year.  The increase in motorcycle shipments resulted in lower per unit cost for indirect labor, tooling and supplies and other indirect cost of goods sold.  We also realized improvements in production efficiency and a lower bill of materials.





Selling, general and administrative expenses





Selling, general and administrative costs (SG and A) was $1,223,639 in 2010, compared to $6,209,081 in 2009. The 2009 SG and A expenses include non-cash stock compensation expense of $4,753,050 for stock awards.  Excluding the effect of non-cash compensation, SG and A expenses decreased 16% over the prior year primarily due to lower marketing and travel expenses in 2010.





Results of Operations for the year ended December 31, 2010 Compared to the year ended December 31, 2009





Year EndedDecember 31, 2010


December 31, 2009Revenue from motorcycles & related products

$
1,860,680


$
620,390Gross Profit

$
664,833


$
86,854Operating Expense

$
1,223,639


$
6,209,081Other Income (Expense)

$
51,411


$
(155,635
)Net Income (Loss)

$
(507,395
)

$
(6,277,862
)Earnings (Loss) per Share

$
(0.04
)

$
(0.56
)





Cautionary Statements





Our ability to meet the targets and expectations noted depends upon, among other factors, our ability to (i) continue to realize production efficiencies and manage operating costs including materials, labor and overhead; (ii) manage production capacity and production changes; (iii) manage supply chain issues; (iv) provide products, services and experiences that are successful in the marketplace; (v) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace; (vi) continue to develop the capabilities of its distributor network; (vii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations; (viii) manage access to reliable sources of capital and adjust to fluctuations in the cost of capital; (ix) anticipate consumer confidence in the economy; (x) retain and attract talented employees; (xi) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, increased warranty costs or litigation;





Our ability to sell our motorcycles and related products and services and to meet our financial expectations also depends on the ability of our independent distributors to sell our motorcycles and related products and services to retail customers. We depend on the capability and financial capacity of our independent distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from us.





In addition, our independent distributors may experience difficulties in operating their businesses and selling our products.





Liquidity and Capital Resources





At December 31, 2010, we had cash of $266,327.





To the extent we are successful in rolling out our product line and increasing demand for our motorcycles, we plan to use our working capital to fund continued expansion.  Over the next 12 months, we intend to begin production of the new C3 Hellcat.  The projected capital expenditure for initial inventory is approximately $300,000.  We intend to raise the capital through the sale and issuance of our capital stock.  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.




9




As of December 31, 2010, we have minimal debt obligations of $76,848 in notes payable and $22,184 in lease payments which results in negligible debt service payments.  We continue to service our debt from operating revenue.





Recent Accounting Pronouncements





In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, “Fair Value Measurements” (“ASC 820”) to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance was effective for financial periods beginning after December 15, 2009, except the requirement to disclose Level 3 transactions on a gross basis, which becomes effective for financial periods beginning after December 15, 2010. ASU 2010-06 did not have a significant effect on our consolidated financial position or results of operations.





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.





10




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





We have provided the financial statements required by this item immediately following the signature page of this report.





PART III








ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The following table sets forth certain information concerning the ownership of our common stock as of March 24, 2011, of (i) each person who is known to us to be the beneficial owner of more than 5 percent of our common stock, without regard to any limitations on conversion or exercise of convertible securities or warrants; (ii) all directors and executive officers; and (iii) our directors and executive officers as a group:





Name and Address of

Beneficial Owner

Amount and Nature of

Beneficial Ownership1

Percent of Class2H. Matthew Chambers

2222 5th Ave. South

Birmingham, AL 35233


2,633,2203



20.3
%Joseph P. Mitchell

2222 5th Ave. South

Birmingham, AL 35233


316,985



2.5
%G. Chance Turner

2222 5th Ave. South

Birmingham, AL 35233


-0-



-0-Paolo Chiaia

2222 5th Ave. South

Birmingham, AL 35233


207,262



1.6
%Executive Officers and Directors as a Group

(4 Persons)


