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EX-32.1 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - Confederate Motors, Inc.f10q0610ex32i_confederate.htm
EX-31.1 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - Confederate Motors, Inc.f10q0610ex31i_confederate.htm
EX-31.2 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - Confederate Motors, Inc.f10q0610ex31ii_confederate.htm
EX-32.2 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - Confederate Motors, Inc.f10q0610ex32ii_confederate.htm


 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
 
FORM 10-Q
_______________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2010
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ______to______.
 
CONFEDERATE MOTORS, INC.
 (Exact name of registrant as specified in Charter)

 
DELAWARE
 
333-1308
 
26-4182621
(State or other jurisdiction of
incorporation or organization)
 
(Commission File No.)
 
(IRS Employee Identification No.)


2222 5th Avenue South
Birmingham, Alabama 35233
(Address of Principal Executive Offices)


(205) 324-9888
(Issuer Telephone number)

_______________
(Former Name or Former Address if Changed Since Last Report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.
Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large Accelerated Filer o    Accelerated Filer o     Non-Accelerated Filer o     Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of July 30, 2010: 12,954,998 shares of Common Stock.  
 
 
1

 
 
CONFEDERATE MOTORS, INC.

FORM 10-Q
June 30, 2010
INDEX
 
 
PART I-- FINANCIAL INFORMATION

Item 1.
Financial Statements
    3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  17
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  22
Item 4T.
Control and Procedures
  22
 
PART II-- OTHER INFORMATION
 
Item 1.
Legal Proceedings
  23
Item 1A.
Risk Factors
  23
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  29
Item 3.
Defaults Upon Senior Securities
  29
Item 4.
(Removed and Reserved)
  29
Item 5.
Other Information
  29
Item 6.
Exhibits
  29
 
SIGNATURE
 
 
2

 
 
Item 1. Financial Information
 
CONFEDERATE MOTORS, INC.
Consolidated Balance Sheets
 
 
   
(Unaudited)
       
   
June 30,
   
December 31,
 
   
2010
   
2009
 
Assets
           
             
Current assets
           
Cash and cash equivalents
 
$
310,283
   
$
365,035
 
Inventory
   
452,974
     
652,834
 
Prepaid inventory
   
10,800
     
78,647
 
Due from related party
   
7,500
     
-
 
Total current assets
   
781,557
     
1,096,516
 
                 
Property and equipment, net
   
40,490
     
58,143
 
                 
Total assets
 
$
822,047
   
$
1,154,659
 
                 
Liabilities and Stockholders' Deficit
               
                 
Current liabilities
               
Accounts payable
 
$
112,848
   
$
102,931
 
Accrued interest payable
   
7,501
     
7,501
 
Accrued payroll tax liability
   
217,779
     
185,251
 
Deferred revenue
   
574,032
     
633,813
 
Warranty reserve
   
8,600
     
8,600
 
Other accrued expenses
   
25,024
     
39,850
 
Registration rights liability
   
251,250
     
251,250
 
Current portion of notes payable
   
45,003
     
52,983
 
Current portion of capital leases
   
25,962
     
25,289
 
       Current portion of deferred exclusive agency fee
   
60,000
     
60,000
 
Total current liabilities
   
1,327,999
     
1,367,468
 
                 
Notes payable, less current portion
   
58,560
     
76,378
 
                 
Capital leases, less current portion
   
9,218
     
22,184
 
                 
Deferred exclusive agency fee
   
90,000
     
120,000
 
                 
Stockholders' deficit
               
Common Stock, $0.001 par value 200,000,000 authorized; 12,954,998 outstanding in 2010 and 2009
   
12,954
     
12,954
 
Additional paid-in capital
   
8,723,096
     
8,723,096
 
Accumulated deficit
   
(9,399,780
)
   
(9,167,421
)
Total stockholders’ deficit
   
(663,730
)
   
(431,371
)
Total liabilities and stockholders’ deficit
 
$
822,047
   
$
1,154,659
 
 
 
 
3

 
 
CONFEDERATE MOTORS, INC.
Consolidated Statements of Operations
 (unaudited)
 

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
(restated)
June 30,
   
June 30,
   
(restated)
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Sales
 
$
471,240
   
$
167,232
   
$
1,167,552
   
$
343,385
 
                                 
Cost of goods sold
   
(298,831
)
   
