UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)


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





For the
fiscal year ended December 31, 2009




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





Commission File No.
333-1308





Confederate
Motors, Inc.


(Name
of small business issuer in its charter)





DELAWARE
            
            26-4182621(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (IRS
      Employer Identification No.)2222
      5th Avenue
      South
              Birmingham,
      Alabama
            
            35233(Address
      of principal executive offices)
            
            (Zip
      Code)





(205)
324-9888


(Registrant’s
telephone number, including area code)





Securities
      registered under Section 12(b) of the Exchange Act:Title
      of each class registered:
            Name
      of each exchange on which registered:None
            NoneSecurities
      registered under Section 12(g) of the Exchange Act:Common
      Stock, no par value
              (Title
      of class)





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 Section 15(d) of the Act.    Yes o     No x





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). [] Yes []
No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) 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
the 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
              (Do
      not check if a smaller reporting company)
            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





Revenues
for year ended December 31, 2009: $620,390.





The
aggregate market value of the registrant’s voting common stock held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter was US$3,314,314.





As of
December 31, 2009, the registrant had 12,954,998 shares of its common stock
issued and outstanding.





Documents Incorporated by
Reference: None.

















TABLE
OF CONTENTS





PAGEPART
      IITEM
      1.
              
              Business
              
              4ITEM
      1A.
              
              Risk
      Factors
              
              9ITEM
      2.
              
              Properties
              
              13ITEM
      3.
              
              Legal
      Proceedings
              
              14ITEM
      4.
              
              Submission
      of Matters to a Vote of Security Holders
              
              14PART
      IIITEM
      5.
              
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              
              14ITEM
      6.
              
              Selected
      Financial Data
              
              16ITEM
      7.
              
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
              
              16ITEM
      7A.
              
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              19ITEM
      8.
              
              Financial
      Statements and Supplementary Data
              
              20ITEM
      9.
              
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              
              39ITEM
      9A(T).
              
              Controls
      and Procedures
              
              39ITEM
      9B.
              
              Other
      Information
              
              41PART
      IIIITEM
      10.
              
              Directors,
      Executive Officers and Corporate Governance
              
              41ITEM
      11.
              
              Executive
      Compensation
              
              43ITEM
      12.
              
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              
              45ITEM
      13.
              
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              46ITEM
      14.
              
              Principal
      Accounting Fees and Services
              
              46PART
      IVITEM
      15.
              
              Exhibits,
      Financial Statement Schedules
              
              46SIGNATURES












PART
I








ITEM
1.      BUSINESS





Historical
Development





French
Peak Resources Inc., which has changed its name to Confederate Motors, Inc., is
a publicly traded 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 (the “Merger Agreement”) by and among Confederate
Motors, Inc. (formerly, French Peak Resources, Inc.), a Delaware corporation,
Confederate Acquisition Corp., a Delaware company and Confederate Motor Company,
Inc., a Louisiana corporation.  The closing of the transaction (the
“Closing”) took place on February 12, 2009 (the “Closing Date”).  On
the Closing Date, we acquired all the operations of Confederate Motor Company,
Inc, a Louisiana corporation.
 
 Our
principal executive offices are located at 2222 5th Avenue South, Birmingham,
Alabama 35233.  Our common stock is quoted on the FINRA OTC Bulletin
Board under the symbol “CFED.OB.”





Industry
Overview





The High
Performance Street Motorcycle Industry is a niche market targeting the high net
worth individuals. The world custom motorcycle market 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.





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, result of operations or financial
condition.





Our
Motorcycle Business





We are an
uncompromising motorcycle design and craft enterprise. We trace our brand
history to 1991. We produce three distinct model lines, which are unique,
technically and aesthetically.  Each offers value to our intended
client in a different manner.  The vehicle line includes a hot rod
roadster, a hot rod street fighter and a hot rod speedster.  Our
products are sold in the US, Western Europe and the Middle East.  Our
manufacturing operations are based in Birmingham, AL, consisting primarily of
motorcycle assembly.  Vertical integration is very limited, resulting
in a relatively low fixed cost structure.  All motorcycles are
designed and hand crafted under the direction of CEO and founder H. Matthew
Chambers.





Our
Motorcycle Lines





It was
the foundational cornerstone of the Confederate brand that the vehicle line
illuminate and inform the heritage of the American hot rod motorcycle
tradition.  The original Hellcat was inspired by the post WWII fighter
pilot who, upon return from his service to our country, 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 holistic American true to concept design DNA has consistently been
applied to our vehicle line extension. The big displacement V-Twin American
street motorcycle market is traditionally segmented into three categories as
follows: cruisers, custom and touring.  In furtherance of our American
design initiative, we have sought to redefine the segmentation of American
street machines.  We categorize our overall vehicle line as
roadburners. This term is used to define ultimate street
motorcycling.  We believe the Confederate roadburner offers the
following:  the most explosive low end power (torque) to weight ratio
of any vehicle on the planet; the most full-blooded, sensory overloaded,
accurate, precise, voluminous, integrative feedback of information; the most
overbuilt robust chassis crafted to withstand many lifecycles of the most
grueling hard core use; a primal connection between our client and his machine
that is self enriching in a timeless priceless manner; maximum solidity and
stability (the machines feel like they are carved from solid granite) and
absolute minimum overall weight, packaged as low and forward as possible with
the lightest unsprung weight possible.





Hellcat
Combat





The
Hellcat Combat is presented as a limited edition variant of the second
generation of the Hellcat series. Combat is a co-branding term that
illustrates a higher performance edition of the model so defined. The Combat
features a design specific hand ported and polished head design, special
camshaft grind, returned intake system, which harmoniously result in a 12% gain
in rear wheel horsepower and a 4% increase in rear wheel torque. The second
generation Hellcat was retired in the first quarter
2010.





Wraith




Conceived
as a counterpoint to the golden era of the 1930’s, which inspired beginning
design work on the Hellcat, we chose the pre-16 era of motoring and the
courageous free spirited nature of the board track racer as our inspirational
starting point. The Wraith is the first production motorcycle to utilize a
chassis design specified for manufacture from structural carbon
fiber.  The first generation carbon fiber Wraith was retired in the
first quarter of 2010.






4





Fighter





The
Fighter was the featured item in the Neiman-Marcus Christmas fantasy gift
catalogue. The Fighter features a thin wall 5-inch outer diameter aluminum
chassis, our triple load path modular architecture, and a new echo of negative
spatial aesthetics through the industry’s largest diameter mating surface
architecture and bearing diameter scale in history.





Motorcycle
Lines in Development





The
C3 X132 Hellcat





We
believe the C3 Hellcat will reinforce our body of work as true to concept fierce
American avant guard minimal purity. Conceived by the leader of our conceptual
design team, Ed Jacobs, the motorcycle is at once primitive, bohemian, and yet
highly technical. First deliveries are scheduled during the 4th quarter of 2010.





Other
Business Operations





Motorcycle
Related Product Offerings





As a
contextual component of our factory technical service structure, we offer a
select variety of wearing apparel and other related retail products displaying
the Confederate name.  This has the effect of providing enjoyment for
our customers and displaying our name in the current market.





Our
Business Strategy





Strengthen
our position in our core market





We intend
to strengthen and grow our niche position in our target market.  To
this end we are introducing a new clean sheet of paper 3rd generation Confederate
motorcycle architecture. It will be tougher, stronger, lighter and more
efficient than our previous designs.





Expand
our product offering





We will
continue to develop and introduce new products to appeal to the changing needs
of our target client 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 world
leading hand craftsmanship.  We believe the Wraith and Fighter are
profound examples of timeless iconic design.  Each is capable of
creating initial shock and awe.  Further in, each is imminently
alluring as the minimalist purity of the organic creative solutions avail
themselves.   We believe that the aesthetics of our new 3rd generation architecture
simplified to a slightly more conventional level marketed four and 1/2 years
after the launch of the Wraith and Fighter respectively, will both solidify and
grow our present target audience and open our Confederate brand to the more than
9.5 million people in the world with a net worth greater than $1
million.





Strengthen
our Distribution Network





We believe our US sales deployment strategy will create the most proximate
relationship between our target client and our Confederate team.  A
direct line from our CEO, the factory technical team, the factory parts
specialist and the factory sales group with our target client facilitates the
most straight forward communication.  We believe this honest
communication is at the very core of our authenticity.





We plan
to open a small servicing center, retail environment, and design boutique in Los
Angeles but no definitive plans have been made.  This facility will
serve as a template for expansion as demand for our motorcycles
increases.  This location will serve as our West Coast warehouse for
media and film public relations product placement
facilitation.





Strengthen
Our Global Brand





Since our founding, we have undertaken a coordinated consistent marketing effort
to inform the public of the traditional strengths of the Confederate brand and
to increase the visibility of the Confederate brand.





For calendar year 2010, we will launch a campaign to showcase a new simplified
version of the Hellcat as our unique vision of the perfected American
roadster.






5








Increase
our Production Efficiency





Our
challenge is to uncompromisingly invest in the structure, systems, tooling,
technology, training, plant, engagement, inspiration and faith to create the
ultimate qualitative approach with consistency to assure that continuous maximum
improvement is cultivated and nurtured. We must assure that each individual
allowed to be a team member shall fully engage and be thoroughly inspired.
Intense and focused thought must be elicited from each team member to assure
each and every machine is the best it can possibly be. Only a 100 point machine
is acceptable. Only the very finest craft person with the deepest of shared
brand commitment shall be allowed on our team.





We shall
pursue long-term strategic alliances with our vendor base of suppliers, seeking
to develop a co-conspiratorial depth of brand commitment equal to that of our
direct team member base.





We shall
rally to the simple shared goal of designing and crafting the finest motorcycles
the world has ever known.





Develop
our Internet Business





As our
current and only web presence, 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 2009.   These statistics show a
marked increase in traffic and 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 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 essentially serve
as a “nuts and bolts” information source on Confederate
motorcycles.








After
Sales Support and Service





Our structural factory direct to client maintenance and service model is
scheduled for deployment in 2011.





Product
Research and Development





Research





We
believe the fundamentals of contextual strategic Confederate conceptual vehicle
design DNA is thoroughly known to the brain trust of our team.  The
architecture of each future model going into the foreseeable future is well
established. Refinement of aesthetics, dynamics, modularity, manufacturability,
craft quality, validation, scalability, and repeatability remain for
exploitation through a thoroughly executed developmental process. We believe
that we can continue successful product development by leveraging an experienced
engineering team.





Development





We
believe C3 Hellcat converges on Wraith-Fighter production in a synergistic
holistic manner with the goal of 3 very unique non-cannibalizing vehicle line
products which each appeal to our target audience in an entirely individualistic
manner.  By 2013, each line will be modular.  Each line will
utilize the same powertrain, the same CX3 holistic architecture and the same
core mounting system.  Confederate design development utilizes the
most current computer aided design (CAD), computer driven milling machines (CAM)
and rapid prototyping technology.  We believe we are lean and thrifty
in the manner in which we execute against our design strategy.





In
conclusion, we believe we have completed research for our American motorcycle
design renaissance, concluding with CX3 architecture. Developmental and
validation work is ongoing. We believe the Hellcat, Wraith and Fighter gestural
aesthetics are timeless for the ages.





Distribution





We
believe the acutely targeted nature of our market niche is best supported
through a strategic distribution channel which is as proximate to our brand as
possible.  The deepest understanding of our family of clients is
sought through maximization of contact.





We
operate a nuanced web environment which is the foundation of our distribution
effort.  For the North American market, sales are directed to our
sales staff at our factory.   An aggressive public relations
effort aimed at our target client in these two key
early-adoptive markets will be deployed.   A special online owner’s
web based information center will be coherently orchestrated to best bond a
long-term relationship with our family of clients.






6







Similarly,
we believe this concept of strategic brand centric distribution will best serve
our acutely targeted family of clients and future clients in the all important
European and Middle Eastern marketplace.   Concept store design and
apparel sales will be consistent with the North American LA/NYC
model.  Web design and navigation will be coordinated for world-wide
client friendly culturally diverse access. See –“Strengthen our Distribution
Network”.





Marketing
Activities





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.  From the outset, we have
challenged the establishmentarian view of what honest new world American
industrial and mechanical design can be.  We shall continue along this
chosen path.





Over the
past 5 years, we have developed a new corporate identity and standardized our
corporate logo, lettering and promotional and marketing materials worldwide. At
its foundation, our CM circular identity communicates the influence upon us of
the art nouveau movement convergent with the Bauhaus school.  Our
David breaking out of his box illuminates and informs man’s universal struggle
to discover the who, what and why of his individual existence.





The third
distinct production example of our contextual strategic design, the Fighter,
will be the new product which is formally being launched as the centerpiece of
the annual campaign.  The Fighter solidly grounds the authenticity of
our brand.  It is entirely unique and distinctive from our other model
offerings.  Yet, it is transparently from the same brand
family.  The Fighter is minimalist, pure, fiercely American avant
guard and is clearly influenced by the Bauhaus school.  The new
machine obviously is technically brilliant yet is harmoniously balanced with the
primitive.  The Fighter communicates conceptual truth and
honesty.  It is very impactful.  The Fighter builds on our
already substantial design legacy. We believe that critical journalists and the
design community worldwide, upon first experiencing the Fighter, will
instinctively know such a motorcycle could only come from the brand which gave
the world the C1 and C2 Hellcat and the B120 Wraith.  This is the
hallmark of great contextual strategic design.





We
believe that moving into calendar year 2010, our brand will possess iconic
contextual strategic design across a broad fresh line, solid perceived brand
authenticity and substantial pricing power.  We believe these facts
will translate into substantial growth, margins and profitability.





Media





As we
enjoy widespread media attention through our product design and innovations, 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, Confederate enthusiasts, including Hollywood
celebrities, music stars and international athletes, add to the overall brand
equity and exposure.





Production





Confederate
manufacturing specifications are not vertically integrated. Enterprise fixed
cost per production unit is low.  Internal manufacturing capacity is
focused on use of current high technology solutions to facilitate creation of
efficient designs for thrifty and accurate communication to our
co-conspiratorial vendor network of outside manufacturers.  Our
strategic goal is to integrate a limited manufacturing operation with an evolved
proximate co-conspiratorial high value-added network of suppliers.  We
believe simple, thrifty, increased production efficiency will be the result of
our effort.