3,157,467



24.4
%Barclays Capital Inc.4

70 Hudson St.

Jersey City, NJ 07302


679,899



5.3
%Nazir Mohammed Parker5

Oldenway Limited I

Oldenway Limited II

Bahrain World Trade Center

37th Floor

East Tower

Kingdom Bahrain


2,479,826



19.1
%RSC Affiliated Businesses, LLC6

2222 5th Ave. South

Birmingham, AL 35233


2,633,220



20.3
%Francois-Xavier Terny7

420 East 64th St.

Apt W-4D

New York, NY 10065


805,000



6.2
%





11


___ _________


1 This table is based upon information supplied by officers, directors and principal stockholders and is believed to be accurate.  Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.  Shares of common stock subject to options, warrants, or other conversion privileges currently exercisable or convertible, or exercisable or convertible within 60 days of March 24, 2011, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.  Where more than one person has a beneficial ownership interest in the same shares, the sharing of beneficial ownership of these shares is designated in the footnotes to this table.


2 At March 24, 2011, we had 12,954,998 shares outstanding.


3 Consists of shares owned by RSC Affiliated Businesses, LLC, a company controlled by Mr. Chambers and for which he has the power to vote and invest the shares.


4 The number of shares designated in this table as beneficially owned by this shareholder is based solely upon the stockholder records of the company.  We have no information as to the individual or individuals who hold voting or investment power over these shares.


5 Includes 1,239,913 shares held by Oldenway I and 1,239,913 shares held by Oldenway II.  Mr. Parker has the voting and investment power over all of these shares.


6 This entity shares beneficial ownership of these shares with H. Matthew Chambers and the shares are included with the shares beneficially owned by him above in this table.


7 The number of shares designated in this table as beneficially owned by this shareholder is based solely upon the stockholder records of the company.  We have no information as to any other party or parties who hold voting or investment power over these shares.





Securities Authorized for Issuance under Equity Compensation Plans





The following table sets forth as of the most recent fiscal year ended December 31, 2010, certain information with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance:





Number of securities to be issued upon exercise of outstanding options, warrants and rights

(a)

Weighted-average exercise price of outstanding options, warrants and rights

(b)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) and (b))

(c)Equity compensation plans approved by security holders

-0-

N/A

305,000(1)Equity compensation plans not approved by security holders

-0-

N/A

-0-Total





305,000





(1)
We have a 2008 Incentive Plan which permits us to grant option and share awards.  The plan has 1,105,000 shares authorized for grants, of which we issued 800,000 shares during 2009.  No options have been granted under the Plan.  At December 31, 2010, there were 305,000 shares remaining authorized under the plan.


12


PART IV





ITEM 15.   EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES


Financial Statements Index


Reports of Independent Registered Public Accounting firmsConsolidated Balance Sheets, December 31, 2010 and 2009Consolidated Statements of Operations for the years ended December 31, 2010 and 2009Consolidated Statement of Stockholders’ Deficit for the years ended December 31, 2010 and 2009Consolidated Statements of Cash Flows, for the years ended December 31, 2010 and 2009Notes to Consolidated Financial Statements for the years ended December 31, 2010 and 2009


Exhibits





Incorporated by ReferenceExhibitNumber
Exhibit Description
Form
File No.
Exhibit
Filing Date
Filed

Herewith2.1
Agreement and Plan of Merger dated February 12, 2009
8-K
000-52500
2.1
2/12/093.1
Restated Certificate of Incorporation
10-K
000-52500
3.1
4/1/113.2
Articles of Merger filed March 13, 2009
10-K
000-52500
3.2
4/1/113.3
Bylaws
10-K
000-52500
3.3
4/1/114.1 & 10.1
2008 Stock Incentive Plan
8-K
000-52500
10.1
2/12/094.2
Securities Purchase Agreement dated January 30, 2009
8-K
000-52500
4.1
2/12/094.2
Registration Rights Agreement dated February 12, 2009
8-K
000-52500
4.2
2/12/0910.2
Employment Agreement with H. Matthew Chambers
8-K
000-52500
10.2
2/12/0910.3
Employment Agreement with Joseph Mitchell
8-K
000-52500
10.3
2/12/0914.1
Code of Ethics
8-K
000-52500
14.1
2/12/0916.1
Letter from Bartolomei Pucciarelli, CPAs & Advisors dated July 13 , 2010
8-K
000-52500
16.1
7/13/1021.1
List of Subsidiaries
10-K
000-52500
21.1
4/1/1131.1
Rule 13a-14(a) Certification by Principal Executive Officer