(129,080
)
   
(770,850
)
   
(258,628
)
                                 
Gross profit
   
172,409
     
38,152
     
396,702
     
84,757
 
                                 
Selling, general and administrative expenses
   
296,328
     
1,533,043
     
653,016
     
4,616,144
 
                                 
Loss from operations
   
(123,919
)
   
(1,494,891
   
(256,314
)
   
(4,531,387
)
                                 
Other income (expense)
                               
Change in fair value of derivative liability
   
-
     
-
     
-
     
76,801
 
Other income
   
15,000
     
15,000
     
30,000
     
30,000
 
Interest, Net
   
(2,913
)
   
(2,989
)
   
(6,045
)
   
(24,309
)
     
12,087
     
12,011
     
23,955
     
82,492
 
                                 
Net loss before income taxes
 
$
(111,832
)
 
$
(1,482,880
 
$
(232,359
)
 
$
(4,448,895
                                 
Income Taxes      -        -        -        -  
Net loss   $  (111,832 )   $  (1,482,880 )   $  (232,359 )   $  (4,448,895 )
                                 
Net loss per common share – basic and diluted
 
$
(0.01
)
 
$
(0.13
)
 
$
(0.02
)
 
$
(0.44
)
                                 
Weighted average shares outstanding – basic and diluted
   
12,954,998
     
11,852,564
     
12,954,998
     
10,076,549
 
                                 

 
4

 
 
CONFEDERATE MOTORS, INC.
Consolidated Statements of Cash Flows
 (unaudited)
 
   
Six Months Ended
 
         
(Restated)
 
   
June 30,
   
June 30,
 
   
2010
   
2009
 
Operating activities
           
Net Loss
 
$
(232,359
)
 
$
(4,448,895
)
Adjustments to reconcile net loss to net
               
cash used by operating activities
               
Depreciation
   
17,653
     
20,387
 
Accretion of debt discount
   
-
     
            16,347
 
Change in fair value of derivative liability
   
-
     
            (76,801
)
Stock based compensation
   
-
     
 3,995,550
 
Change in operating assets and liabilities
               
Inventory
   
199,860
     
(125,233
)
Prepaid inventory
   
67,847
     
-
 
Accounts payable
   
9,917
     
(120,109
)
Accrued interest
   
-
     
7,502
 
Accrued payroll tax liability
   
32,528
     
29,225
 
Other accrued expenses
   
(14,826
   
(12,755
)
Deferred revenue
   
(59,781
   
55,807
 
Deferred exclusive agency fee
   
(30,000
)
   
  (30,000
Net cash used by operating activities
   
(9,161
)
   
(688,975
)
                 
Investing activities
               
        Due from related party
   
(7,500
)
   
21,100
 
Net cash used by investing activities
   
(7,500
)
   
21,100
 
                 
Financing activities
               
Repayment of notes payable
   
(25,798
)
   
(53,545
)
Repayment of capital leases
   
(12,293
)
   
(11,009
)
Proceeds from issuance of stock, net of stock issuance costs
   
-
     
1,145,000
 
Net cash provided (used) by financing activities
   
(38,091
   
1,080,446
 
                 
Net increase (decrease) in cash and cash equivalents
   
(54,752
   
412,571
 
                 
Cash and cash equivalents at the beginning of year
   
365,035
     
34,963
 
                 
Cash and cash equivalents at end of period
 
$
310,283
   
$
447,534
 
                 
Supplemental disclosures of cash flow information:
               
Non-cash investing and financing activities
               
 Conversion 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 period for:
               
Interest
 
$
6,045
   
$
7,962
 
Income taxes
 
$
-
   
$
-
 
                 
 
 
5

 
 
Confederate Motors, Inc.
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


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 one model: the 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.

Basis of Presentation
 
The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
 
The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended December 31, 2009 and 2008.  The interim results for the period ended June 30, 2010 are not necessarily indicative of results for the full fiscal year.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Management believes that the estimates utilized in preparing the Company’s financial 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 7 regarding going concern matters and other contingencies and uncertainties.