Assembly
Operations





Our
production facilities are located in Downtown Birmingham, Alabama. 8,000 square
feet are presently being utilized.  Proximate to our facilities
numerous low cost manufacturing space is available for future expansion. Our
motorcycle production is fundamentally an assembly and testing
process.  As a part of the production process, each finished
motorcycle is subjected to rigorous quality checks, including static and dynamic
testing.








7





We are
continuously considering the core disciplines and fundamentals which organically
create structurally great craftsmanship. We use a simple preference system
deployable at the moment in which each necessary part and component has
undergone a thorough uncompromising quality test and is staged for final
assembly of a pre-sold motorcycle. A democratically determined autocratically
enforced evolving codified craft sequence is deployed. All objective build data
is electronically and paper filed. A subjective rigorous post build real world
physical test of each motorcycle is performed and recorded. When the motorcycle
is 100% validated it is prepared for shipment to its new owner.





Future
production of the Fighter, Wraith, and Hellcat are strategically planned to
maintain efficiency at relatively low volumes. This is because the new vehicle
line will share common components across the line. To further simplify future
production and reduce costs, we plan to deploy a platform approach to
production. Under the platform approach, a motorcycle is divided into a discrete
number of key components (platforms) that are in turn made up of sub-components.
Key suppliers are made responsible for the platform and managing suppliers
thereof. We believe this will improve our ability to negotiate competitive
prices and improve quality.





Supplies
and Suppliers





We
require a wide variety of parts, components, and tools to manufacture our
motorcycles. We currently source our parts and components from a broad range of
suppliers.





The
majority of our key suppliers have worked with us for over 3 years. Our typical
contract relationship is through rolling purchase orders with 90-day change,
escape provisions. We contract with our vendors on a non-exclusive basis,
allowing us to replace vendors at any time.





Motorcycle
raw materials and components are available from a variety of
sources.  Our policy has been to identify at least two sources of
supply for each component so that we may switch promptly to the alternative
supplier should the need arise.





Competition





Our
principal competitors have been custom bike manufacturers. We are now targeting
the top 10% of the market, worldwide, for Harley Davidson motorcycles. Our
competition has 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 concern 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.





Government
Regulation





None





Seasonality





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





Employees





At
December 31, 2009, we had a total of 11 employees. None of our employees are
represented by a labor union or covered by a collective bargaining agreement. We
believe that we have a good relationship with our employees.








8




ITEM 1A. RISK FACTORS





Investment
in our Common Stock is very risky. Our financial condition is unsound. You
should not invest in our Common Stock unless you can afford to lose your entire
investment. The risks described below could materially and adversely affect our
business, financial condition, result of operations and the trading price of our
Common Stock. You should carefully consider the following risk factors and all
other information contained in this Report before making an investment decision.
You also should refer to the other information set forth in this Report,
including our financial statements and the related notes. The risks and
uncertainties described below are not the only ones we face, and there may be
additional risks not presently known to us or that we currently believe are
immaterial to our business.





Risks
Related to Our Business and Industry





We
have a limited operating history and our business model is unproven and
evolving.





Although
we trace our history to 1991 through predecessor entities, we first began
commercializing our motorcycles in March 2003. Our limited operating
history makes it difficult to evaluate our current business and our future
prospects.





Our
failure to raise additional capital or generate the cash flows necessary to
expand our operations and invest in our product offerings could reduce our
ability to compete successfully and adversely affect our results of
operations.





We will
need to raise additional funds. We may not be able to complete a subsequent
equity offering or obtain additional debt or equity financing on favorable
terms, if at all. If we raise additional equity financing, our security holders
may experience significant dilution of their ownership interests and the value
of our units, warrants and Common Stock could decline. If we engage in debt
financing, we may be required to accept terms that restrict our ability to incur
additional indebtedness and force us to maintain specified liquidity or other
ratios. If we cannot raise additional capital on acceptable terms, we may not be
able to, among other things:





▪
            develop
      and enhance our products;


▪
            develop
      our brand and acquire new
customers;


▪
            continue
      to expand our technology development, sales and marketing
      organizations;


▪
            acquire
      complementary technologies, products or
  businesses;


▪
            expand
      operations internationally;


▪
            pay
      our debts as they come due;


▪
            hire,
      train and retain employees; or


▪
            respond
      to competitive pressures or unanticipated working capital
      requirements.





Our
inability to do any of the foregoing could reduce our ability to compete
successfully and adversely affect our results of operations.





We
are an early stage company and have a history of operating losses.





Our
previous operating losses were the result of the significant product
development, infrastructure development, sales and marketing and administrative
expenses we have incurred in developing our business.




Limitations
of our Board of Directors.
 
 We
currently have no independent directors. Our Board of Directors has two
directors, but does not have any standing committees.  Our by-laws
provide for the ability to appoint up to five (5) members onto the Board of
Directors and we currently have three (3) or four (4) vacancies depending upon
the result of the lawsuit described in Item 3: Legal
Proceedings.
 
 We
identified a material weakness in our internal controls that may impair our
ability to produce accurate and timely financial statements, which could harm
our operating results, our ability to operate our business and investor’s view
of us.
 
 Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2009 based on the framework established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on this assessment,
management concluded that as of December 31, 2009 it had material weaknesses in
its internal control procedures. A material weakness is a control deficiency, or
combination of control deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements would not be
prevented or detected on a timely basis. As of December 31, 2009, we have
concluded that our internal control over financial reporting was ineffective as
of December 31, 2009. The Company’s assessment identified certain material
weaknesses which are set forth in Item 9A of this Annual
Report.





We
may be unable to generate sufficient net revenue in the future to achieve and
maintain profitability.





We expect
to make significant future expenditures related to the continued development and
expansion of our business. Furthermore, as a public company, we will incur
significant legal, accounting and other expenses that we did not incur as a
private company. As a result of these factors, to sustain profitability we will
need to, among other matters, increase our customer base and the number of
motorcycles sold. We cannot assure you that we will be able to increase our
revenue in this manner and maintain profitability. As we expect to continue to
invest in the development of our business, this investment could outpace growth
in our revenue, and thereby impair our ability to achieve and maintain
profitability.





9
 
  Ensuring
that we have adequate internal financial and accounting controls and procedures
in place so that we can produce accurate financial statements on a timely basis
is a costly and time-consuming effort that needs to be re-evaluated frequently.
We will be required to document, review and improve our internal controls and
procedures for compliance with Section 404 of the Sarbanes-Oxley Act of
2002, which requires annual management and independent registered public
accounting firm assessments of the effectiveness of our internal controls. We
will need to retain additional finance and accounting personnel with the skill
sets that we will need as a public reporting company to accomplish
this.
 
 Implementing
necessary changes to our internal controls may distract our officers and
employees, entail substantial costs and take significant time to complete. These
changes may not, however, be effective in achieving and maintaining adequate
internal controls, and any failure to achieve or maintain that adequacy could
result in our being unable to produce accurate financial statements on a timely
basis. In addition, investors’ perceptions that our internal controls are
inadequate or that we are unable to produce accurate financial statements on a
timely basis or any actual failure to do so could have a material adverse effect
on the price of our securities and make it more difficult for us to effectively
market and sell our services to new and existing customers.


We
face significant competition in the custom motorcycle industry.





The
custom motorcycle business is highly competitive. We compete against a number of
established companies with greater marketing and financial capabilities.
Although we believe that we have a unique design and product line we may face
difficulty competing against other companies should they devote significant
resources to production of custom motorcycles. There can be no assurance that
one or more competitors may not initiate a business similar to ours, thus
compromising the differentiating factor for us. Increased competition in the
industry may result in reduced operating margins, loss of market share and a
diminished brand franchise. There can be no assurance that we will be able to
compete successfully against our competitors, and competitive pressures faced by
us may have a material adverse effect on our business, prospects, financial
condition and results of operations.





Demand
for motorcycles is cyclical





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.





We
are dependent on our suppliers, and increases in component prices may negatively
affect our operations





We
purchase virtually all of our motorcycle parts and components from third-party
suppliers. With the exception of a limited number of long-term component supply
contracts for periods ranging from one to three years, we only enter into
short-term, rolling contracts with suppliers. In addition, we typically contract
with our suppliers on a non-exclusive basis, which allows us to replace our
suppliers at any time. Generally, individual motorcycle components are available
from a variety of sources, and our policy is to identify at least two sources of
supply for each component. However, we rely upon single-source suppliers for
certain components, including motors and carbon fiber components. Our assembly
operations may be interrupted or otherwise adversely affected by delays in the
supply of parts and components from third-party suppliers. They may also be
interrupted if parts or components become unavailable on commercially reasonable
terms in the future. Even if parts and components are available from alternative
sources, we may face increased costs and production delays in connection with
the replacement of an existing supplier with one or more alternative suppliers.
These factors could have a material adverse effect on our business, prospects,
results of operations or financial condition.





Like
other competitors in the motorcycle industry, our operations are affected by the
prices of motorcycle components. The prices of motorcycle components have been
subject to fluctuations in the past and may be subject to fluctuations in the
future. These fluctuations may result from fluctuations in the prices of raw
materials (including commodities such as steel, aluminum, energy and oil-related
products) from which these components are manufactured. Any increase in the
prices of motorcycle components may have a material adverse effect on our
business, prospects, results of operations or financial condition.





Our
intellectual property rights are valuable and our failure to protect those
rights could adversely affect our business.





Our
intellectual property rights, including existing and future trademarks, trade
secrets and copyrights, are and will continue to be valuable and important
assets of our business. We believe that our proprietary technology, as well as
our other technologies and business practices, are competitive advantages and
that any duplication by competitors would harm our business. We have taken
measures to protect our intellectual property, but these measures may not be
sufficient or effective. For example, we seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements. Intellectual
property laws and contractual restrictions may not prevent misappropriation of
our intellectual property or deter others from developing similar technologies.
In addition, others may develop technologies that are similar or superior to our
technology. Our failure to protect, or any significant impairment to the value
of, our intellectual property rights could harm our business.





Our
motorcycle design and technology are not protected by intellectual property
rights.





The
design and technology of our motorcycles are not protected by any material
patent, trademark or other intellectual property rights, other than the
registered trademarks associated with the Confederate brand itself. In
particular, the technical features that distinguish Confederate motorcycles are
not protected by material patents or other intellectual property rights. The
component parts of our motorcycles are manufactured according to well-known
techniques and include components that are not unique to our products. As a
result, the design and technology of our motorcycles are vulnerable to being
copied or imitated by competitors. Our competitors may have or develop
equivalent or superior manufacturing and design skills, and may develop an
enhancement that will be patentable or otherwise protected from duplication by
others. These events could have a material adverse effect on our business,
prospects, results of operations and financial condition.








10





We
rely on a single manufacturing facility.





Confederate
motorcycles are presently manufactured at our sole production facility located
in Birmingham, Alabama. We relocated to Birmingham in December of 2005,
following the catastrophic loss of our original manufacturing facility in New
Orleans caused by hurricane Katrina. A significant interruption of production at
the Birmingham facility would have a material adverse effect on our business,
prospects, results of operations and financial condition.





Our
motorcycles may contain defects.





Like
competing motorcycles, our products may have unanticipated defects. Product
defects may necessitate a recall of our motorcycles. Any unanticipated defects
in our motorcycles or recalls could be costly to us and may have a material
adverse effect on the Confederate brand and our business, prospects, results of
operations and financial condition.





We
may be subject to significant product liability claims.





Like our
competitors, we are exposed to possible claims for personal injury from the use
of our motorcycles, particularly in the United States, where product liability
claims grounded on personal injuries are more common than in other countries.
Although no claims of this kind have been made against us that are not covered
by our existing product liability insurance coverage, such claims may arise in
the future. A partially or completely uninsured claim, if successful and of
significant magnitude, could have a material adverse effect on our business,
prospects, results of operations or financial condition.





We
may in the future be subject to intellectual property rights disputes, which
could reduce our ability to compete effectively and harm our business and
results of operations.





Other
companies may own, develop or acquire intellectual property rights that could
prevent, limit or interfere with our ability to provide our products and
services. One or more of these companies, which could include our competitors,
could make claims against us alleging infringement of their intellectual
property rights. Any intellectual property claims, with or without merit, could
be time-consuming and expensive to litigate or settle and could significantly
divert management resources and attention from our business.





If we
were unable to successfully defend against claims against us alleging
infringement of intellectual property rights, we may be required to pay monetary
damages, stop using the technology, pay a license fee to use the technology, or
develop alternative non-infringing technology. If we have to obtain a license
for the infringing technology, it may not be available on reasonable terms, if
at all. Developing alternative non-infringing technology could require
significant effort and expense. If we cannot license or develop alternative
technology for the infringing aspects of our business, we may be forced to limit
our product and service offerings. Any of these results could reduce our ability
to compete effectively and harm our business and results of
operations.




The
loss of one or more key members of our senior management, on whom we heavily
rely, or our inability to attract and retain qualified personnel could harm our
business.





Our
success and future growth depends to a significant degree on the skills and
continued services of our management team, especially H. Matthew Chambers,
Joseph Mitchell and Ed Jacobs, our Chairman and Chief Executive Officer, Chief
Financial Officer, and Director of Design, respectively. We have not purchased
“key man” life insurance policies on these executives. Our future success also
depends on our ability to attract, retain and motivate highly skilled technical,
managerial, sales,
marketing and service and support personnel, including, additional members of
our management team. Competition for sales, marketing and technology development
personnel is particularly intense in our industry. As a result, we may be unable
to successfully attract or retain qualified personnel.






11





Our
securities have little or no public trading market, and the prices of our
securities may decline.





The price
of the common stock in the public market may not reflect our actual financial
performance.  The market price of shares of our common stock could be
subject to significant fluctuations. Among the factors that could affect the
market price of our securities are:





▪
            the
      risks, uncertainties and other factors described in this Form
      10-K;





▪
            the
      prospects of the industry in which we
operate;





▪
            variations
      in our operating results;





▪
            the
      liquidity in the marketplace for our
securities;





▪
            our
      ability to successfully raise additional
  capital;





▪
            changes
      in our earnings estimates or expectations as to our future financial
      performance, as well as financial estimates by securities analysts and
      investors, and our ability to meet or exceed those estimates or
      expectations;





▪
            the
      contents of published reports about us or our industry or the failure of
      securities analysts to cover our securities after this
      offering;





▪
            changes
      in market valuations of similar
companies;





▪
            strategic
      actions by us or our competitors, such as sales promotions, acquisitions
      or restructurings;





▪
            additions
      or departures of key management
personnel;





▪
            actions
      by institutional and other security
  holders;  and





▪
            general
      economic, market and political
conditions.