X31.2
Rule 13a-14(a) Certification by Principal Financial Officer




X32.1
Section 1350 Certification of Principal Executive Officer




X32.2
Section 1350 Certification of Principal Financial Officer




X


13


SIGNATURES





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




Confederate Motors, Inc.Date: July 15, 2011
By:
/s/ H. Matthew ChambersH. Matthew Chambers, Chief Executive Officer





14














F-1




Bartolomei Pucciarelli, LLC


Lawrenceville, NJ 8648










REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

















To the Board of Directors and





Stockholders of Confederate Motors, Inc.





We have audited the accompanying consolidated balance sheet of Confederate Motors, Inc. as of December 31, 2009 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2009. Confederate Motors, Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.





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





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Confederate Motors, Inc. as of December 31, 2009, and the results of its operations and its cash flows for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.





The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company had a working capital deficiency of approximately $211,000 as of December 31, 2009, a net loss of approximately $6.3 million for the year ended December 31, 2009, and an accumulated deficit of approximately $9.2 million as of December 31, 2009. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is described in Note 8 to the 2009 financial statements. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.





/s/ Bartolomei Pucciarelli, LLC





Lawrenceville, NJ


May 17, 2010





F-2





CONFEDERATE MOTORS, INC.


Consolidated Balance Sheets


December 31, 2010 and 2009





December 31,


December 31,2010


2009AssetsCurrent assetsCash and cash equivalents

$
266,327


$
365,035Inventory


433,006



652,834Prepaid inventory


15,600



78,647Due from related party


3,750



-Total current assets


718,683



1,096,516Property and equipment, net


27,336



58,143Total assets

$
746,019


$
1,154,659Liabilities and Stockholders' Equity (Deficit)Current liabilitiesAccounts payable

$
142,920


$
102,931Accrued interest payable


7,501



7,501Accrued payroll tax liability


204,669



185,251Deferred revenue


828,419



633,813Warranty reserve


8,600



8,600Other accrued expenses


22,394



39,850Registration rights liability


251,250



251,250Current portion of notes payable


32,784



52,983Current portion of capital leases


18,299



25,289Current portion of deferred exclusive agency fee


60,000



60,000Total current liabilities


1,576,836



1,367,468Notes payable, less current portion


44,064



76,378Capital leases, less current portion


3,885



22,184Deferred exclusive agency fee


60,000



120,000Stockholders' deficitCommon Stock, $0.001 par value 200,000,000 shares authorized; 12,954,998 shares

outstanding in 2010 and 2009


12,954



12,954Additional paid-in capital


8,723,096



8,723,096Accumulated deficit


(9,674,816
)


(9,167,421
)Total stockholders’ deficit


(938,766
)


(431,371
)Total liabilities and stockholders’ deficit

$
746,019


$
1,154,659





The accompanying notes are an integral part of these financial statements.




F-3





CONFEDERATE MOTORS, INC.


Consolidated Statements of Operations


Years ended December 31, 2010 and 2009








2010


2009Sales

$
1,860,680


$
620,390Cost of goods sold


(1,195,847
)


(533,536
)Gross profit


664,833



86,854Selling, general and administrative expenses


1,223,639



6,209,081Loss from operations


(558,806
)


(6,122,227
)Other income (expense)Change in fair value of derivative liability


-



76,801Registration rights penalty


-



(251,250
)Other income


60,000



60,000Interest, net


(8,589
)


(41,186
)51,411



(155,635
)Net loss

$
(507,395
)

$
(6,277,862
)Net income (loss) per common share - basic and diluted

$
(0.04
)

$
(0.56
)Weighted average number of shares outstanding - basic and diluted


12,954,998



11,298,763





The accompanying notes are an integral part of these financial statements.




F-4




CONFEDERATE MOTORS, INC.