 
6

 

Cash and Cash Equivalents

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

Inventory

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

   
6/30/2010
   
12/31/2009
 
Parts
 
$
208,319
   
$
205,803
 
Work in process
   
20,250
     
-
 
Motorcycle finished goods
   
191,541
     
447,031
 
Apparel inventory
   
32,864
     
-
 
Total Inventory
 
$
452,974
   
$
652,834
 
 
Property and Equipment

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

Revenues from the sale of motorcycles and equipment are recognized when products are delivered or shipped. Advance payments from customers are typically required to secure the order and are shown as deferred revenue in the accompanying balance sheets. The Company recognizes revenue from repair services in the same month the service is provided.
 
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 June 30, 2010 and June 30, 2009:

Common stock warrants
   
105,000
 
Total common stock equivalents
   
105,000
 
 
 
7

 

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

Advertising is expensed as incurred.  Advertising costs were $4,742 and $28,318 for the quarters ended June 30, 2010 and 2009, respectively.  Year to date advertising expense totaled $53,108 and $29,475 for 2010 and 2009, 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 were $41,601 and $37,951 for the quarters ended June 30 2010 and 2009, respectively.  Year to date R&D costs totaled $65,145 and $55,526 for 2010 and 2009, respectively.
 
Shipping and Handling Costs

The Company records shipping and handling costs billed to the customer and shipping and handling expenses in cost of sales.

Fair Value Measurements

We have categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP.

The levels of fair value hierarchy are as follows:

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access;

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we categorize such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.
  
There are no fair value measurements as of June 30, 2010 and December 31, 2009.
 
 
8

 
 
Reclassification
 
Certain amounts in the second quarter 2009 and six months ended June 30, 2009 financial statements have been reclassified to conform to the 2010 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.
 
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.

 
NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

   
June 30,
   
December 31,
 
   
2010
   
2009
 
Vehicles
 
$
36,628
   
$
36,628
 
Furniture and fixtures
   
11,734
     
11,734
 
Equipment
   
119,068
     
119,068
 
Leasehold improvements
   
39,886
     
39,886
 
     
207,316
     
207,316
 
Less accumulated depreciation
   
(166,826
   
(149,173
   
$
40,490
   
$
58,143
 
 
 
9

 

NOTE 3 – NOTES PAYABLE

Notes payable consisted of the following as of:
 
   
June 30,
   
December 31,
 
   
2010
   
2009
 
Government agency note payable due August 12, 2013,
           
prime plus 2.75 % rate of interest (6.00% and 6.00% at
           
June 30, 2010 and December 31, 2009, respectively), principal
           
and interest payable monthly, unsecured
 
$
68,360
   
$
77,121
 
                 
Bank note payable due July 18, 2012, 7.95% fixed rate of
               
interest, principal and interest payable monthly, secured
               
by Company vehicle
   
17,039
     
20,727
 
                 
Note payable due February 15, 2011, 3.50% fixed
               
rate of interest, principal and interest payable monthly,
               
unsecured
   
18,164
     
31,513
 
     
103,563
     
129,361
 
Less current portion
   
45,003
     
52,983
 
   
$
58,560
   
$
76,378
 
 
 
NOTE 4 – CAPITAL LEASES

The capitalized cost and accumulated depreciation of the computers and equipment under capital lease totaled $108,804 and $83,577, respectively at June 30, 2010.

At June 30, 2010, future minimum payments due under the capital lease agreements are as follows:

July 1 through December 31, 2010
 
$
14,596
 
2011
   
19,449
 
2012
   
3,971
 
Future minimum lease payments
   
38,016
 
Less amount representing interest
   
2,836
 
Present value of minimum lease payments
   
35,180
 
Less current portion
   
25,962
 
Long-term capital leases
 
$
9,218
 
 
NOTE 5 – STOCKHOLDERS’ EQUITY

Reverse Recapitalization
On February 12, 2009, Confederate Motor Company, Inc. (“Confederate”) entered into an Agreement and Plan of Merger and Reorganization with Confederate Motors, Inc., formerly, French Peak Resources, Inc. (“French Peak”). French Peak offered to issue 8,895,000 million of its common shares in exchange for the common shares outstanding of Confederate and a cash payment of $350,000 for the purchase of French Peak.
 
100% of Confederate common shareholders elected to exchange their Confederate shares for shares of French Peak.  French Peak issued 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.
 