The stock
markets in general have recently experienced, and may continue to experience,
significant volatility that have sometimes been, and may in the future be,
unrelated or disproportionate to the operating performance of particular
companies. For example, we believe that the recent declines in mortgage and
other credit markets, and the deteriorating conditions in the residential real
estate market (and the extensive media coverage thereon), have caused
significant stock market volatility. These broad market fluctuations may cause
the trading price of our Common Stock to fluctuate widely or
decline.





There
is a limited trading market for our securities.





Our
Common Stock is publicly traded under the symbol “CFED.OB” on the FINRA Over The
Counter Bulletin Board, a NASDAQ operated electronic inter-dealer quotation
medium for equity securities. There can be no assurance that an active and
liquid trading market will develop or, if developed, that it will be
sustained.





The
securities laws may restrict transferability of the securities
sold.





Unless
our securities are registered pursuant to the Securities Act, they may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state or foreign securities laws. The certificates representing shares of
the common stock will bear a legend indicating that they are so restricted. If
there is not an effective registration statement at the time that an Investor
desires to liquidate his investment in the Company, such Investor will be
substantially restricted in the manner that he may do so. In such event, the
Investor will only be able to resell his securities through an exemption from
federal and state registration or qualification requirements. There can be no
assurance that an exemption will be available when an Investor desires to
liquidate. Accordingly, purchasers of the securities must be prepared to bear
the economic risks of investment for an indefinite period of time since the
securities cannot be resold unless they are subsequently registered or an
exemption from resale is available..








12





Applicable
SEC rules governing the trading of “Penny Stocks” may limit the trading and
liquidity of our Common Stock, which may affect the trading price of our Common
Stock.





Shares of
our Common Stock may be considered a “penny stock” and be subject to SEC rules
and regulations which impose limitations upon the manner in which such shares
may be publicly traded and regulate broker-dealer practices in connection with
transactions in “penny stocks.” Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer’s account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock, the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules which may increase the
difficulty Investors may experience in attempting to liquidate such
securities.





Anti-takeover
provisions in our certificate of incorporation and our bylaws may discourage,
delay or prevent a merger or acquisition that you may consider favorable or
prevent the removal of our current board of directors and
management.





Our
certificate of incorporation and our bylaws could delay, defer or prevent a
third party from acquiring us, despite the possible benefit to our security
holders, or otherwise adversely affect the price of our Common Stock and your
rights as a stockholder. For example, our certificate of incorporation and
bylaws will (1) permit our board of directors to issue one or more series
of preferred stock with rights and preferences designated by our board,
(2) stagger the terms of our board of directors into three classes and
(3) impose advance notice requirements for stockholder proposals and
nominations of directors to be considered at stockholders’ meetings. These
provisions may discourage potential takeover attempts, discourage bids for our
common stock at a premium over market price or adversely affect the market price
of, and the voting and other rights of the holders of, our Common Stock. These
provisions could also discourage proxy contests and make it more difficult for
you and other stockholders to elect directors other than the candidates
nominated by our board. We will also be subject to Section 203 of the
Delaware General Corporation Law, which generally prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any “interested” stockholder for a period of three years following the date on
which the stockholder became an “interested” stockholder and which may
discourage, delay or prevent a change of control of our company.


You
must make an independent investment analysis.





No
independent legal, accounting or business advisors have been appointed to
represent the interests of prospective investors.  Neither the Company
nor any of its officers, directors, employees or agents makes any representation
or expresses any opinion with respect to the merits of an investment in shares
of Common Stock, including, and without limitation, the Company’s proposed value
or the value of shares of Common Stock.  Each prospective investor is
therefore encouraged to engage independent accountants, appraisers, attorneys
and other advisors to (i) conduct due diligence review as the prospective
investor may deem necessary and advisable, and (ii) provide advice with respect
to the merits of an investment in shares of Common Stock offered hereby and
applicable risk factors as a prospective investor may deem necessary and
advisable to rely upon.  The Company will fully cooperate with any
prospective investor who desires to conduct an independent analysis, so long as
it determines, in its sole discretion, that cooperation is not unduly
burdensome.  Each prospective investor acknowledges that he, she or it
has been informed and understands that the Company’s legal counsel has not
“expertised” any portion of this Form 10-K.




ITEM
2. PROPERTIES
 
 We are
located at 2222 5th Avenue South, Birmingham, Alabama 35233. We lease our
headquarters and manufacturing facility at this address in Birmingham, Alabama
under a lease ending 12/31/2011. Our Birmingham facility consists of about 8,000
rentable square feet. We do not own any real estate.  The Company is
in the process of relocating the headquarters to New Orleans, LA if Board
approval is obtained.
 
  13
 
 
 The
Company is evaluating a potential loan from the City of New Orleans in the
amount of $750,000 to relocate our headquarters and manufacturing facilities
back to the City of New Orleans, Louisiana. No definitive agreement has been
entered into as of the date of this filing.  However, CM Design, LLC
(“CM Design”), a Louisiana company owned by Pamela Miller (life partner of
Matthew Chambers, Chairman, CEO), executed and delivered to the City of New
Orleans on January 26, 2010 a Cooperative Endeavor Agreement, attached hereto as
Exhibit 2.1, and a promissory note (see Exhibit B to Exhibit 2.1 attached
hereto), signed for CM Design by Matthew Chambers, for a loan in the amount of
$750,000 to relocate the headquarters of a motorcycle company to New
Orleans.  There is no binding agreement between CM Design and the
Company related to this loan.  Matthew Chambers is the CEO of CM
Design and Confederate.  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 $7,500 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. See note 8 to our financial statements regarding the
uncertainty related to these events.
 
 ITEM
3.      LEGAL PROCEEDINGS
 
 On
October 16, 2009 the law firm of Smith & Armandsen filed suit against the
corporation for unpaid fees stemming from an out-of-state lawsuit. The
Corporation will seek a settlement in this matter. The maximum possible exposure
to the corporation is six thousand four hundred thirty-seven ($6,437) dollars.
The Company settled this matter for less than the demanded
amount.
 
 The
Company recently filed a complaint against all of the stockholders of the
Company for  declaratory judgment on the following items: (i) to declare
that Matthew Chambers has the authority to appoint a majority of the members of
the board of directors and to require the directors to comply with the Company’s
corporate documents and agreements; (ii) if Matthew Chambers does not have the
authority to appoint the majority of directors, then, the courts should void any
and all previous appointments of directors; and (iii) to declare that Mr.
Francoise-Xavier Terny has breached the terms of his consulting agreement. These
issues are currently in dispute.
 
 ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.





PART
II





ITEM
5.     MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Public Market for Common
Stock





Our
Common Stock is quoted on the Over The Counter Bulletin Board (“OTCBB”), under
the trading symbol “CFED.OB.” The stock does not trade but is listed on the
bulletin board.  In December 2008, the symbol changed from symbol FPKR
to CFED pursuant to a name change and reverse split. Our Common Stock may
remain at or near its ask price and at any given time the trading volume may be
relatively small or non-existent. There can be no assurance that a broader or
more active public trading market for our Common Stock will develop or be
sustained. If such a market is developed, we cannot assure you what the market
price of our Common Stock will be in the future. You are encouraged to obtain
current market quotations for our Common Stock and to review carefully the other
information contained in this Annual Report or incorporated by reference into
this Report. We have never declared or paid cash dividends on our capital stock,
and do not anticipate paying cash dividends on our Common Stock in the
foreseeable future.





14








The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require: (i)
that a broker or dealer approve a person’s account for transactions in penny
stocks and (ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person’s account for
transactions in penny stocks, the broker or dealer must (i) obtain financial
information and investment experience and objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and that person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading, and about
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny
stocks.





Holders





As of
December 31, 2009, 12,954,998 shares of common stock are issued and
outstanding.  There are approximately 50 shareholders of our common
stock and each shareholder of our common stock is entitled to one vote for each
share on all matters submitted to a stockholder vote.





Holders
of common stock do not have cumulative voting rights.





Therefore,
holders of a majority of the shares of common stock voting for the election of
directors can elect all of the directors. Holders of our common stock
representing a majority of the voting power of our capital stock issued and
outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of our stockholders. A vote by
the holders of a majority of our outstanding shares is required to effectuate
certain fundamental corporate changes such as liquidation, merger or an
amendment to our Articles of Incorporation.





Although
there are no provisions in our charter or by-laws that may delay, defer or
prevent a change in control, we are authorized, without shareholder approval, to
issue shares of preferred stock that may contain rights or restrictions that
could have this effect.





Holders
of common stock are entitled to share in all dividends that the board of
directors, in its discretion, declares from legally available funds. In the
event of liquidation, dissolution or winding up, each outstanding share entitles
its holder to participate pro rata in all assets that remain after payment of
liabilities and after providing for each class of stock, if any, having
preference over the common stock. Holders of our common stock have no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to our common stock.





Dividends





Since
inception we have not paid any dividends on our common stock. We currently do
not anticipate paying any cash dividends in the foreseeable future on our common
stock. Although we intend to retain our earnings, if any, to finance the
exploration and growth of our business, our Board of Directors will have the
discretion to declare and pay dividends in the future. Payment of dividends in
the future will depend upon our earnings, capital requirements, and other
factors, which our Board of Directors may deem relevant.





Recent Sales of Unregistered
Securities





Pursuant
to
the Merger Agreement, on February 12, 2009, we issued 8,895,000 shares of our
common stock to the shareholders of Confederate Motor Company, Inc. in exchange
for merger between us and Confederate Motor Company, Inc. During 2009 we sold a
total of 1,449,998 shares of common stock to investors for a total purchase
price of $2,175,000.  The purchase price was $1.50 per
share.
 
 In addition,
a convertible note in the amount of $225,000 was converted into 200,000 shares
of common stock.
 
 The issuance of thesesecuritieswere exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D promulgated under the Securities Act of 1933, as
amended.
 For a
description of the sales of unregistered securities in connection with the
reverse merger and financing, please refer to our Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 9,
2009.





Equity Compensation Plan
Information





The
following table sets forth certain information as of December 31, 2009, with
respect to compensation plans under which our equity securities are authorized
for issuance:





15








(a)
            (b)
            (c)_________________
            _________________
            _________________Number
      of securities to be issued
                upon
      exercise of outstanding options,
                warrants
      and rights
            Weighted-average
      exercise price of
                outstanding
      options, warrants and
                rights
            Number
      of securities remaining available for
                future
      issuance under equity compensation
                plans
      (excluding securities reflected
                in
      column (a))Equity
      compensation
            NonePlans
      approved bySecurity
      holdersEquity
      compensation
            NonePlans
      not approvedBy
      security holdersTotal
            None





ITEM
6.    SELECTED FIANANCIAL DATA





Not
applicable because we are a smaller reporting company.





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





Forward-Looking
Statements




This
Report contains forward-looking statements. The forward-looking statements are
contained principally in, but not limited to, the 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.






16




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





The
Company





Confederate
Motors, Inc. (the “Company,” “Confederate” or “CM”) produces premium,
heavyweight (651+cc) motorcycles. CM manufactures three models of motorcycles:
Hellcat, Wraith and Fighter.





Overview
and Outlook





Net
revenue for the full year 2009 was $620,390 compared to $2,055,500 for 2008. The
Company’s year end financial performance reflected a decrease in shipments of
Confederate motorcycles.   Net loss was $6,277,862 in 2009
compared to a net loss of $423,218 in 2008.  Non cash stock based
compensation of $4,753,000 contributed to the loss for
2009.


Cash flow from operating activities was negative $1,284,549 in 2009 compared to
a negative cash flow of $284,924 in 2008.  Net cash flow from
financing activities were $1,614,621 and $308,988 for 2009 and 2008,
respectively.





The
Company believes that the near-term global economic environment will be
challenging for the business and it will continue to make prudent decisions to
manage through this difficult environment. At the same time, the Company is
optimistic about its long-term business prospects and plans to continue to
expand production and global distribution. The operational focus for 2009 was
spent on pre-production and quality refinements of the third model – The P120
Fighter Combat.  A significant amount of time was also spent in the
launch and marketing 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. During the year, the company
signed agreements with third parties to distribute Confederate branded
motorcycles and apparel in Brazil and Santa Barbara, CA. The company is in
discussion with interested parties in Japan and Europe. The Company continues to
grow sales backlog for which the revenue will be recognized in later
periods.





The
Company is evaluating a potential loan from the City of New Orleans in the
amount of $750,000 to relocate our headquarters and manufacturing facilities
back to the City of New Orleans, Louisiana. No definitive agreement has been
entered into as of the date of this filing. See Item 2, Properties for a full
discussion of this matter.


Cost
of Goods Sold





Cost of
goods sold was $533,536 in 2009 compared to $1,272,358 in 2008. Cost of goods
sold was lower due to a decrease in shipment
volume.





Gross
Profit





Gross
profit was $86,854 in 2009 compared to $783,142 in 2008. Gross profit was lower
due to a decrease in shipment volume.





Results of Operations for the year
ended December 31, 2009 Compared to the year ended December 31,
2008





Year
      Ended(in
      thousands, except earnings per share)
              
              December
      31, 2009
              
              
              December
      31, 2008Revenue
      from motorcycles & related products
              
              $
              620,390
              
              
              $
              2,055,500Gross
      Profit
              
              $
              86,854
              
              
              $
              783,142Operating
      Expense
              
              $
              1,456,031
              
              
              $
              1,104,245Other
      Income (Expense)
              
              $
              (4,908,685
              )
              
              $
              (102,115
              )Net
      Income (Loss)
              
              $
              (6,277,862
              )
              
              $
              (423,218
              )Earnings
      (Loss) per Share
              
              $
              (0.56
              )
              
              $
              (0.09
              )





Cautionary
Statements





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






17





The
Company’s ability to sell its motorcycles and related products and services and
to meet its financial expectations also depends on the ability of the Company’s
independent distributors to sell its motorcycles and related products and
services to retail customers. The Company depends on the capability and
financial capacity of its independent distributors to develop and implement
effective retail sales plans to create demand for the motorcycles and related
products and services they purchase from the Company.