Consolidated Statement of Stockholders’ Deficit


Years ended December 31, 2010 and 2009





Common Stock Shares


Common Stock


Additional Paid-In Capital


Accumulated

Deficit


Total

Stockholders' DeficitBalance at December 31, 2008


7,116,000


$
7,116


$
2,055,884


$
(2,889,559
)

$
(826,559
)Issuance of shares upon recapitalization


1,105,000



1,105



(1,105
)






-Issuance of shares for convertible note


200,000



200



224,800







225,000Issuance of common stock for cash


1,449,998



1,449



2,173,551







2,175,000Stock issuance costs










(480,000
)






(480,000
)Issuance of common stock – broker warrants






-



127,050







127,050Stock based compensation


3,084,000



3,084



4,622,916







4,626,000Net loss














(6,277,862
)


(6,277,862
)Balance at December 31, 2009


12,954,998


$
12,954


$
8,723,096


$
(9,167,421


$
(431,371
)Net loss














(507,395
)


(507,395
)Balance at December 31, 2010


12,954,998


$
12,954


$
8,723,096


$
(9,674,816
)

$
(938,766
)





The accompanying notes are an integral part of these financial statements.





F-5




CONFEDERATE MOTORS, INC.


Consolidated Statements of Cash Flows


Years ended December 31, 2010 and 2009





2010


2009Operating activitiesNet Loss

$
(507,395
)

$
(6,277,862
)Adjustments to reconcile net loss to netcash used by operating activitiesDepreciation


30,807



39,295Accretion of debt discount


-



16,347Change in fair value of derivative liability


-



(76,801
)Stock based compensation


-



4,753,050Change in operating assets and liabilitiesInventory


219,828



(254,551
)Prepaid inventory


63,047



(78,647
)Accounts payable


39,989



(53,464
)Accrued interest payable


-



7,501Accrued payroll tax liability


19,418



85,709Registration rights liability


-



251,250Other accrued expenses


(17,456
)


7,994Deferred revenue


194,606



355,630
)Deferred exclusive agency fee


(60,000
)


(60,000
)Warranty reserve


-



-Net cash used by operating activities


(17,157
)


(1,284,549
)Investing activitiesDue from related party


(3,750
)


21,100Net cash used by investing activities


(3,750
)


21,100Financing activitiesRepayment of notes payable


(52,512
)


(78,838
)Repayment of capital leases


(25,289
)


(22,641
)Proceeds from issuance of stock, net of stock issuance costs


-



1,695,000Net cash provided by financing activities


(77,801
)


1,593,521Net increase (decrease) in cash and cash equivalents


(98,708
)


330,072Cash and cash equivalents at the beginning of year


365,035



34,963Cash and cash equivalents at end of year

$
266,327


$
365,035Supplemental disclosures of cash flow information:Non cash investing & financing activitiesConversion of preferred stock to common stock


-



2,080Issuance of shares upon recapitalization


-



1,105Conversion of convertible note to common stock


-



225,000Cash paid during the year for:Interest expense

$
8,589


$
17,337Income tax

$
-


$
-





The accompanying notes are an integral part of these financial statements.




F-6





Confederate Motors, Inc.


Notes to Consolidated Financial Statements


December 31, 2010 and 2009








NOTE 1 – Summary of Significant Accounting Policies





Nature of Business





Confederate Motors, Inc. (the “Company”) is a manufacturer of American handcrafted street motorcycles of superior design, structure, performance and quality. The Company currently offers one model: the P120 Fighter. The F131 Hellcat and B120 Wraith were discontinued in 2010. The Brand was founded in 1991. The Company has been operational since 2003 and was formerly located in New Orleans, Louisiana. The Company is headquartered in Birmingham, Alabama.





Use of Estimates





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





Principles of Consolidation





The consolidated financial statements includes Confederate Motors, Inc., and its wholly owned subsidiary, Confederate Acquisitions Corp. (collectively, the “Company”). All intercompany accounts have been eliminated in consolidation.





Risks and Uncertainties





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





See Note 7 for a full discussion of commitments, contingencies and other uncertainties.





Cash and Cash Equivalents





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





Inventory





Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventory consists of parts inventory, work in process (WIP), finished goods inventory, apparel and direct labor associated with finished goods.