 
10

 

In addition, French Peak was characterized as a non-operating public shell company, pursuant to SEC reporting rules. The SEC staff considers a reverse acquisition with a public shell to be a capital transaction, in substance, rather than a business combination. The transaction is effectively a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition, except that the transaction was consummated at book value and no goodwill or intangible assets were recognized.
 
For SEC reporting purposes, Confederate is treated as the continuing reporting entity that acquired French Peak (the historic shell registrant). The reports filed after the transaction have been prepared as if Confederate (accounting acquirer) was the legal successor to French Peak’s reporting obligation as of the date of the acquisition. Therefore, all financial statements filed subsequent to the transaction reflect the historical financial condition, results of operations and cash flows of Confederate, for all periods presented.
 
In connection with the reverse acquisition and recapitalization, all share and per share amounts of Confederate are retroactively adjusted to reflect the legal capital structure of French Peak pursuant to FASB ASC 805-40-45-1.
 
Sale of Common Stock
During the twelve months ended December 31, 2009, we raised an aggregate of $2,175,000 through the sale of 1,449,998 shares of Common Stock to certain accredited investors, including 850,000 shares of Common Stock issued on February 12, 2009, 233,332 Common shares issued on June 9, 2009, 33,333 Common shares on August 15, 2009 and an additional 333,333 Common shares on October 13, 2009. The Company paid $350,000 for the shell registrant, French Peak and $130,000 in stock issuance costs to execute the transaction resulting in net proceeds of $1,695,000.

Stock Based Compensation
1,779,000 shares of common stock were awarded by the Board of Directors to key officers and a shareholder for their involvement in taking the private company public via the reverse recapitalization.  The stock based compensation of $2,668,500 was expensed in the first quarter 2009. 800,000 shares of common stock were awarded by the Board of Directors to key shareholders of the Company for past services.  The stock based compensation of $1,200,000 was expensed during the second quarter 2009, utilizing $1.50 as the fair market value of the Company’s common stock. An additional 505,000 shares of common stock were awarded by the Board of Directors to a Director of the Company for consulting services in the third quarter 2009.  The stock based compensation of $757,500 was expensed during the third quarter 2009, utilizing $1.50 as the fair market value of the Company’s common stock.
 
Warrants
During the twelve months ended December 31, 2009, the Company issued 105,000 stock purchase warrants to purchase the Company’s common stock at an exercise price of $1.50. The Company valued these warrants utilizing a Black-Scholes option pricing model utilizing the following assumptions: fair market value per share -$1.50, exercise -$1.50, expected volatility -115%, risk free interest rate -1.73%. The fair value of $127,050 was recorded to additional paid in capital.
 
The following is a summary of the Company’s warrant activity:
 
 
11

 
 
   
Warrants
   
Weighted Average Exercise Price
 
             
Exercisable – December 31, 2008
   
-
   
$
-
 
Granted
   
105,000
   
$
1.50
 
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – March 31, 2009
   
105,000
   
$
1.50
 
Granted
   
-
         
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – June 30, 2009
   
105,000
   
$
1.50
 
Exercisable – June 30, 2009
   
105,000
   
$
1.50
 
Granted
   
-
         
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – September 30, 2009
   
105,000
   
$
1.50
 
Exercisable – September 30, 2009
   
105,000
   
$
1.50
 
Granted
   
-
         
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – December 31, 2009
   
105,000
   
$
1.50
 
Exercisable – December 31, 2009
   
105,000
   
$
1.50
 
Granted
   
-
         
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – March 31, 2010
   
105,000
   
$
1.50
 
Exercisable – March 31, 2010
   
105,000
   
$
1.50
 
Granted
   
-
         
Exercised
   
-
     
-
 
Forfeited
   
-
     
-
 
Outstanding – June 30, 2010
   
105,000
   
$
1.50
 
Exercisable – June 30, 2010
   
105,000
   
$
1.50
 
 
Warrants Outstanding
   
Warrants Exercisable
 
Range of
Exercise Price
   
Number
Outstanding
 
Weighted Average
Remaining Contractual
Life (in Years)
 
Weighted Average
Exercise Price
   
Number
Exercisable
   
Weighted Average
Exercise Price
 
$
1.50
     
105,000
 
3.50 years
  $
1.50
     
105,000
    $
1.50
 

At June 30, 2010 and December 31, 2009, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.
 