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





Liquidity
and Capital Resources





At
December 31, 2009, we had cash of $365,035. The Company does not currently
generate adequate cash flow through operations to sustain the business and is
dependent on raising additional capital through the sale of common
stock.  In addition, in connection with the reverse merger, we
completed a $2.175 million financing, the proceeds from which we used to finance
the reverse merger and costs to stay public and fund the development of a new
motorcycle model.


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 and the proceeds of any
financing to finance continued expansion.  Our opinion concerning our
liquidity is based on current information. If this information proves to be
inaccurate, or if circumstances change, we may not be able to meet our liquidity
needs.





Recent
Accounting Pronouncements





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
“Fair Value Measurements and
Disclosures,”which amends previous guidance to require disclosures about
fair value of financial instruments in interim as well as annual financial
statements in the current economic environment. This pronouncement was effective
for periods ending after June 15, 2009. The adoption of this pronouncement
did not have a material impact on the Company’s business, financial condition or
results of operations; however, these provisions of FASB ASC Topic 820 resulted
in additional disclosures with respect to the fair value of the Company’s
financial instruments.




In
May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
“Subsequent Events,”
which establishes general standards of accounting for, and disclosures of,
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This pronouncement was effective for
interim or fiscal periods ending after June 15, 2009. The adoption of this
pronouncement did not have a material impact on the Company’s business, results
of operations or financial position; however, the provisions of FASB ASC Topic
855 resulted in additional disclosures with respect to subsequent
events.




In
June 2009, the Financial Accounting Standards Board (FASB) issued guidance
now codified as FASB Accounting Standards Codification (ASC) Topic 105, “Generally Accepted Accounting
Principles,” as the single source of authoritative non-governmental U.S.
GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to
simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the FASB Codification will be considered
non-authoritative. These provisions of FASB ASC Topic 105 were effective for
interim and annual periods ending after September 15, 2009 and,
accordingly, were effective for the Company for the current fiscal reporting
period. The adoption of this pronouncement did not have an impact on the
Company’s business, financial condition or results of operations, but will
impact the Company’s financial reporting process by eliminating all references
to pre-codification standards. On the effective date of FASB ASC Topic 105, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.







18






In
January 2010, the Financial Accounting Standards Board ("FASB") issued updated
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and
Level 2 of the fair value hierarchy (including the reasons for these
transfers) and the reasons for any transfers in or out of Level 3. This
update also requires a reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. In addition
to these new disclosure requirements, this update clarifies certain existing
disclosure requirements. For example, this update clarifies that reporting
entities are required to provide fair value measurement disclosures for each
class of assets and liabilities rather than each major category of assets and
liabilities. This update 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. This update will become
effective for the Company with the interim and annual reporting period beginning
January 1, 2010, except for the requirement to provide the Level 3
activity of purchases, sales, issuances, and settlements on a gross basis, which
will become effective for the Company with the interim and annual reporting
period beginning January 1, 2011. The Company will not be required to
provide the amended disclosures for any previous periods presented for
comparative purposes. Other than requiring additional disclosures, adoption of
this update will not have a material effect on the Company's consolidated
financial statements.





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.









Off-Balance
Sheet Arrangements





The
Company is evaluating a potential loan from the City of New Orleans in the
amount of $750,000 to relocate our headquarters and manufacturing facilities
back to the City of New Orleans, Louisiana. No definitive agreement has been
entered into as of the date of this filing.  However, CM Design, LLC
(“CM Design”), a Louisiana company owned by Pamela Miller (life partner of
Matthew Chambers, Chairman, CEO), executed and delivered to the City of New
Orleans on January 26, 2010 a Cooperative Endeavor Agreement, attached hereto as
Exhibit 2.1, and a promissory note (see Exhibit B to Exhibit 2.1 attached
hereto), signed for CM Design by Matthew Chambers, for a loan in the amount of
$750,000 to locate the headquarters of a motorcycle company to New
Orleans.  There is no binding agreement between CM Design and the
Company related to this loan.  Matthew Chambers is the CEO of CM
Design and Confederate. 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 $7,500 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. See note 8 to our financial statements regarding the
uncertainty related to these events.
 ITEM
7A. QUANTITIATIVE AND QUALITATIVE DISCLOUSURES ABOUT MARKET
RISK





Not
applicable because we are a smaller reporting company.





19








ITEM
8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.





Report
of Independent Registered Public Accounting Firm




To the
Board of Directors and
 Stockholders
of Confederate Motors, Inc.
  We have
audited the accompanying consolidated balance sheets of Confederate Motors, Inc.
as of December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the years in the
two year period 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 audits 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 audits provide 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 2008, and the results of its operations and its cash flows
for each of the years in the two year period 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. The
consolidated financial statements do not include adjustments that might result
from the outcome of this uncertainty.
 
 
 /s/ 
Bartolomei Pucciarelli, LLC
 Bartolomei
Pucciarelli, LLC
  Lawrenceville,
NJ
 May 17,
2010








20





CONFEDERATE
MOTORS, INC.


Consolidated
Balance Sheets


December
31, 2009 and 2008




December
      31,
              
              
              December
      31,2009
              
              
              2008Assets
              
              
              
              
              (As
      Restated)Current
      assetsCash
      and cash equivalents
              
              $
              365,035
              
              
              $
              34,963Inventory
              
              
              652,834
              
              
              
              398,283Prepaid
      inventory
              
              
              78,647
              
              
              
              -Due
      from related party
              
              
              -
              
              
              
              21,100Total
      current assets
              
              
              1,096,516
              
              
              
              454,346Property
      and equipment, net
              
              
              58,143
              
              
              
              97,438Total
      Assets
              
              $
              1,154,659
              
              
              $
              551,784Liabilities
      and Stockholders' Equity (Deficit)Current
      liabilitiesAccounts
      payable
              
              $
              102,931
              
              
              $
              156,397Accrued
      interest payable
              
              
              7,501
              
              
              
              -Accrued
      payroll tax liability
              
              
              185,251
              
              
              
              99,540Deferred
      revenue
              
              
              633,813
              
              
              
              278,183Warranty
      reserve
              
              
              8,600
              
              
              
              8,600Other
      accrued expenses
              
              
              39,850
              
              
              
              31,856Registration
      rights liability
              
              
              251,250
              
              
              
              -Convertible
      Note, net of debt discount of $16,347
              
              
              -
              
              
              
              208,653Derivative
      liability
              
              
              -
              
              
              
              76,801Current
      portion of notes payable
              
              
              52,983
              
              
              
              45,410Current
      portion of capital leases
              
              
              25,289
              
              
              
              22,641Total
      Current Liabilities
              
              
              1,307,468
              
              
              
              928,081Notes
      payable, less current portion
              
              
              76,378
              
              
              
              162,788Capital
      leases, less current portion
              
              
              22,184
              
              
              
              47,474Deferred
      exclusive agency fee
              
              
              180,000
              
              
              
              240,000Stockholders'
      equity (deficit)Common
      Stock, $0.001 par value 200,000,000 authorized; 12,954,998 outstanding in
      2009 and 5,036,171 outstanding in 2008
              
              
              12,954
              
              
              
              5,036Preferred
      Stock, $0.001 par value 20,000,000 authorized; -0- outstanding in 2009 and
      2,079,829 outstanding in 2008
              
              
              -
              
              
              
              2,080Additional
      paid-in capital
              
              
              8,723,096
              
              
              
              2,055,884Accumulated
      deficit
              
              
              (9,167,421
              )
              
              
              (2,889,559
              )Total
      Stockholders’ Equity (Deficit)
              
              
              (431,371
              )
              
              
              (826,559
              )Total
      Liabilities and Stockholders’ Equity (Deficit)
              
              $
              1,154,659
              
              
              $
              551,784







21











CONFEDERATE
MOTORS, INC.


Consolidated
Statements of Operations


Years
ended December 31, 2009 and 2008







2009
              
              
              2008
                (As
      Restated)Sales
              
              $
              620,390
              
              
              $
              2,055,500Cost
      of goods sold
              
              
              (533,536
              )
              
              
              (1,272,358
              )Gross
      profit
              
              
              86,854
              
              
              
              783,142Selling,
      general and administrative expenses
              
              
              1,456,031
              
              
              
              1,104,245Loss from
      operations
              
              
              (1,369,177
              )
              
              
              (321,103
              )Other
      income (expense)Change
      in fair value of derivative liability
              
              
              76,801
              
              
              
              13,219Stock
      based compensation
              
              
              (4,753,050
              )
              
              
              -Registration
      rights penalty
              
              
              (251,250
              )
              
              
              -Other
      income
              
              
              60,000
              
              
              
              85,145Interest,
      net
              
              
              (41,186
              )
              
              
              (200,479
              )(4,908,685
              )
              
              
              (102,115
              )Net
      loss
              
              $
              (6,277,862
              )
              
              $
              (423,218
              )Net
      income (loss) per common share - basic and diluted
              
              $
              (0.56
              )
              
              $
              (0.09
              )Weighted
      average number of shares outstanding - basic and
      diluted
              
              
              11,298,763
              
              
              
              4,917,250





22











CONFEDERATE
MOTORS, INC.


Consolidated
Statement of Stockholders’ Deficit


Years
ended December 31, 2009 and 2008 (As Restated)




Preferred
      Stock Shares
              
              
              Common
      Stock Shares
              
              
              Preferred
                Stock
              
              Common
      Stock
              
              Additional
      Paid-In Capital
              
              Stock
                Subscriptions
              
              Accumulated
                Deficit
              
              Total
                Stockholders'
      DeficitBalance
      at December 31, 2007
              
              
              2,079,829
              
              
              4,828,909
              
              
              2,080
              
              $
              4,829
              
              $
              1,831,091
              
              $
              (50,000
              )
              $
              (2,466,341
              )
              $
              (678,341
              )Issuance
      of common stock
              
              
              
              
              
              207,262
              
              
              
              
              
              207
              
              
              149,793
              
              
              50,000
              
              
              
              
              
              200,000Convertible
      Debt - Beneficial Conversion
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              75,000
              
              
              
              
              
              
              
              
              75,000Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (423,218
              )
              
              (423,218
              )Balance
      at December 31, 2008
              
              
              2,079,829
              
              
              5,036,171
              
              
              2,080
              
              $
              5,036
              
              $
              2,055,884
              
              $
              -
              
              $
              (2,889,559
              )
              $
              (826,559
              )Conversion
      of preferred to common
              
              
              (2,079,829)
              
              
              2,079,829
              
              
              (2,080
              )
              
              2,080
              
              
              
              
              
              
              
              
              
              
              
              -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
              )






23





CONFEDERATE
MOTORS, INC.


Consolidated
Statements of Cash Flows


Years
ended December 31, 2009 and 2008





2009
              
              
              2008
                (As
      Restated)Operating
      activitiesNet
      Loss
              
              $
              (6,277,862
              )
              
              $
              (423,218
              )Adjustments
      to reconcile net loss to netcash
      used by operating activitiesDepreciation
              
              
              39,295
              
              
              
              53,472Accretion
      of debt discount
              
              
              16,347
              
              
              
              173,673Change
      in fair value of derivative liability
              
              
              (76,801
              )
              
              
              (13,219
              )Stock
      based compensation
              
              
              4,753,050
              
              
              
              -Change
      in operating assets and liabilitiesInventory
              
              
              (254,551
              )
              
              
              (137,629
              )Prepaid
      inventory
              
              
              (78,647
              )
              
              
              -Other
      assets
              
              
              -
              
              
              
              21,000Accounts
      payable
              
              
              (53,464
              )
              
              
              (13,893
              )Accrued
      interest payable
              
              
              7,501
              
              
              
              -Accrued
      payroll tax liability
              
              
              85,709
              
              
              
              75,892Registration
      rights liability
              
              
              251,250
              
              
              
              -Other
      accrued expenses
              
              
              7,994
              
              
              
              (47,281
              )Deferred
      revenue
              
              
              355,630
              
              
              
              (214,321
              )Deferred
      exclusive agency fee
              
              
              (60,000
              )
              
              
              240,000Warranty
      reserve
              
              
              -
              
              
              
              600Net
      cash used by operating activities
              
              
              (1,284,549
              )
              
              
              (284,924
              )Financing
      activitiesDue
      from related parties
              
              
              21,100
              
              
              
              (21,100
              )Proceeds
      from convertible note, net of issuance costs
              
              
              -
              
              
              
              200,000Repayment
      of notes payable
              
              
              (78,838
              )
              
              
              (48,513
              )Repayment
      of capital leases
              
              
              (22,641
              )
              
              
              (21,399
              )Proceeds
      from issuance of stock
              
              
              2,175,000
              
              
              
              200,000Stock
      Issuance costs
              
              
              (480,000
              )
              
              
              -Net
      cash provided by financing activities
              
              
              1,614,621
              
              
              
              308,988Net
      increase (decrease) in cash and cash equivalents
              
              
              330,072
              
              
              
              24,064Cash
      and cash equivalents at the beginning of year
              
              
              34,963
              
              
              
              10,899Cash
      and cash equivalents at end of period
              
              $
              365,035
              
              
              $
              34,963Supplemental
      disclosures of cash flow information:Non
      cash investing & financing activitiesConversion
      of preferred stock to common stock
              
              
              2,080
              
              
              
              -Issuance
      of shares upon recapitalization
              
              
              1,105
              
              
              
              -Conversion
      of convertible note to common stock
              
              
              225,000
              
              
              
              -Cash
      paid during the year for:Interest
      expense
              
              $
              17,337
              
              
              $
              26,806Income
      tax
              
              $
              -
              
              
              $
              -






24







Confederate
Motors, Inc.


Notes to
Consolidated Financial Statements


December
31, 2009 and 2008








NOTE 1
– Summary of Significant Accounting Policies





Nature
of Business





Confederate
Motors, Inc. (the “Company”) is one of the world’s leading manufacturers of
handcrafted street motorcycles of superior design, structure, performance and
quality. The Company currently offers three models of motorcycles: the F131
Hellcat Combat, B120 Wraith and P120 Fighter. The F131 Hellcat and B120 Wraith
were discontinued in the first quarter of 2010. The Brand was founded in 1991.
The Company has been operational since 2003 and was formerly located in New
Orleans, Louisiana. The Company moved in December 2005 and is now 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 statement are reasonable and prudent; however, actual
results could differ from those estimates.