F-7




12/31/2010


12/31/2009Parts

$
174,735


$
205,803Work in process


47,831



-Motorcycle finished goods


168,649



447,031Apparel Inventory


41,791



-Total Inventory

$
433,006


$
652,834





Property and Equipment





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





Revenue Recognition





Revenues from the sale of motorcycles and equipment are recognized when products are delivered or shipped. Advance payments from customers are typically required to secure the order and are shown as deferred revenue in the accompanying balance sheets and are non-refundable. The Company recognizes revenue from repair services in the same month the service is provided.  Cash payments received from customers prior to delivery of the motorcycle are recorded as deferred revenue on the Balance Sheet.  Deferred revenue was $828,419 at December 31, 2010 and $633,813 at December 31, 2009.





Earnings per Share





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





The Company had the following potential common stock equivalents at December 31, 2010:





Common stock warrants


105,000Total common stock equivalents


105,000





Since the Company reflected a net loss in 2010 and 2009, respectively, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.





Income Taxes





The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC Topic 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.





F-8




Accounting guidance now codified as FASB ASC Topic 740-20, “Income Taxes – Intraperiod Tax Allocation,” clarifies the accounting for uncertainties in income taxes recognized in accordance with FASB ASC Topic 740-20 by prescribing guidance for the recognition, de-recognition and measurement in financial statements of income tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a particular jurisdiction. FASB ASC Topic 740-20 requires that any liability created for unrecognized tax benefits is disclosed. The application of FASB ASC Topic 740-20 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets. The Company would recognize interest and penalties related to unrecognized tax benefits in income tax expense. At December 31, 2010 and 2009, respectively, the Company did not record any liabilities for uncertain tax positions.





Advertising Costs





Advertising is expensed as incurred.  For 2010 and 2009, advertising expense was $93,185 and $151,799, respectively.





Research and Development Costs





Research and development costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying statements of operations. Research and development costs totaled $167,348 and $145,333 for the years ended 2010 and 2009, 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 presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.





There are no fair value measurements as of December 31, 2010 and December 31, 2009.




F-9




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.





Stock-Based Payments





Significant amounts of the Company’s 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 the Company’s consolidated financial statements for certain of its assets and expenses. For historic fiscal years when there was not an observable active, liquid market for the Company’s 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 its shares, before and after the non-cash share payment date.





NOTE 2 – PROPERTY AND EQUIPMENT





Property and equipment consisted of the following as of:





December 31,


December 31,2010


2009Vehicles

$
36,628


$
36,628Furniture and fixtures


11,734



11,734Equipment


119,068



119,068Leasehold improvements


39,886



39,886207,316



207,316Less accumulated depreciation


179,980



149,173$
27,336


$
58,143





NOTE 3 – NOTES PAYABLE





Notes payable consisted of the following as of:





December 31,


December 31,2010


2009Government agency note payable due August 12, 2013,prime plus 2.75 % rate of interest (6.00% and 6.00% atDecember 31, 2010 and 2009, respectively), principaland interest payable monthly, unsecured

$
59,065


$
77,121Bank note payable due July 18, 2012, 7.95% fixed rate ofinterest, principal and interest payable monthly, securedby Company vehicle


13,202



20,727Note payable due February 15, 2011, 3.50% fixedrate of interest, principal and interest payable monthly,unsecured


4,581



31,51376,848



129,361Less current portion


32,784



52,983$
44,064


$
76,378





F-10




Principal Maturities of Notes Payable2011

$
32,7842012


25,8542013


18,210$
76,848





NOTE 4 – CAPITAL LEASES





The capitalized cost and accumulated depreciation of the computers and equipment acquired under capital leases totaled $108,807 and $93,067, respectively at December 31, 2010.





At December 31, 2010, future minimum payments due under the capital lease agreements are as follows:





2011

$
19,4492012


3,971Future minimum lease payments


23,420Less amount representing interest


1,236Present value of minimum lease payments


22,184Less current portion


18,299Long-term capital leases

$
3,885





NOTE 5 – STOCKHOLDERS’ EQUITY





Reverse Recapitalization


On February 12, 2009, Confederate Motor Company, Inc. (“Confederate”) entered into an Agreement and Plan of Merger and Reorganization with Confederate Motors, Inc., formerly, French Peak Resources, Inc. (“French Peak”). French Peak offered to issue 7,116,000 of its common shares in exchange for the common shares outstanding of Confederate and a cash payment of $350,000 for the purchase of French Peak.