Registration Rights Penalty

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

 
12

 
 
Liquidated damages are as follows:

Equity subject to registration rights penalty
 
$
2,175,000
 
Maximum penalty
   
10
%
Convertible debt subject to registration rights penalty
 
$
225,000
 
Maximum penalty
   
15
%
Registration Rights Penalty
 
$
251,250
 
 
 
NOTE 6 – RELATED PARTY TRANSACTIONS

During 2008, the Company paid advances to Matthew Chambers in the amount of $21,100.  Mr. Chambers serves as the Chief Executive Officer of the Company.
 
During 2009, the above advance was charged to Mr. Chambers’ compensation to relieve the receivable, the amount was advanced prior to the Company becoming a public entity subject to the provisions set forth in Sarbanes-Oxley.
 
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 5.
 
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 7 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 $3,500 and $3,000 for the quarters ended June 30, 2010 and 2009, respectively.  Additionally, Pamela Miller is the guarantor for the majority of the loans and leases, vendor open accounts and the corporate credit card.
 
The Company has employment agreements with key officers (CEO and CFO) and employees (Designer).
 
NOTE 7 – COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES:

Contingencies and Uncertainties
 
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. With the exception of the lawsuit to determine whether Francois-Xavier Terny is a current member of the Board of Directors (as discussed in more detail below), the Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.
 
 
13

 
 
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. Francois-Xavier Terny has breached the terms of his consulting agreement. These issues are currently in dispute.
 
As described in note 6 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, 2009 and the first quarter of 2010.  The Company has accrued for the payroll tax liabilities including penalties and interest. The Company has submitted payroll data to a third party payroll processing firm 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 1. Legal Proceedings”).
 
Operating Lease

The Company currently occupies a leased building in Birmingham, AL. The Company 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 was half the normal base rental.

Rent expense paid under the operating lease obligation totaled $13,783 and $11,380 for the quarters ended June 30, 2010 and 2009, respectively.

CM Design has entered into a sublease agreement to rent a facility in New Orleans and in the first quarter of 2010, Confederate advanced a security deposit of $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 7 below regarding the uncertainty related to these events.

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 $9,399,780 as of June 30, 2010, and a net loss of $111,832, for the quarter ended June 30, 2010.  These conditions raise substantial doubt about its ability to continue as a going concern.
 
 
14

 
 
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.
 
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 8 – RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, “Fair Value Measurements” ("ASC 820") to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance was effective for financial periods beginning after December 15, 2009, except the requirement to disclose Level 3 transactions on a gross basis, which becomes effective for financial periods beginning after December 15, 2010. ASU 2010-06 did not have a significant effect on the Company’s consolidated financial position or results of operations.
 
NOTE 9 – EARNINGS (LOSS) PER SHARE
 
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed giving effect to all potential dilutive common stock, including convertible debentures and common stock warrants. For all periods presented, convertible debentures and common stock warrants were not included in the computation of diluted loss per share because the effect would be anti-dilutive. These items could be dilutive in the future.

NOTE 10 – DEFERRED EXCLUSIVE AGENCY FEE

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

NOTE 11 – CONCENTRATION OF CREDIT RISK

At June 30, 2010 the Company had monies in bank accounts in excess of federally insured limits.  The United States Congress has temporarily increased the Federal Deposit Insurance Corporation (FDIC) deposit insurance from $100,000 to $250,000 per depositor through June 30, 2010.  As of June 30, 2010, the Organization’s uninsured cash and cash equivalents balances totaled $71,052.

NOTE 12 – RESTATEMENT

During March 2010, the Company discovered errors associated with the financial statements issued for the period ending June 30, 2009.
 
 
15

 
 
The Company identified additional payroll tax liabilities related to individuals, including our CEO and CFO paid incorrectly as independent contractors.  Secondly, the Company identified stock based compensation expense for stock awards and broker warrants that should have been recorded in the first quarter 2009. The effect of this adjustment resulted in the restated balance of additional paid-in capital.  Lastly, the Company failed to accrue for interest payable on a convertible note from the period of issuance in June 2008 to the conversion date of February 2009.