Principles
of Consolidation





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





Risks
and Uncertainties





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





See Note
8 for a full discussion of going concern matters, 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 and direct labor associated with finished
goods.





12/31/2009
            
            
            12/31/2008Parts
            
            $
            205,803
            
            
            $
            315,083Work
      in process
            
            
            -
            
            
            
            13,200Motorcycle
      finished goods
            
            
            447,031
            
            
            
            70,000Total
      Inventory
            
            $
            652,834
            
            
            $
            398,283





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 $623,813
at December 31, 2009 and $278,183 at December 31,
2008.




25







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,
2009:





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





The
Company had no common stock equivalents at December 31, 2008





Since the
Company reflected a net loss in 2009 and 2008, 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.





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, 2009 and 2008, respectively, the
Company did not record any liabilities for uncertain tax positions.




26








Advertising
Costs





Advertising
is expensed as incurred.  For 2009 and 2008, advertising expense was
$151,799 and $3,525, 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 $145,333 and $139,924 for the
years ended 2009 and 2008, 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.





The
following tables present our assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy.
The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value.





Fair
      Value Measurements at Reporting Date UsingDescription
            December
      31, 2008
            
            Quoted
      Prices in
              Active
      Markets for
              Identical
      Assets
              (Level
      1)
            
            Significant
      Other
              Observable
      Inputs
              (Level
      2)
            
            Significant
              Unobservable
      Inputs
              (Level
      3)Liabilities
      - Conversion Options
            
            $
            76,801
            
            
            $
            —
            
            
            $
            76,801
            
            
            $
            —Total
      Liabilities
            
            $
            76,801
            
            
            $
            —
            
            
            $
            76,801
            
            
            $
            —





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






27








Liabilities
measured at fair value on a recurring basis using significant unobservable Level
2 inputs consist of conversion options embedded within convertible debt. The
Level 2 inputs for the Company's disclosure of the fair value of its conversion
options are disclosed in Note 4 “Embedded Derivatives.”





Convertible
Instruments





We review
all of our convertible instruments for the existence of an embedded conversion
feature which may require bifurcation, if certain criteria are met. These
criteria include circumstances in which:





The
economic characteristics and risks of the embedded derivative instrument are not
clearly and closely related to the economic characteristics and risks of the
host contract,





The
hybrid instrument that embodies both the embedded derivative instrument and the
host contract is not remeasured at fair value under otherwise applicable GAAP
with changes in fair value reported in earnings as they occur, and





A
separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument subject to certain requirements
(except for when the host instrument is deemed to be conventional).





A
bifurcated derivative financial instrument may be required to be recorded at
fair value and adjusted to market at each reporting period end date. In
addition, we may be required to classify certain stock equivalents issued in
connection with the underlying debt instrument as derivative
liabilities.





For
convertible instruments that we have determined should not be bifurcated from
their host instruments, we record discounts to convertible notes for the
intrinsic value of conversion options embedded in debt instruments based upon
the differences between the fair value of the underlying common stock at the
commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized
over the term of the related debt to their earliest date of redemption. Also
when necessary, we record deemed dividends for the intrinsic value of conversion
options embedded in preferred shares based upon the differences between the fair
value of the underlying common stock at the commitment date of the financing
transaction and the effective conversion price embedded in the preferred
shares.





In
addition, we review all of our convertible instruments for the existence of a
beneficial conversion feature. Upon the determination that a beneficial
conversion feature exists, the relative fair value of the beneficial conversion
feature would be recorded as a discount from the face amount of the respective
debt instrument and the discount would be amortized to interest expense over the
life of the debt.





Finally,
if necessary, we will determine the existence of liquidated damage provisions.
Liquidated damage provisions are not marked to market, but evaluated based upon
the probability that a related liability should be recorded.





The
Company evaluated the conversion options embedded in its convertible instruments
during each of the reporting periods presented.







28







Reclassification





Certain
amounts in the year 2008 financial statements have been reclassified to conform
to the year 2009 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 31,2009
            
            
            2008Vehicles
            
            $
            36,628
            
            
            $
            36,628Furniture
      and fixtures
            
            
            11,734
            
            
            
            11,734Equipment
            
            
            119,068
            
            
            
            119,068Leasehold
      improvements
            
            
            39,886
            
            
            
            39,886207,316
            
            
            
            207,316Less
      accumulated depreciation
            
            
            149,173
            
            
            
            109,878$
            58,143
            
            
            $
            97,438





NOTE
3 – NOTES PAYABLE





Notes
payable consisted of the following as of:




December
      31,
            
            
            December
      31,2009
            
            
            2008Government
      agency note payable due August 12, 2013,prime
      plus 2.75 % rate of interest (6.00% and 7.75% atDecember
      31, 2009 and 2008, respectively), principaland
      interest payable monthly, unsecured
            
            $
            77,121
            
            
            $
            94,370Bank
      note payable due August 18, 2009, prime rate of
    interestwith
      an 8.25% minimum rate (8.25% at December 31, 2008),principal
      and interest payable monthly, secured byall
      assets of the Company
            
            
            -
            
            
            
            4,465Bank
      note payable due July 18, 2012, 7.95% fixed rate ofinterest,
      principal and interest payable monthly, securedby
      Company vehicle
            
            
            20,727
            
            
            
            27,675Note
      payable due February 15, 2011, 3.50% fixedrate
      of interest, principal and interest payable monthly,unsecured
            
            
            31,513
            
            
            
            81,688129,361
            
            
            
            208,198Less
      current portion
            
            
            52,983
            
            
            
            45,410$
            76,378
            
            
            $
            162,788







29






5% Senior Secured
Convertible Debenture





On July
15, 2008, the Company issued an unsecured convertible debenture (the
“Debenture”) in the aggregate principal amount of $225,000 to an accredited
investor (the “Note Holder”).  The Debenture is due and payable on the
earlier to occur of (i) six months after the date of issuance, and (ii) when
declared due and payable by the Note Holder upon the occurrence of an Event of
Default (as defined in the Debentures). Interest on the Debenture is computed on
a 360 day calendar year at 5% per annum and is payable upon
maturity.  Upon default, the interest rate on the Debenture would
increase to 18% per annum.  The Company does not have the option to
prepay the Debenture. The terms of the Debenture also include a conversion
option such that provided that the principle, interest and any penalties payable
under the terms of the Debenture could be converted into the Company's common
stock at conversion rate equal to 75% of the purchase price of a PIPE financing
to be negotiated and then completed upon the closing of a transaction in which
the Company merges with another company which is listed and trades on the FINRA
OTCBB stock exchange in the United States.





At the
time the Debenture was issued, the Company did not have the authorized share
capital available to satisfy the optional conversion rights described above.
Accordingly, the Company determined that it would be appropriate to assume that
cash settlement of the conversion option was in the control of the note holders
and bifurcate the conversion option from the notes to account for them as a free
standing derivative. The fair value of the conversion option was calculated
using the Black-Scholes option pricing model with the assumptions as outlined in
Footnote 4. The aggregate commitment date fair value of the conversion option
amounted to $90,020.





Interest
expense related to the Debenture amounted to $7,502 in 2009.





During
2009, the Company fully converted the note into 200,000 shares of the Company’s
common stock at a rate of $1.125.





Principal
      Maturities of Notes Payable2010
            
            
            52,9832011
            
            
            32,3142012
            
            
            25,8542013
            
            
            18,210$
            129,361




NOTE
4 – EMBEDDED DERIVATIVES





The fair
market value of embedded derivative liabilities consisted of the
following:





December
      31,  2009
            
            
            December 31,
              2008Derivatives
      embedded within convertible debenture dated July 15, 2008, initial
      value
            
            $
            -
            
            
            $
            90,020Cumulative
      adjustments to record fair market value of embedded
      derivative
            
            
            -
            
            
            
            (13,219
            )Total
            
            $
            -
            
            
            $
            76,801





The
Company recorded a gain on the change in the fair market value of this
derivative liability in the amount of $76,801 in 2009 and $13,219 in 2008.
Attributes used to determine the fair value of the embedded derivatives as of
December 31, 2008 and as of July 15, 2008 (the initial value) are provided
below.





30








December
      31,
            
            
            July
      15,2008
            
            
            2008Valuation
      AssumptionsStock
      price
            
            $
            1.50
            
            
            $
            1.50Conversion
      price
            
            $
            1.125
            
            
            $
            1.125Number
      of underlying shares to be issued upon conversion
            
            
            204,694
            
            
            
            200,000Expected
      term (in years)
            
            
            .04
            
            
            
            0.5Expected
      volatility
            
            
            54.71
            %
            
            
            54.71
            %Risk-free
      interest rate
            
            
            0.11
            %
            
            
            2.30
            %





NOTE
5 – CAPITAL LEASES





The
capitalized cost and accumulated depreciation of the computers and equipment
acquired under capital leases totaled $108,807 and $69,742, respectively at
December 31, 2009





At
December 31, 2009, future minimum payments due under the capital lease
agreements are as follows:





2010
            
            
            29,1922011
            
            
            19,4492012
            
            
            3,971Future
      minimum lease payments
            
            
            52,612Less
      amount representing interest
            
            
            5,139Present
      value of minimum lease payments
            
            
            47,473Less
      current portion
            
            
            25,289Long-term
      capital leases
            
            $
            22,184





NOTE
6 – 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 Motor, Inc.,
formerly, French Peak Resources, Inc. (“French Peak”). French Peak offered to
issue 8,895,000 million of its common shares in exchange for each common share
outstanding of Confederate.




100% of
Confederate common shareholders elected to exchange their Confederate shares for
shares of French Peak.  French Peak issued 8,895,000 million shares to
acquire 8,895,000 million of the outstanding shares of Confederate. As a result
of the exchange, Confederate held a 80.5% controlling interest in the combined
entity, after the exchange. French Peak had approximately 1 million shares
of common stock 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)
were 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.
 
 In
connection with the reverse acquisition and recapitalization, all share and per
share amounts of Confederate will be retroactively adjusted to reflect the legal
capital structure of French Peak pursuant to FASB ASC
805-40-45-1.







31




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 for the Pubco shell 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 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. 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 (“broker 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. These warrants could potentially dilute earnings per
share.





The
following is a summary of the Company’s warrant activity:






32








Warrants
              
              
              Weighted
      Average Exercise PriceExercisable
      - December 31, 2008
              
              
              -
              
              
              $
              -Granted
              
              
              105,000
              
              
              $
              1.50Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Outstanding
      – March 31, 2009
              
              
              105,000
              
              
              $
              1.50Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Outstanding
      – June 30, 2009
              
              
              105,000
              
              
              $
              1.50Exercisable
      – June 30, 2009
              
              
              105,000
              
              
              $
              1.50Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Outstanding
      – September 30, 2009
              
              
              105,000
              
              
              $
              1.50Exercisable
      – September 30, 2009
              
              
              105,000
              
              
              $
              1.50Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Outstanding
      – December 31, 2009
              
              
              105,000
              
              
              $
              1.50Exercisable
      – December 31, 2009
              
              
              105,000
              
              
              $
              1.50





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
            
            
            
            4 years
            
            
            
            $1.50
            
            
            
            105,000
            
            
            
            $1.50





At
December 31, 2009 and December 31, 2008, 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 August 27, 2009; therefore the 120thday was October 26,
2009.  Furthermore, the Company was required to have this S-1
registration declared effective within 150 days (December 25,
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 toregistration
      rightspenalty
            
            $
            2,175,000Maximum
      penalty
            
            
            10
            %Convertible
      debt subject to registration rights penalty
            
            $
            225,000Maximum
      penalty
            
            
            15
            %Registration
      Rights Penalty
            
            $
            251,250








33





NOTE
7 – 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.


On
September 30, 2009, the Company entered into a consulting agreement with Mr.
Terny, a Director of the Board.  The agreement calls for Mr. Terny to
work with the Company to form the distribution channels for all the worldwide
retail stores for distribution of the Company’s motorcycles, work with the
Company to decrease the material costs to produce its motorcycles, and other
services as the Company may reasonably request from time to time.  The
term of the agreement is until the Company achieves certain financial results,
but in any event for at least 24 months .  The compensation for the
consulting agreement is 505,000 shares of restricted common stock awarded at
execution date of the agreement.  The non cash stock based
compensation was expensed during the period as discussed in Note 6.


CM
Design, LLC (“CM Design”), a Louisiana company owned by Pamela Miller (life
partner of Matthew Chambers, Chairman, CEO), executed and delivered to the City
of New Orleans on January 26, 2010 a Cooperative Endeavor Agreement and a
promissory note, signed for CM Design by Matthew Chambers, for a loan in the
amount of $750,000 to locate the headquarters of a motorcycle company to New
Orleans.  There is no binding agreement between CM Design and the
Company related to this loan.  Matthew Chambers is the CEO of CM
Design and Confederate.  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 $7,500 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. See note 8 below regarding the uncertainty related
to these events.
 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 $12,000 for 2009 and $500 for
2008.  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 key officers (CEO and CFO) and employees
(Designer).  Refer to Item 11: Employment
Compensation.


NOTE
8 – 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 Terny is a current member
of the Board of Directors (as discussed in more detail above), 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.
  The
Company recently filed a complaint against all of the stockholders of the
Company for  declaratory judgment on the following items: (i) to declare
that Matthew Chambers has the authority to appoint a majority of the members of
the board of directors and to require the directors to comply with the Company’s
corporate documents and agreements; (ii) if Matthew Chambers does not have the
authority to appoint the majority of directors, then, the courts should void any
and all previous appointments of directors; and (iii) to declare that Mr.
Francoise-Xavier Terny has breached the terms of his consulting agreement..
These issues are currently in dispute.
  As
described in note 7 above, 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 during 2007, 2008 and 2009.  The Company has accrued for
the payroll tax liabilities including penalties and interest. The Company plans
to amend its W3, W2 and 941 filings and resolve the liability with the IRS in
the near term.  The payroll tax penalty and interest were estimated
and to the extent the estimate was insufficient, additional accruals may be
needed in future periods.
 There is
an uncertainty as to the number of directors (1 or 2). The Company contends that
Mr. Terny resigned from his position as Director in January 2010 and Mr. Terny
contends that he has not resigned as Director - the issue is currently in
dispute (see “Item 3. Legal Proceedings”).