100% of Confederate common shareholders elected to exchange their Confederate shares for shares of French Peak.  French Peak issued 7,116,000 shares to acquire 7,116,000 of the outstanding shares of Confederate. As a result of the exchange, Confederate held a 86.56% controlling interest in the combined entity, after the exchange. French Peak had 1,105,000 shares of common stock outstanding at the time of the merger.





Since the owners and management of Confederate possessed voting and operating control of the combined company after the merger, the transaction constituted a reverse acquisition for accounting purposes, as contemplated by FASB ASC 805-40 and corresponding ASC 805-10-55-10, 12 & 13. Under this accounting, the entity that issues shares (French Peak – the legal acquirer) is identified as the acquiree for accounting purposes. The entity whose shares are acquired (Confederate) is the accounting acquirer.





In addition, French Peak was characterized as a non-operating public shell company, pursuant to SEC reporting rules. The SEC staff considers a reverse acquisition with a public shell to be a capital transaction, in substance, rather than a business combination. The transaction is effectively a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition, except that the transaction was consummated at book value and no goodwill or intangible assets were recognized.





For SEC reporting purposes, Confederate is treated as the continuing reporting entity that acquired French Peak (the historic shell registrant). The reports filed after the transaction have been prepared as if Confederate (accounting acquirer) was the legal successor to French Peak’s reporting obligation as of the date of the acquisition. Therefore, all financial statements filed subsequent to the transaction reflect the historical financial condition, results of operations and cash flows of Confederate, for all periods presented.




F-11




In connection with the reverse acquisition and recapitalization, all share and per share amounts of Confederate are retroactively adjusted to reflect the legal capital structure of French Peak pursuant to FASB ASC 805-40-45-1.





Sale of Common Stock


During the twelve months ended December 31, 2009, we raised an aggregate of $2,175,000 through the sale of 1,449,998 shares of Common Stock to certain accredited investors, including 850,000 shares of Common Stock issued on February 12, 2009, 233,332 Common shares issued on June 9, 2009, 33,333 Common shares on August 15, 2009 and an additional 333,333 Common shares on October 13, 2009. The Company paid $350,000 to effect the reverse recapitalization and $130,000 in stock issuance costs to execute the transaction resulting in net proceeds of $1,695,000.





Stock Based Compensation


1,779,000 shares of common stock were awarded by the Board of Directors to key officers and a shareholder for their involvement in taking the private company public via the reverse recapitalization.  The stock based compensation of $2,668,500 was expensed in the first quarter 2009. 800,000 shares of common stock were awarded by the Board of Directors to key shareholders of the Company for past services.  The stock based compensation of $1,200,000 was expensed during the second quarter 2009, utilizing $1.50 as the fair market value of the Company’s common stock. The fair value of $1.50 was derived based on the price per share of Common Stock sold to certain accredited investors from the period of February 12, 2009 through October 13, 2009. An additional 505,000 shares of common stock were awarded by the Board of Directors to a Director of the Company for consulting services in the third quarter 2009.  The stock based compensation of $757,500 was expensed during the third quarter 2009, utilizing $1.50 as the fair market value of the Company’s common stock.





Warrants


During the twelve months ended December 31, 2009, the Company issued 105,000 stock purchase warrants to purchase the Company’s common stock at an exercise price of $1.50. The Company valued these warrants utilizing a Black-Scholes option pricing model utilizing the following assumptions: fair market value per share -$1.50, exercise -$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 PriceExercisable - December 31, 2008


-


$
-Granted


105,000


$
1.50Exercised


-



-Forfeited


-



-Outstanding – December 31, 2009


105,000


$
1.50Exercisable – December 31, 2009


105,000


$
1.50Granted


-



-Exercised


-



-Forfeited


-



-Outstanding – December 31, 2010


105,000


$
1.50Exercisable – December 31, 2010


105,000


$
1.50





F-12




Warrants Outstanding


Warrants ExercisableRange of

Exercise Price


Number

Outstanding

Weighted Average

Remaining Contractual

Life (in Years)

Weighted Average

Exercise Price


Number

Exercisable


Weighted Average

Exercise Price$
1.50



105,000

3 years

$
1.50



105,000


$
1.50





At December 31, 2010 and December 31, 2009, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.