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

   
As Restated
June 30, 2009
   
Adjustment
June 30, 2009
   
As Previously Reported
June 30, 2009
 
Accrued interest payable
   
7,501
     
7,501
     
-
 
Accrued payroll tax liability
   
128,767
     
121,375
     
7,392
 
Other accrued expenses
   
19,101
     
16,993
     
2,108
 
Additional paid-in capital
   
7,416,467
     
2,563,500
     
4,852,967
 
Accumulated deficit
   
(7,338,455
)
   
(2,709,370
)
   
(3,042,663
)
Total stockholders’ deficit
   
90,095
     
(145,870
)
   
235,965
 
Selling, general & administrative expense
 
$
 333,043
   
$
         23,509
   
$
        309,534
 
Net Loss
 
$
 (1,482,880
)
 
$
(23,509
)
 
$
      (1,459,371
)
Net loss per share- Basic and Diluted
 
$
 (0.13
)
 
$
             (0.00
)
 
$
            (0.13
)
 
 
NOTE 13 – ACCRUED PAYROLL TAX LIABILITIES
 
In March 2010, the Company identified additional payroll tax liabilities related to individuals, including our CEO and CFO paid incorrectly as independent contractors during 2007, 2008, 2009 and the first quarter of 2010.  The Company has accrued an estimate for the payroll tax liability including penalties and interest. The Company has submitted payroll data to a third party payroll processing firm to amend its W3, W2 and 941 filings and plans to 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 14 – SUBSEQUENT EVENTS
 
The Company has evaluated subsequent events through the filing date of this document and determined that there are no other items to disclose.
 
 
16

 
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

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

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this Report.
 
Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Report.

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

▪        actual or anticipated fluctuations in our quarterly and annual operating results;
▪        actual or anticipated product constraints;
▪        decreased demand for our products resulting from changes in consumer preferences;
▪        product and services announcements by us or our competitors;
▪        loss of any of our key executives;
▪        regulatory announcements, proceedings or changes;
▪        announcements in the motorcycle community;
▪        competitive product developments;
▪        intellectual property and legal developments;
▪        mergers or strategic alliances in the motorcycle industry;
▪        any business combination we may propose or complete;
▪        any financing transactions we may propose or complete; or
▪        broader industry and market trends unrelated to its performance.


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

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Confederate Motors, Inc. (“Confederate” or “CM”) produces premium, heavyweight (651+cc) motorcycles. CM manufactures three models of motorcycles: Hellcat, Wraith and Fighter.  The second generation (“G2”) Hellcat and first generation (“G1”) Wraith were discontinued in the first quarter 2010.  A third generation Hellcat (“CX3”) is in the development stage.
 
 
17

 
 
Overview and Outlook

Net revenue for the three months ended June 30, 2010 was $471,240 compared to $167,232 for the three months ended June 30, 2009. The Company’s quarter end financial performance reflected an increase in shipments of Confederate motorcycles.  Net loss for the quarter ended June 30, 2010 was $111,832 compared to a net loss of $1,482,880 for the quarter ended June 30, 2009.  Non cash stock based compensation of $1,200,000 contributed primarily to the loss for the second quarter 2009.

Net revenue was $1,167,552 and $343,385 for the first six months of 2010 and 2009, respectively.  Net loss for the first six months of 2010 and 2009 was $232,358 and $4,448,895, respectively.
 
Cash flow from operating activities was negative $9,161 in the first six months of 2010 compared to a negative cash flow of $688,975 in the first six months of 2009.  Net cash flow from investing activities was $(7,500) and $21,100 for the first six months of 2010 and 2009, respectively.  Net cash flow from financing activities was $(54,752) and $412,571 for the first six months of 2010 and 2009, 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 second quarter of 2010 was spent on production of the third model – The P120 Fighter Combat.  A significant amount of time was also spent in the 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. The Company is in discussion with interested parties in Australia, India and Europe. The Company maintains a sales backlog for which the revenue will be recognized in later periods.
  
Cost of Goods Sold

Cost of goods sold was $298,831 for the quarter ended June 30, 2010 compared to $129,080 for the corresponding period last year.  Cost of goods sold was higher due to an increase in shipment volume.  Cost of goods sold was $770,850 and $258,628 for the first six months of 2010 and 2009, respectively.
 
Gross Profit

Gross profit was $172,409 for the quarter ended June 30, 2010, compared to $38,152 for the same quarter of 2009. Gross profit was higher due to an increase in motorcycle shipments.  Year to date gross profit was $396,702 and $84,757 for 2010 and 2009, respectively.