Operating
Lease





The
Company occupies  a single leased building. The Company
has signed an amendment in January 2009 to extend the lease term to
December 31, 2011.  The Company may terminate the lease on or after
December 31, 2009 with a 180 days prior written notice.  The monthly
base rental for the extension period is $4,073, $4,195 and $4,320 for the years
2009, 2010 and 2011, respectively.  For the first 4 months of 2009 the
rent is half the normal base rental.





Rent
expense paid under the operating lease obligation totaled $46,010 and $53,354
for the year ended 2009 and 2008, respectively.





Going
Concern and Liquidity





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the normal course of
business.  As reflected in the accompanying financial statements, the
Company had an accumulated deficit of $9,167,421 as of December 31, 2009, and a
net loss of $6,277,862, for the year ended December 31, 2009.  These
conditions raise substantial doubt about its ability to continue as a going
concern.





While the
Company is attempting to produce sufficient sales, the Company's cash position
may not be sufficient to support the Company's daily operations. While the
Company believes in the viability of its strategy to produce sales volume and in
its ability to raise additional funds, there can be no assurances to that
effect. The ability of the Company to continue as a going concern is dependent
upon the Company's ability to further implement its business plan and generate
sufficient revenues. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
Management believes that the actions presently being taken to further implement
its business plan and generate revenues provide the opportunity for the Company
to continue as a going concern.





34


The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.  These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
 
 NOTE 9 – RECENT ACCOUNTING
PRONOUNCEMENTS
 
 Effective
July 1, 2009, the Company adopted The “FASB Accounting Standards Codification”
and the Hierarchy of Generally Accepted Accounting Principles (ASC 105). This
standard establishes only two levels of U.S. generally accepted accounting
principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting
Standards Codification (the “Codification”) became the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the SEC,
which are sources of authoritative GAAP for SEC registrants. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification became nonauthoritative. The Company began using the new guidelines
and numbering system prescribed by the Codification
when referring to GAAP in the third quarter of fiscal 2009. As the Codification
was not intended to change or alter existing GAAP, it did not have a material
impact on the Company’s financial statements.




Effective
June 30, 2009, the Company adopted three accounting standard updates which
were intended to provide additional application guidance and enhanced
disclosures regarding fair value measurements and impairments of securities.
They also provide additional guidelines for estimating fair value in accordance
with fair value accounting. The first update, as codified in ASC 820-10-65,
provides additional guidelines for estimating fair value in accordance with fair
value accounting. The second accounting update, as codified in ASC 320-10-65,
changes accounting requirements for other-than-temporary-impairment
(OTTI) for debt securities by replacing the current requirement that a
holder have the positive intent and ability to hold an impaired security to
recovery in order to conclude an impairment was temporary with a requirement
that an entity conclude it does not intend to sell an impaired security and it
will not be required to sell the security before the recovery of its amortized
cost basis. The third accounting update, as codified in ASC 825-10-65, increases
the frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after June 15, 2009. The adoption of these
accounting updates did not have a material impact on the Company’s financial
statements.





Effective
June 30, 2009, the Company adopted a new accounting standard for subsequent
events, as codified in ASC 855-10. The update modifies the names of the two
types of subsequent events either as recognized subsequent events (previously
referred to in practice as Type I subsequent events) or non-recognized
subsequent events (previously referred to in practice as Type II subsequent
events). In addition, the standard modifies the definition of subsequent events
to refer to events or transactions that occur after the balance sheet date, but
before the financial statements are issued (for public entities) or available to
be issued (for nonpublic entities). It also requires the disclosure of the date
through which subsequent events have been evaluated. The update did not result
in significant changes in the practice of subsequent event disclosures, and
therefore the adoption did not have a material impact on the Company’s financial
statements.





Effective
January 1, 2009, the Company adopted an accounting standard update
regarding the determination of the useful life of intangible assets. As codified
in ASC 350-30-35, this update amends the factors considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under intangibles accounting. It also requires a
consistent approach between the useful life of a recognized intangible asset
under prior business combination accounting and the period of expected cash
flows used to measure the fair value of an asset under the new business
combinations accounting (as currently codified under ASC 850). The update also
requires enhanced disclosures when an intangible asset’s expected future cash
flows are affected by an entity’s intent and/or ability to renew or extend the
arrangement. The adoption did not have a material impact on the Company’s
financial statements.





In
February 2008, the FASB issued an accounting standard update that delayed
the effective date of fair value measurements accounting for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until the beginning of the first quarter of fiscal 2009. These
include goodwill and other non-amortizable intangible assets. The Company
adopted this accounting standard update effective January 1, 2009. The
adoption of this update to non-financial assets and liabilities, as codified in
ASC 820-10, did not have a material impact on the Company’s financial
statements.





Effective
January 1, 2009, the Company adopted a new accounting standard update
regarding business combinations. As codified under ASC 805, this update requires
an entity to recognize the assets acquired, liabilities assumed, contractual
contingencies, and contingent consideration at their fair value on the
acquisition date. It further requires that acquisition-related costs be
recognized separately from the acquisition and expensed as incurred; that
restructuring costs generally be expensed in periods subsequent to the
acquisition date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period be recognized as a component of provision for taxes. The adoption did not
have a material impact on the Company’s financial statements.





In
September 2009, the FASB issued Update No. 2009-13,
“Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (ASU 2009-13). It updates the existing multiple-element
revenue arrangements guidance currently included under ASC 605-25, which
originated primarily from the guidance in EITF Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance
primarily provides two significant changes: 1) eliminates the need for objective
and reliable evidence of the fair value for the undelivered element in order for
a delivered item to be treated as a separate unit of accounting, and 2)
eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. ASU 2009-13 will be effective for the first annual reporting period
beginning on or after June 15, 2010, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year
of adoption. The Company is currently assessing the future impact of this new
accounting update to its financial statements.





Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification(the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP.







35







Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. All guidance
contained in the Codification carries an equal level of authority. The
Codification superseded all existing non-SEC accounting and reporting standards.
All other non-grandfathered, non-SEC accounting literature not included in the
Codification is non-authoritative. The FASB will not issue new standards in the
form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The
FASB will not consider ASUs as authoritative in their own right. ASUs will serve
only to update the Codification, provide background information about the
guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.





Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s results of operations or financial
condition.





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
“Fair Value Measurements and
Disclosures,”which amends previous guidance to require disclosures about
fair value of financial instruments in interim as well as annual financial
statements in the current economic environment. This pronouncement was effective
for periods ending after June 15, 2009. The adoption of this pronouncement
did not have a material impact on the Company’s business, financial condition or
results of operations; however, these provisions of FASB ASC Topic 820 resulted
in additional disclosures with respect to the fair value of the Company’s
financial instruments.





In
May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
“Subsequent Events,”
which establishes general standards of accounting for, and disclosures of,
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This pronouncement was effective for
interim or fiscal periods ending after June 15, 2009. The adoption of this
pronouncement did not have a material impact on the Company’s business, results
of operations or financial position; however, the provisions of FASB ASC Topic
855 resulted in additional disclosures with respect to subsequent
events.





In
June 2009, the Financial Accounting Standards Board (FASB) issued guidance
now codified as FASB Accounting Standards Codification (ASC) Topic 105, “Generally Accepted Accounting
Principles,” as the single source of authoritative non-governmental U.S.
GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to
simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the FASB Codification will be considered
non-authoritative. These provisions of FASB ASC Topic 105 were effective for
interim and annual periods ending after September 15, 2009 and,
accordingly, were effective for the Company for the current fiscal reporting
period. The adoption of this pronouncement did not have an impact on the
Company’s business, financial condition or results of operations, but will
impact the Company’s financial reporting process by eliminating all references
to pre-codification standards. On the effective date of FASB ASC Topic 105, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.





In
January 2010, the Financial Accounting Standards Board ("FASB") issued updated
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and
Level 2 of the fair value hierarchy (including the reasons for these
transfers) and the reasons for any transfers in or out of Level 3. This
update also requires a reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. In addition
to these new disclosure requirements, this update clarifies certain existing
disclosure requirements. For example, this update clarifies that reporting
entities are required to provide fair value measurement disclosures for each
class of assets and liabilities rather than each major category of assets and
liabilities. This update 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. This update will become
effective for the Company with the interim and annual reporting period beginning
January 1, 2010, except for the requirement to provide the Level 3
activity of purchases, sales, issuances, and settlements on a gross basis, which
will become effective for the Company with the interim and annual reporting
period beginning January 1, 2011. The Company will not be required to
provide the amended disclosures for any previous periods presented for
comparative purposes. Other than requiring additional disclosures, adoption of
this update will not have a material effect on the Company's consolidated
financial statements







36







NOTE
10 – 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. For all periods presented,
convertible debentures were not included in the computation of diluted loss per
share because the effect would be antidilutive. These items could be dilutive in
the future.





NOTE
11 – 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 over
the life of the agreement





NOTE
12 – CONCENTRATION OF CREDIT RISK





At
December 31, 2009 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 through December 31, 2009.  As of December
31, 2009, the Organization’s uninsured cash and cash equivalents balances
totaled $126,932.





NOTE
13 – INCOME TAXES





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.





The
valuation allowance at December 31, 2008 was approximately $981,000. The net
change in valuation allowance during the year ended December 31, 2009 was an
increase of approximately $504,000.  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, 2009.
 
 The
Company has a net operating loss carryforward for tax purposes totaling
approximately $3,870,000 at December 31, 2009, expiring through 2029. 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 31,2009
              
              
              2008Non-current
      deferred tax assets:Net
      operating loss carryforward
              
              $
              (1,482,000
              )
              
              $
              (981,000
              )Accrued
      salary
              
              
              (3,000
              )
              
              
              -Valuation
      allowance
              
              
              1,485,000
              
              
              
              981,000Net
      deferred tax assets
              
              $
              -
              
              
              $
              -






37







The
actual tax benefit differs from the expected tax benefit for the year ended
December 31, 2009 and the period ended December 2008 (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 31,2009
              
              
              2008Computed
      "expected" tax expense (benefit) - Federal -
              
              $
              (1,996,000
              )
              
              $
              (134,000
              )Computed
      "expected" tax expense (benefit) - State -
              
              
              (408,000
              )
              
              
              (28,000
              )Penalties
      and fines
              
              
              2,000
              
              
              
              -Stock/stock
      options/warrants issued for services
              
              
              1,820,000
              
              
              
              -Registration
      rights penalty
              
              
              96,000
              
              
              
              -Loss
      on settlement of debt
              
              
              -
              
              
              
              -Change
      in fair value of derivative liability - embedded conversion
      option
              
              
              (29,000
              )
              
              
              (5,000
              )Meals
      and Entertainment @50%
              
              
              5,000
              
              
              
              -Warrant
      expense arising from repricing of investor warrants
              
              
              -
              
              
              
              -Amortization
      of debt discount
              
              
              6,000
              
              
              
              66,000Beneficial
      conversion feature
              
              
              -
              
              
              
              -Gain
      on settlement of accounts payable
              
              
              -
              
              
              
              -Change
      in valuation allowance
              
              
              504,000
              
              
              
              101,000Actual
      tax expense  (benefit)
              
              $
              -
              
              
              $
              -




NOTE
14 – RESTATEMENT





During
March 2010, the Company discovered material errors associated with the financial
statements issued for the period January 1, 2008 to December 31,
2008.





The
Company identified additional payroll tax liabilities related to individuals,
including our CEO and CFO paid incorrectly as independent contractors. 
Additionally, the Company failed to accrue for contingent payables during the
prior period.





The
Company adjusted previously issued financial statements to reflect the following
in connection with the restatement:





As
      Restated
              2008
            
            
            Adjustment
              2008
            
            
            As
      Previously Reported
              2008Accrued
      payroll tax liability
            
            $
            99,540
            
            
            $
            90,705
            
            
            $
            8,835Other
      accrued expenses
            
            $
            31,856
            
            
            $
            26,156
            
            
            $
            5,700Accumulated
      deficit
            
            $
            (2,889,559
            )
            
            $
            (116,861
            )
            
            $
            (2,772,698
            )Total
      stockholders’ deficit
            
            $
            (826,559
            )
            
            $
            (116,861
            )
            
            $
            (709,698
            )Selling,
      general & administrative expense
            
            $
            1,104,245
            
            
            $
            105,266
            
            
            $
            998,979Net
      Loss
            
            $
            (423,218
            )
            
            $
            (105,266
            )
            
            $
            (317,952
            )Net
      loss per share- Basic and Diluted
            
            $
            (0.07
            )
            
            $
            (0.02
            )
            
            $
            (0.05
            )





NOTE
15 – 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 during 2007, 2008 and 2009.  The Company has accrued an
estimate for the payroll tax liability including penalties and interest. The
Company plans to amend its W3, W2 and 941 filings and resolve the liability with
the IRS in the near term.  The payroll tax penalty and interest were
estimated and to the extent the estimate was insufficient, additional accruals
may be needed in future periods.





NOTE
16 – SUBSEQUENT EVENTS





On
October 16, 2009 the law firm of Smith & Armandsen filed suit against the
corporation for unpaid fees stemming from an out-of-state lawsuit. The
Corporation will seek a settlement in this matter. The maximum possible exposure
to the corporation is six thousand four hundred thirty-seven ($6,437) dollars.
The Company settled this matter for less than the demanded amount in December
2009.
 
 The
Company recently filed a complaint against all of the stockholders of the
Company for  declaratory judgment on the following items: (i) to declare
that Matthew Chambers has the authority to appoint a majority of the members of
the board of directors and to require the directors to comply with the Company’s
corporate documents and agreements; (ii) if Matthew Chambers does not have the
authority to appoint the majority of directors, then, the courts should void any
and all previous appointments of directors; and (iii) to declare that Mr.
Francoise-Xavier Terny has breached the terms of his consulting agreement. These
issues are currently in dispute. (see Item 3. “Legal
Proceedings”).
 