Registration Rights Penalty





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





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





Liquidated damages are as follows:





Equity subject to registration rights penalty

$
2,175,000Maximum penalty


10
%Convertible debt subject to registration rights penalty

$
225,000Maximum penalty


15
%Registration Rights Penalty

$
251,250





NOTE 6 – RELATED PARTY TRANSACTIONS





During 2008, the Company paid advances to Matthew Chambers in the amount of $21,100.  Mr. Chambers serves as the Chief Executive Officer of the Company.





During 2009, the above advance was charged to Mr. Chambers’ compensation to relieve the receivable, the amount was advanced prior to the Company becoming a public entity subject to the provisions set forth in Sarbanes-Oxley.





Pamela Miller (life partner of Matthew Chambers, Chairman, CEO), handles patent and tradename filings/renewals and administrative support for the Company.  There is no formal contract between the Company and Pamela Miller.  Her compensation was $12,500 and $12,000 for the years ended December 31, 2010 and 2009, respectively.  Additionally, Pamela Miller is the guarantor for the majority of the loans and leases, vendor open accounts and the corporate credit card.





The Company has employment agreements with the CEO and Designer.





NOTE 7 – COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES:





Contingencies and Uncertainties





From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. With the exception of the lawsuit to determine whether Francois-Xavier Terny is a current member of the Board of Directors (as discussed in more detail below), the Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.





F-13




The Company has one pending legal action – Confederate Motors, Inc. v. Francois-Xavier Terny, et al. The action is a complaint for declaratory judgment and breach of contract which is necessary to permanently resolve some internal strife regarding the Chairman’s appointment power and the detrimental actions of a former Director. This is an action for money damages and reclamation of outstanding shares of the corporation.  The Defendant in the above referenced matter has filed a counterclaim for monetary damages.  Management believes the Company will prevail on the merits and the potential liability is remote.





The Company is contemplating relocation to the City of New Orleans and has been involved in a loan application to the City of New Orleans through a related entity, CM Design, LLC. In addition the Company has advanced a security deposit on behalf of this related entity during the first quarter of 2010. Finally, in its recently filed complaint mentioned in the preceding paragraph, the Company noted a discussion regarding the acceptance of a relocation loan from the City of New Orleans. It is the opinion of management that no financial obligation exists as a result of its actions. However, the facts above create an uncertainty regarding whether or not the Company has created a material direct financial obligation or off balance sheet arrangement that cannot be reasonably estimated at this time. The accompanying financial statements have not been adjusted for the outcome of this uncertainty.





In March 2010, the Company identified additional payroll tax liabilities related to individuals, including our CEO and CFO paid incorrectly as independent contractors in prior periods.  The Company has accrued for the payroll tax liabilities including penalties and interest. The Company has submitted the 2009 amended W3, W2 and 941 filings to the Internal Revenue Service and plans to resolve the liability with the IRS in the near term.





Operating Lease





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





Rent expense paid under the operating lease obligation totaled $52,029 and $46,010 for the years ended December 31, 2010 and 2009, respectively.





CM Design has entered into a sublease agreement to rent a facility in New Orleans and in the first quarter of 2010, Confederate advanced a security deposit of $3,750 to secure the space. It is the intention of Confederate to acquire CM Design and assume the loan and lease if Board approval is obtained.





Liquidity





Over the long-term, the Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities and return value to shareholders. The Company believes the motorcycles operations will continue to be primarily funded through cash flows generated by operations.





NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS





In June 2009, the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.




F-14




Statement of Financial Accounting Standards (“SFAS”) No. 165 (ASC Topic 855), “Subsequent Events,” SFAS No. 166 (ASC Topic 810), “Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140,” SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R),” and SFAS No. 168 (ASC Topic 105), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles- a replacement of FASB Statement No. 162” were recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.





Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU No. 2011-01 which 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 9 – EARNINGS (LOSS) PER SHARE





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





NOTE 10 – DEFERRED EXCLUSIVE AGENCY FEE





A distribution agreement, starting on January 01, 2008, was signed in 2007 with a group based in Dubai to distribute Confederate branded motorcycles in the Middle East region.  During 2008, a $300,000 fee was received for the exclusive selling rights within the Middle East region.  The contract is for 5 years ending on 12/31/2012.  The fee is being amortized to other income over the life of the agreement.





NOTE 11 – CONCENTRATION OF CREDIT RISK





At December 31, 2010 the Company had monies in bank accounts in excess of federally insured limits. The United States Congress has temporarily increased the Federal Deposit Insurance Corporation (FDIC) deposit insurance from $100,000 to $250,000 per depositor. As of December 31, 2010, the Company’s uninsured cash and cash equivalents balances totaled $18,112.





NOTE 12 – INCOME TAXES





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





The Company has no tax position at December 31, 2010 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December 31, 2010. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its intended activities.





The Company recognized deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. The Company will establish a valuation allowance to reflect the likelihood of realization of deferred tax assets.




F-15





The valuation allowance at December 31, 2010 was approximately $2,471,000. The net change in valuation allowance during the year ended December 31, 2010 was an increase of approximately $188,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2010.





The Company has a net operating loss carryforward for tax purposes totaling approximately $4,370,000 at December 31, 2010, expiring through 2030. There is a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally greater than a 50% change in ownership). Temporary differences, which give rise to a net deferred tax asset, are as follows:





Year Ended December 31,2010


2009Non-current deferred tax assets:Net operating loss carryforward

$
(1,673,000
)

$
(1,482,000
)Accrued salary


-



(3,000
)Stock based compensation


(798,000
)


(798,000
)Valuation allowance


2,471,000



2,283,000Net deferred tax assets

$
-


$
-





The actual tax benefit differs from the expected tax benefit for the year ended December 31, 2010 and the year ended December 31, 2009 (computed by applying the U.S. Federal Corporate tax rate of 34% to income before taxes and 6.5% for State income taxes, a blended rate of 38.29%) as follows:





Year Ended December 31,2010


2009Computed "expected" tax expense (benefit) - Federal – net of State benefit

$
(161,000
)

$
(1,996,000
)Computed "expected" tax expense (benefit) - State -


(33,000
)


(408,000
)Penalties and fines


-



2,000Stock/stock options/warrants issued for services


-



1,820,000Registration rights penalty






96,000Change in fair value of derivative liability - embedded conversion option


-



(29,000
)Meals and Entertainment and other


6,000



5,000Amortization of debt discount


-



6,000Change in valuation allowance


188,000



504,000Actual tax expense  (benefit)

$
-


$
-





NOTE 13 – ACCRUED PAYROLL TAX LIABILITIES





In March 2010, the Company identified additional payroll tax liabilities related to individuals, including our CEO and CFO paid incorrectly as independent contractors in prior periods.  The Company has accrued for the payroll tax liabilities including penalties and interest. The Company has submitted the 2009 amended W3, W2 and 941 filings to the Internal Revenue Service and plans to resolve the liability with the IRS in the near term.





NOTE 14 – GOING CONCERN CONSIDERATIONS





Management has evaluated the Company’s ability to continue as a going concern.  The following considerations suggest that the Company will continue in business for the foreseeable future.  The Company has minimal debt obligations of $76,848 in notes payable and $22,184 in lease payments which results in negligible debt service payments.    We are currently not engaged in any discussions that could result in additional borrowings.




F-16




The Company has a healthy backlog of orders, as of the date of this report the Company had 50 orders which represents 9-12 months of production backlog.  The Company projects an additional 50 orders with the unveiling of the C3 Hellcat pre-production prototype in the second quarter of 2011.





Cash flow from operations improved significantly in 2010 compared to 2009. The Company projects positive cash flow in 2011 with expected increases in motorcycle shipments for sales that have already been booked.  Accordingly, management is of the opinion that the substantial doubt regarding the Company’s ability to continue as a going concern has been mitigated.





NOTE 15 – SUBSEQUENT EVENTS





The Company has evaluated subsequent events through the filing date of this document and determined that there are no other items to disclose.






F-17