Selling, general and administrative expenses
 
Selling, general and administrative costs (SG and A) was $296,328 for the quarter ended June 30, 2010, compared to $1,533,043 for the same quarter of 2009. The second quarter 2009 SG and A expenses include non-cash stock compensation expense of $1,200,000 for stock awards.  Year to date SG and A expense was $653,016 and $4,616,144 for the first six months of 2010 and 2009, respectively.  The first six months of 2009 SG and A expenses include non-cash stock compensation expense of $3,995,550 for stock awards.  Additional legal, audit and insurance costs associated with being a public company were slightly higher in the first six months of 2010 SG and A expenses compared to 2009.

 
18

 

Results of Operations for the quarter ended and six months ended June 30, 2010 compared to quarter ended and six months ended June 30, 2009

   
Quarter ended
   
 
Six months ended
(in whole dollars)
 
June 30, 2010
   
(Restated)
June 30, 2009
   
 
June 30, 2010
   
(Restated)
June 30, 2009
Revenue from motorcycles & related products
 
$
471,240
   
$
167,232
   
$
1,167,552
   
$
343,385
Gross Profit
 
$
172,409
   
$
38,152
   
$
396,702
   
$
84,757
Operating Expense
 
$
296,328
   
$
1,533,043
   
$
653,016
   
$
4,616,144
Other Income (Expense)
 
$
12,087
   
$
12,011
   
$
23,955
   
$
82,492
Net Income (Loss)
 
$
(111,832
)
 
$
(1,482,880
)
 
$
(232,359
 
$
(4,448,895)
Earnings (Loss) per Share
   
(0.01
)
   
(0.13
 
$
(0.02
 
$
(0.44)
                               

 
Plan of Operation

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.

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

Strengthen Our Global 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.
 
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. 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.
 
 
19

 

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 2010.   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
 
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 will have completed research for our American motorcycle design renaissance, concluding with CX3 architecture.
 
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;
 
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.
 
 
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Liquidity and Capital Resources
 
At June 30, 2010, we had cash of $310,283. 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 PIPE financing, the proceeds from which we used to finance the reverse merger and to cover significant negative cash flow from operations in 2009 of $1.3 million and to fund the development of a new motorcycle model – the P120 Fighter.
 
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.
 
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 $9,399,780 as of June 30, 2010, and a net loss of $111,832, for the quarter ended June 30, 2010.  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.
 
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.
 
Recent Accounting Pronouncements
 
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, “Fair Value Measurements” ("ASC 820") to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance was effective for financial periods beginning after December 15, 2009, except the requirement to disclose Level 3 transactions on a gross basis, which becomes effective for financial periods beginning after December 15, 2010. ASU 2010-06 did not have a significant effect on the Company’s consolidated financial position or results of operations.
 
 
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Critical Accounting Policies
 
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates. We continue to monitor significant estimates made during the preparation of our financial statements.
 
Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would affect consolidated results of operations, financial position or liquidity for the periods presented in this report.
 
Significant amounts of 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.
 
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 7 to our financial statements regarding the uncertainty related to these events.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Not required for smaller reporting companies.
 
Item 4T. Controls and Procedures
 
(a) Disclosure controls and procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, as of June 30, 2010.   Based on this evaluation, as a result of the material weaknesses in internal controls over financial reporting as previously
 
 
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disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 17, 2010, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are not effective to ensure that all information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
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. Francois-Xavier Terny has breached the terms of his consulting agreement. These issues are currently in dispute.
 
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:
 
 
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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 one or two directors (depending on the outcome of the lawsuit mentioned in Item 1. Legal Proceedings), 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 1: Legal Proceedings.

We identified material weaknesses 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 our Annual Report on Form 10K.

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.

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.
 
 
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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.
 
 
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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.

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.
 
 
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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-Q;
 
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
 
 
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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.
 
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-Q.
 
 
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None
  
Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4. (Removed and Reserved).
 
None.
 
Item 5. Other Information.
 
None
 
Item 6. Exhibits.
 
(a)         Exhibits
 
             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
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
CONFEDERATE MOTORS, INC.
   
Date: July 30, 2010 
By:  
/s/ H. Matthew Chambers
   
H. Matthew Chambers
Chief Executive Officer
 
 
 
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