 The
Company is evaluating a potential loan from the City of New Orleans in the
amount of $750,000 to relocate our headquarters and manufacturing facilities
back to the City of New Orleans, Louisiana. No definitive agreement has been
entered into as of the date of this filing.  However, CM Design, LLC
(“CM Design”), a Louisiana company owned by Pamela Miller (life partner of
Matthew Chambers, Chairman, CEO), executed and delivered to the City of New
Orleans on January 26, 2010 a Cooperative Endeavor Agreement, attached hereto as
Exhibit 2.1, and a promissory note, signed for CM Design by Matthew Chambers,
for a loan in the amount of $750,000 to locate the headquarters of a motorcycle
company to New Orleans.  There is no binding agreement between CM
Design and the Company related to this loan.  Matthew Chambers is the
CEO of CM Design and Confederate.  CM Design has entered into a
sublease agreement to rent a facility in New Orleans and in the first quarter of
2010 Confederate advanced the security deposit of $7,500 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. See notes 7 and 8 for a full discussion of
these events and the uncertainty related to these
events.





38




ITEM
9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE





On April
15, 2009, we dismissed Barfield, Murphy, Shank & Smith, P.C. (“BMSS”), as
our independent registered public accounting firm. The reports of BMSS on our
financial statements for each of the past two fiscal years contained no adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except as that the reports of
BMSS for the fiscal years ended December 31, 2007 and 2006 indicated conditions
which raised substantial doubt about the Company's ability to continue as a
going concern. The decision to change independent accountants was approved by
our Board of Directors on April 15, 2009.





During
our two most recent fiscal years and through April 15, 2009, the date of filing
our Current Report on Form 8-K announcing the dismissal of BMSS, we have had no
disagreements with BMSS on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of BMSS, would have caused it
to make reference to the subject matter of such disagreements in its report on
our financial statements for such periods.




During
our two most recent fiscal years there have been no reportable events as defined
under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.




BMSS
provided us with a letter addressed to the SEC stating that it agreed with the
above statements. This letter was filed as an exhibit to the current report on
Form 8-K filed on April 15, 2009.





On April
15, 2009, the Board appointed Bartolomei Pucciarelli, LLC (“BP”) as the
Company’s new independent registered public accounting firm. The decision to
engage BP was approved by the Company’s Board of Directors on April 15,
2009.  Prior to April 15, 2009, the Company did not consult with BP
regarding (1) the application of accounting principles to a specified
transactions, (2) the type of audit opinion that might be rendered on the
Company’s financial statements, (3) written or oral advice was provided that
would be an important factor considered by the Company in reaching a decision as
to an accounting, auditing or financial reporting issues, or (4) any matter that
was the subject of a disagreement between the Company and its predecessor
auditor as described in Item 304(a)(1)(iv) or a reportable event as described in
Item 304(a)(1)(v) of Regulation S-K.





ITEM
9A(T).  CONTROLS AND PROCEDURES





(a)
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES


Based on
their evaluation as of the end of the period covered by this Annual Report on
Form 10-K, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that
information required to be disclosed by us in report that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms and to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.





(b)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING


This
company’s management is responsible for establishing and maintaining internal
controls over financial reporting and disclosure controls. Internal Control Over
Financial Reporting is a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the issuer’s board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:





1.
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      issuer;





2.
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the issuer
      are being made only in accordance with authorizations of management and
      directors of the registrant; and





3.
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the issuer’s assets that
      could have a material effect on the financial
  statements.





Disclosure
controls and procedures are designed to ensure that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934, as
amended, is appropriately recorded, processed, summarized and reported within
the specified time periods.





Management
has conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2009 based on the framework established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).





Based on
this assessment, management concluded that as of December 31, 2009 it had
material weaknesses in its internal control procedures.





A
material weakness is a control deficiency, or combination of control
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements would not be prevented or detected on a timely
basis.





As of
December 31, 2009, we have concluded that our internal control over financial
reporting was ineffective as of December 31, 2009.





The
Company’s assessment identified certain material weaknesses which are set forth
below:






39





Financial Statement Close
Process




The
Company currently has an insufficient level of monitoring and oversight controls
for review and recording of accruals, contingent liabilities, and financial
statement disclosures.





The
Company has insufficient documentation and review of the selection and
application of generally accepted accounting principles to significant
non-routine transactions, particularly relating to complex transactions such as
derivative instruments and deferred taxes.




The
Company has inadequate design of controls over recording accruals, timely
identification and disclosure of contingencies and contingent liabilities,
timely identification and disclosure of related parties, proper recording and
identification of compensation items and the resultant payroll tax liabilities,
and proper identification of financial statement
disclosures.


The
Company has inadequate procedures for accurate and timely reporting of inventory
costing.





These
weaknesses restrict the Company’s ability to timely gather, analyze and report
information relative to the financial statements.





Entity Level
Controls





There are
insufficient corporate governance policies. Our corporate governance activities
and processes are not always formally documented. Specifically, decisions made
by the board to be carried out by management should be documented and
communicated on a timely basis to reduce the likelihood of any misunderstandings
regarding key decisions affecting our operations and management.





The
Company currently has insufficient resources which may restrict the Company’s
ability to gather, analyze and report information relative to the financial
statements in a timely manner, including insufficient documentation and review
of the selection and application of generally accepted accounting principles to
significant non-routine transactions. In addition, the limited size of the
accounting department makes it impractical to achieve an optimum segregation of
duties.





Functional Controls and
Segregation of Duties





There is
an inadequate segregation of duties consistent with control objectives. Our
company’s management is composed of a small number of individuals resulting in a
situation where limitations on segregation of duties exist. In order to remedy
this situation we would need to hire additional staff to provide greater
segregation of duties. Currently, it is not feasible to hire additional staff to
obtain optimal segregation of duties. Management will reassess this matter in
the following year to determine whether improvement in segregation of duty is
feasible.





Accordingly,
as the result of identifying the above material weaknesses we have concluded
that these control deficiencies resulted in a reasonable possibility that a
material misstatement of the annual or interim financial statements will not be
prevented or detected on a timely basis by the company’s internal
controls.





Management
believes that the material weaknesses set forth above were the result of the
scale of our operations and are intrinsic to our small size. Management believes
these weaknesses did not have a material effect on our financial results and
intends to take remedial actions upon receiving funding for the company’s
business operations.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report
herein.





(c)
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING


We are
committed to improving our financial organization. As part of this commitment,
we will increase our personnel resources and technical accounting expertise
within the accounting function when funds are available to us.




We will
continue to monitor and evaluate the effectiveness of our internal controls and
procedures and our internal controls over financial reporting on an ongoing
basis and are committed to taking further action and implementing additional
enhancements or improvements, as necessary and as funds allow. We intend to take
appropriate and reasonable steps to make the necessary improvements to remediate
these deficiencies, including:





(1)
            We
      will implement increased monitoring and oversight of accruals and
      contingent liabilities





(2)
            We
      will add personnel with the depth of knowledge and time commitment to
      provide a greater level of review for corporate
  activities.





(3)
            We
      will continue to update the documentation of our internal control
      processes, including formal risk assessment of our financial reporting
      processes.





(4)
              We
      will solicit independent directors to enhance corporate governance and
      Board composition.


We intend
to consider the results of our remediation efforts and related testing as part
of our year-end 2010 assessment of the effectiveness of our internal control
over financial reporting.





40





ITEM
9B.  OTHER INFORMATION





None.





PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Directors and Executive
Officers





General





The
following table contains information with respect to our directors and executive
officers:





NAME
            AGE
            POSITIONH.
      Matthew Chambers
            55
            Chairman
      and Chief Executive Officer and FounderFrancois-Xavier
      Terny*
            40
            DirectorJoseph
      Mitchell
            41
            Executive
      Vice President and Chief Financial
Officer




*issue of whether or not
Francois-Xavier Terny resigned in disputeand Francois does not believe that
he resigned as a Director of the Company.  The inclusion of Francois
in this table is without prejudice to the resolution of the Declaratory Judgment
action(see “Item 3.
Legal Proceedings”).




H. Matthew
Chambers has been our Chief Executive Officer and one of our directors
from our inception in March 2003. Chambers earned a bachelor of arts in business
administration from Louisiana State University in 1975, and went on to receive a
juris doctorate degree from LSU in 1978. On January 1, 1979, Chambers began a 13
year career as a solo practitioner of law in Baton Rouge. In 1990, Chambers won
the largest verdict of his career in a police brutality case. The verdict
represented the largest ever granted in the state of Louisiana against a
sheriff's parish agency.





Next,
idle meditation yielded an idea propelled by a lust for American hot rods which
began in the 1950's. An avant-garde American industrial and mechanical design
initiative was envisioned. The roots of rugged principled individuality would
again form an idealogical foundation for pure, strong, tough
motorcycles.





The
Confederate dream was embraced April 2, 1991. The cornerstone which formalized
the effort is described by just three letters - fun. A true to concept creative
body of work was mandated. Honest American motorcycles are the
result.





Chambers
currently has dual-residences in Birmingham, Ala. and hometown New Orleans,
where his family still resides.





Francois-Xavier
Terny** is a private investor and operational consultant to 7 companies
and start ups since 2008.  He was the founder of Masaï, a consultancy
specializing in cost optimization established in 1996. Under the management of
Mr. Terny, Masaï had 8 consulting offices in Europe, US and Japan, and 7 LCC
offices, with a total of over 120 professionals. It was acquired by Lowendal
group in October 2006.





Following his studies at
HEC, from 1991 to 1996, Mr. Terny served as a strategic consultant in
Bain & Company, with one year spent between the Moscow and Warsaw
offices (1993) and creation of the South African office (1995). It was during
the numerous purchasing assignments (sheer luck in strategic consultancy!) that
the idea for Masaп was born. Discussions with his friend
Thierry Fournier, a Manager within Bain & Co., gave life to the project in
March 1996.





Mr. Terny
has always been keen on multi-cultural, multi time zone projects - often
combining the complexity of worldwide team management with a taste for creating
new methodologies, new approaches to the ever-evolving issues clients are facing
in cost management. He is passionate about cars and race car driving, a wine
enthusiast with a particular taste for Languedoc wines, and a seasoned
traveler.





There are
no relationships between Mr. Terny and any of the officers or directors of the
Company. And there is no employment agreement between Mr. Terny and the
Company.  Mr. Terny entered into a consulting agreement in 2009 (see
Note 7 to the Financial Statements; Related Party
Transactions).


**The
Company contends that Mr. Terny resigned from his position as Director in
January 2010 and Mr. Terny contends that he has not resigned as Director - the
issue is currently in dispute (see “Item 3. Legal
Proceedings”).




Joseph
Mitchell has served as our Chief Financial Officer from November
2006.  He has over 17 years of experience in financial operations and
management in the financial services, technology, healthcare and manufacturing
sectors, including 3 years at HealthSouth. During his time at HealthSouth, he
held various senior management positions, including Director of Business
Development, Audit Director and Assistant Controller, and was instrumental in
the company being re-listed on the NYSE. Prior to HealthSouth, Joseph spent 4
years at Dell Financial Services and served as the Financial Reporting Manager
and Corporate Governance Manager, where he led a team in implementing financial
and internal controls for SEC compliance. Prior to Dell, he
spent 4 years at AmSouth as the Finance Manager where he directed the
integration of the financial operations for a $500 million
acquisition.






41





Joseph
earned a bachelor's degree in accounting from the University of Alabama. He
holds an MBA from the University of Alabama Birmingham. He is a licensed
CPA.





Family
Relationships





There are
no relationships between any of the officers or directors of the
Company.





Conflicts
of Interest





Certain
potential conflicts of interest are inherent in the relationships between our
officers and directors, and us.





From time
to time, one or more of our affiliates may form or hold an ownership interest in
and/or manage other businesses both related and unrelated to the type of
business that we own and operate. These persons expect to continue to form, hold
an ownership interest in and/or manage additional other businesses which may
compete with ours with respect to operations, including financing and marketing,
management time and services and potential customers. These activities may give
rise to conflicts between or among the interests of us and other businesses with
which our affiliates are associated. Our affiliates are in no way prohibited
from undertaking such activities, and neither we nor our shareholders will have
any right to require participation in such other activities.





Further,
because we intend to transact business with some of our officers, directors and
affiliates, as well as with firms in which some of our officers, directors or
affiliates have a material interest, potential conflicts may arise between the
respective interests of us and these related persons or entities. We believe
that such transactions will be effected on terms at least as favorable to us as
those available from unrelated third parties.





With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that: (i) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (ii) the transaction be approved by a majority of our
disinterested outside directors, and (iii) the transaction be fair and
reasonable to us at the time it is authorized or approved by our
directors.





Our
policies and procedures regarding transactions involving potential conflicts of
interest are not in writing.  We understand that it will be difficult
to enforce our policies and procedures and will rely and trust our officers and
directors to follow our policies and procedures.  We will implement
our policies and procedures by requiring the officer or director who is not in
compliance with our policies and procedures to remove himself and the other
officers and directors will decide how to implement the policies and procedures,
accordingly.





Corporate
Governance





We are
committed to having sound corporate governance principles. We believe that such
principles are essential to running our business efficiently and to maintaining
our integrity in the marketplace. Our Board of Directors has two directors, but
does not have any standing committees.  Our by-laws provide for the
ability to appoint up to five (5) members onto the Board of Directors and we
currently have three (3) or four (4) vacancies depending upon the result of the
lawsuit described in Item 3: Legal Proceedings.


Involvement
in Certain Legal Proceedings





To our
knowledge, during the past five (5) years, none of our directors, executive
officers, promoters, control persons, or nominees has been:





є
            the
      subject of any bankruptcy petition filed by or against any business of
      which such person was a general partner or executive officer either at the
      time of the bankruptcy or within two years prior to that
    time;





є
            convicted
      in a criminal proceeding or is subject to a pending criminal proceeding
      (excluding traffic violations and other minor
  offenses);





є
            subject
      to any order, judgment, or decree, not subsequently reversed, suspended or
      vacated, of any court of competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      or





є
            found
      by a court of competent jurisdiction (in a civil action), the Commission
      or the Commodity Futures Trading Commission to have violated a federal or
      state securities or commodities
law.






42





Compliance
With Section 16(A) Of The Exchange Act




Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who beneficially own more than 10% of a registered class of the
Company’s equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and are required to
furnish copies to the Company. To the best of the Company’s knowledge, any
reports required to be filed were timely filed in fiscal year ended December 31,
2009.





Auditors;
Code of Ethics; Financial Expert





We do not
have an audit committee financial expert.  We do not have an audit
committee financial expert because we believe the cost related to retaining a
financial expert at this time is prohibitive.  Furthermore, because we
are only beginning our commercial operations, at the present time, we believe
the services of a financial expert are not warranted.





Indemnification
of Directors and Officers





Our
certificate of incorporation and bylaws generally eliminate the personal
liability of our directors for breaches of fiduciary duty as a director, except
for liability for any breach of their duty of loyalty to us or our stockholders,
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, for unlawful payments of dividends or unlawful
stock repurchases or redemptions and for any transaction from which the director
derived an improper personal benefit. Our certificate of incorporation requires
us to indemnify our directors, and allows us to indemnify our officers,
employees and agents, to the fullest extent permitted by the Delaware General
Corporation Law.





We intend
to enter into indemnity agreements with each of our directors and executive
officers, which will provide for mandatory indemnification of an executive
officer or a director made party to a proceeding by reason of the fact that the
person is or was an executive officer or a director of ours, if the executive
officer or director acted in good faith and in a manner the executive officer or
director reasonably believed to be in or not opposed to our best interests and,
in the case of a criminal proceeding, the executive officer or director had no
reasonable cause to believe that his or her conduct was unlawful. These
agreements will also obligate us to advance expenses to an executive officer or
a director who may have a right to be indemnified by us; provided, that the
executive officer or director will repay advanced expenses if it is ultimately
determined that he or she is not entitled to indemnification. Our executive
officers and directors will also be entitled to indemnification and
indemnification for expenses incurred as a result of acting at our request as a
director, an officer or an agent of an employee benefit plan or other
partnership, corporation, joint venture, trust or other enterprise owned or
controlled by us.





Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
above statutory provisions or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.





ITEM
11.  EXECUTIVE COMPENSATION





Summary
Compensation Table





The
following summary compensation table sets forth all compensation awarded to,
earned by, or paid to the named executive officers paid by us during the
calendar years ended December 31, 2009 and 2008 in all capacities for the
accounts of our executives, including the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO):





SUMMARY
COMPENSATION TABLE





Name
      and Principal Position
              
              Year
                  ($)
              
              Salary
                  ($)(3)
              
              
              Bonus
                  ($)
              
              
              Stock
                  Awards
                  ($)(1)
              
              
              Option
                  Awards
                  ($)
              
              
              Non-Equity
      Incentive Plan Compensation ($)
              
              
              Non-Qualified
      Deferred Compensation Earnings
                  ($)
              
              
              All
      Other Compensation
                  ($)
      (1)
              
              
              Totals
                  ($)H.
      Matthew Chambers,
                President
      and Chief
              
              2009
              
              
              118,066
              
              
              
              0
              
              
              
              1,650,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              43,588
              
              
              
              1,811,654Executive
      Officer
              
              2008
              
              
              155,341
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              46,517
              
              
              
              201,8582007
              
              
              98,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              44,693
              
              
              
              142,693Joseph
      Mitchell,
                Executive
      VP, Chief Financial
              
              2009
              
              
              130,508
              
              
              
              
              
              
              
              202,500
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              333,008Officer,
      Secretary
              
              2008
              
              
              120,006
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              120,0062007
              
              
              92,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              92,000


(1) Stock
awards were issued to key officers and employees for their participation in the
planned reverse recapitalization.  Mr. Chambers was awarded 1,100,000
common shares with an underlying valuation of $1.50 per share at the time of the
reverse merger date of 2/12/2009.  Mr. Mitchell was awarded 135,000
common shares with an underlying valuation of $1.50 per share on the same
date.
 (2) For
Mr. Chambers, the amount shown in this column is Company paid rent for the
corporate apartment in Birmingham and other perquisites.
 (3)
Mr. Chambers and Mr. Mitchell did not receive their full salary and guaranteed
bonus per their employment agreements (see below). Both have waived payment of
the underpaid amount except under the condition of involuntary termination
without cause.


43


Director
Qualifications





We
believe that our directors should have the highest professional and personal
ethics and values, consistent with our longstanding values and standards. They
should have broad experience at the policy-making level in business or banking.
They should be committed to enhancing stockholder value and should have
sufficient time to carry out their duties and to provide insight and practical
wisdom based on experience. Their service on other boards of public companies
should be limited to a number that permits them, given their individual
circumstances, to perform responsibly all director duties for us. Each director
must represent the interests of all stockholders. When considering potential
director candidates, the Board of Directors also considers the candidate’s
character, judgment, diversity, age and skills, including financial literacy and
experience in the context of our needs and the needs of the Board of
Directors.





Director
Compensation





Our
directors will not receive a fee for attending each board of directors meeting
or meeting of a committee of the board of directors. All directors will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with attending board of director and committee
meetings.





Option/SAR
Grants to Executive Officers





No Named
Executive Officers received or exercised any stock awards, stock options or SARs
during the year ended December 31, 2009, or otherwise were the beneficial owners
of any stock awards, stock options or SARs at December 31,
2009.  Stock awards were issued to Mr. Chambers (1,100,000 common
shares) and Mr. Mitchell (135,000 common shares) prior to the reverse
merger.





Employment
Agreements





The
Company has employment agreements with H. Matthew Chambers, Joseph Mitchell and
Ed Jacobs.  The employment agreements have a three-year term and will
automatically extend in one-year increments unless we notify the executive in
that year that his employment agreement will not be extended.





The employment
agreements provide for annual base salaries at the following initial rates:
$180,000 for H. Matthew Chambers and $144,000 for Joseph Mitchell and $96,000
for Ed Jacobs. The employment agreements call for a guaranteed 25%
bonus.  The annual base salaries will be reviewed each year by our
board of directors (or compensation committee, if we then have one), but cannot
be decreased from the amount in effect in the previous year. The employment
agreements also make each executive eligible for annual bonuses determined by
our board of directors (or compensation committee, if any). The employment
agreements also provide that these officers are eligible to participate in our
equity incentive plans and other employee benefit
programs.





The
employment agreements impose on each employee post-termination non-competition,
non-solicitation and confidentiality obligations. Under the agreements, each
officer will agree not to compete with our business in the United States,
subject to certain limited exceptions, for a period of two years after
termination of his employment (provided that the agreements are terminated other
than for good reason by the officers or without cause by us). Each officer will
further agree, for a period of three years after termination of his employment,
to refrain from inducing, or attempting to induce, any of our customers or
employees to curtail or terminate their relationship or employment with us, as
applicable. Each officer will also agree to maintain the confidentiality of all
confidential or proprietary information of our company, and assign any
inventions to us that he acquired or developed during his relationship with
us.





The
employment agreements provide for payments and benefits upon termination of
employment in addition to those previously accrued. If the executive is
terminated due to death or disability, the executive will receive (in addition
to items previously accrued):





▪             instead
of a bonus (other than accrued and unpaid guaranteed bonus) for that year, a
lump sum cash payment equal to the average annual bonus in recent years
(calculated as described below), prorated to reflect the part of the year
completed before termination; and





▪             in
case of disability, continued health, medical and life insurance coverage until
age 65.








44





If we
terminate the executive’s employment without cause, including after a change in
control, or if the executive terminates employment for good reason, the
executive will receive (in addition to items previously accrued):





▪             a
lump sum cash payment equal to (1) the sum of his then-current annual base
salary, plus his then-current guaranteed cash bonus, plus the average annual
bonus in recent years (calculated as described below), multiplied by 3, in
the case of H. Matthew Chambers and 2 in the case of each of Joseph Mitchell and
Ed Jacobs;





▪             instead
of a bonus (other than accrued and unpaid guaranteed bonus) for that year, a
lump sum cash payment equal to his average annual bonus in recent years
(calculated as described below), which, unless the termination occurs within the
period beginning on the date of a change in control and ending two years after a
change in control, will be prorated to reflect the part of the year completed
before termination; and





▪             continued
health, medical and life insurance coverage for one year.





In each
case, the average annual bonus in recent years is calculated by using the most
recent (up to three) calendar years in which the executive worked for us for the
entire year. If the executive was not eligible for, or did not receive, a bonus
during any of those years, then we deem the average annual bonus to be equal to
the target annual bonus for the year of termination. When calculating the
average annual bonus, any guaranteed cash bonus is disregarded.





If
payments under the employment agreement are subject to the golden parachute
excise tax, we must pay an additional gross-up amount so that his after-tax
benefits are the same as if no excise tax had applied.





ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT





The
following table sets forth certain information regarding beneficial ownership of
our Common Stock as of December 31, 2009, for:




▪
            each
      person or group known to us to beneficially own 5% or more of our Common
      Stock;


▪
            each
      of our directors and director
nominees;


▪
            each
      of our named executive officers;
and


▪
            all
      of our executive officers and directors as a
  group.





The
number of shares beneficially owned by each stockholder is determined under
rules promulgated by the SEC. The information is not necessarily indicative of
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting or investment power and any shares as to which the individual or
entity has the right to acquire beneficial ownership within 60 days after
December 31, 2009 through the exercise of any stock option, warrant or other
right. The inclusion in the following table of those shares, however, does not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner.




Percentage
      of shares outstandingBeneficial
      owner
              
              Number of shares
      beneficially owned(1)
              
              
              Outstanding(2)
              
              Fully
      Diluted(3)RSC
      Affiliated Businesses, LLC (4)
              
              
              2,633,220
              
              
              
              20.3
              %
              
              
              20.2
              %Francois
      Terny, Director**
              
              
              805,000
              
              
              
              6.2
              %
              
              
              6.2
              %Joseph
      Mitchell, Chief Financial Officer
              
              
              316,985
              
              
              
              2.4
              %
              
              
              2.4
              %All
      directors and executive officers as a group
              
              
              3,755,205
              
              
              
              29.0
              %
              
              
              28.8
              %Sharp
      Capital
              
              
              3,406,283
              
              
              
              26.3
              %
              
              
              26.1
              %Oldenway
      1 (5)
              
              
              1,239,913
              
              
              
              9.6
              %
              
              
              9.5
              %Oldenway
      2 (6)
              
              
              1,239,913
              
              
              
              9.6
              %
              
              
              9.5
              %




______________________





*
                Less
      than 1%
 **
              The
      Company contends that Mr. Terny resigned from his position as Director in
      January 2010 and Mr. Terny contends that he has not resigned as Director -
      the issue is currently in dispute (see “Item 3. Legal
      Proceedings”).
 
 (1)
              Unless
      otherwise indicated, each person or entity named in the table has sole
      voting power and investment power (or shares that power with that person’s
      spouse) with respect to all shares of common stock listed as owned by that
      person or entity.
 (2)
              A
      total of 12,954,998 shares of the Company’s common stock are considered to
      be outstanding pursuant to Rule 13d-3(d)(1) under the Securities Exchange
      Act of 1934.
 (3)
              A
      total of 13,059,998 shares of the Company’s common stock are considered to
      be outstanding pursuant to Rule 13d-3(d)(1) under the Securities Exchange
      Act of 1934.
 (4)
              Matthew
      Chambers, our chief executive officer and Director, has 75% ownership of
      RSC Affiliated Businesses, LLC.  Pamela Miller (life partner of
      Matthew Chambers, Chairman, CEO), has the remaining 25% ownership of RSC
      Affiliated Businesses,
  LLC.
 (5)
              Nazir
      Mohammed Parker, the principal of Oldenway 1, is deemed to be beneficial
      owners of all of the shares of common stock owned by Oldenway 1. Mr.
      Parker has voting and disposition power over the shares beneficially owned
      by Oldenway1.
 (6)
              Nazir
      Mohammed Parker, the principal of Oldenway 2, is deemed to be beneficial
      owners of all of the shares of common stock owned by Oldenway 2. Mr.
      Parker has voting and disposition power over the shares beneficially owned
      by Oldenway2.




45





ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE





Board
of Directors and Officers





Other
than the transactions described under the heading “Executive Compensation” (or
with respect to which such information is omitted in accordance with SEC
regulations), since December 31, 2006 there have not been, and there is not
currently proposed, any transaction or series of similar transactions to which
we were or will be a participant in which the amount involved exceeded or will
exceed the lesser of $120,000 or one percent of the average of our total assets
at year-end for the last two completed fiscal years, and in which any director,
executive officer, holder of 5% or more of any class of our capital stock or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest.





Other
Stockholders





There are
currently no capital loans payable to existing stock holders.





Pursuant
to the Merger Agreement, on February 12, 2009, we issued 8,895,000 shares of our
common stock to the shareholders of Confederate Motor Company, Inc. pursuant to
the merger between us and Confederate Motor Company, Inc.  Such securities were not registered
under the Securities Act of 1933. The issuance of these shares was exempted from
registration pursuant to Section 4(2) of the Securities Act of
1933.





As of
December 31, 2009 we issued  1,449,998 shares of our common stock to
certain accredited investors for a total aggregate purchase price of
$2,175,000.  The
issuance of these securities were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated
under the Securities Act of 1933, as amended.





ITEM
14.  PRINCIPAL ACCOUNTING FEES AND SERVICES





(1)
Audit Fees





Audit
Fees





For the
Company’s fiscal year ended December 31, 2009, we were billed approximately
$76,137 for professional services rendered for the audit and review of our
financial statements. That total amount consisted of $38,753 for the auditing
and review of the financial statements for the fiscal year 2009, and $37,384 for
the audits of the financial statements for the fiscal year 2008.


Legal
Fees





For the
Company’s fiscal year ended December 31, 2009, we were billed approximately
$43,420 for professional services rendered for legal compliance related to
federal securities laws.





All Other
Fees





The
Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal year ended December 31, 2009.





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


PART
IV





ITEM
15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





Exhibits





Cooperative
Endeavor Agreement


31.1
Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002





31.2
Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002





32.1
Certifications pursuant to Section 906 of Sarbanes Oxley Act of
2002





32.2 Certifications pursuant to Section 906 of Sarbanes Oxley Act of
2002











46








SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Date:  May
      17, 2010
            Confederate
      Motors, Inc.By:
            /s/
      H. Matthew ChambersH.
      Matthew Chambers
              Chief
      Executive Officer








Principal
      Executive Officers of
              Confederate
      Motors, Inc.By:
            /s/
      H. Matthew
      ChambersH.
      Matthew Chambers
              Chief
      Executive OfficerBy:
            /s/
      Joseph MitchellJoseph
      Mitchell
              Chief
      Financial Officer and
              Principal
      Accounting Officer








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