Tank Sports 10QSB 2008 Q2 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended August 31, 2007.

oTransition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to____________ .

Commission file number: 333-129910

TANK SPORTS, INC.

(Exact name of small business issuer as specified in its charter)

California	95-4849012
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

	10925 Schmidt Road El Monte, California 91733
	(Address, including zip code, of principal executive offices)

	Issuer’s telephone number : (626) 350-4039

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE

Check whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in exchange A Rule 12b-2)

Yes ¨ No x

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

Yes ¨ No x

The number of outstanding shares of the Registrant's common stock, $0.001 par value, as of August 31, 2007 was 36,236,214.

TANK SPORTS, INC.

TABLE OF CONTENTS

PART I:	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements:	4

	CONDENSED CONSOLIDATED BALANCE SHEET AS OF August 31, 2007 (Unaudited)	4

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE-MONTH AND SIX MONTH PERIODS ENDED AUGUST 31, 2007 AND 2006 (Unaudited)	5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR SIX MONTH PERIODS ENDED AUGUST 31, 2007 AND 2006 (Unaudited)	6

	NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	7

Item 2.	Managements Discussion and Analysis of Financial Condition and Plan of Operations	17

Item 3.	Controls and Procedures	23

PART II:	OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 2.	Changes in Securities	24

Item 3.	Defaults upon Senior Securities	24

Item 4.	Submission of Matters for a Vote of Security Holders	24

Item 5.	Other Information	24

Item 6.	Exhibits and Reports on Form 8-K	24

SIGNATURES		25

This Form 10-QSB contains forward-looking statements within the meaning of the "safe harbor" provisions under Section 21E of the Securities Exchange Act of 1934. We use forward-looking statements in our description of our plans and objectives for future operations and assumptions underlying these plans and objectives. Forward-looking terminology includes the words "November," "expects," "believes," "anticipates," "intends," "projects," or similar terms, variations of such terms or the negative of such terms. These forward-looking statements are based on management's current expectations and are subject to factors and uncertainties, which could cause actual results to differ materially from those, described in such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Form 10-QSB to reflect any change in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based. Factors, which could cause such results to differ materially from those described in the forward-looking statements, and elsewhere,, are incorporated by reference into this Form 10-QSB.

PART I : FINANCIAL INFORMATION

Item 1. Financial Statements

TANK SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 2007
UNAUDITED

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,750,505
Accounts receivable, net		393,939
Prepaid expenses		75,494
Related parties receivable		2,985,496
Inventory		4,084,083
Total Current Assets		10,289,517

PROPERTY, PLANT AND EQUIPMENT, NET		447,750
DEPOSITS		168,990
GOODWILL		1,615,584

TOTAL ASSETS	$	12,521,841

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	3,704,220
Loans payable		3,849,907
Notes payable		2,101,240
Customer deposits		97,144
Deferred rental		28,316
Due to affiliate		80,000
Total Current Liabilities		9,860,827

LONG-TERM LIABILITIES:
Loans payable		240,501
Due to affiliate		1,198,046
Total long-term liabilities		1,438,547
Total Liabilities		11,299,374

STOCKHOLDERS' EQUITY
Common stock (authorized 200,000,000 shares,
$0.001 par value, 36,236,214 shares issued and outstanding)		36,236
Additional paid in capital		2,728,378
Accumulated deficit		(1,542,146	)
Total Stockholders' Equity		1,222,468

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	12,521,841

The accompanying notes are an integral part of these consolidated unaudited financial statements

TANK SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX MONTH PERIODS ENDED AUGUST 31, 2007 AND 2006
UNAUDITED

	For the Three Month Periods					For the Six Month Periods
	Ended August 31,					Ended August 31,
	2007			2006		2007			2006
NET REVENUE	$	3,158,526		$	3,130,003	$	7,041,677		$	6,054,910
COST OF GOODS SOLD		2,193,272			2,276,997		5,218,332			4,372,507
GROSS PROFIT		965,253			853,006		1,823,344			1,682,403

OPERATING EXPENSES:
Selling expenses		308,451			210,285		651,380			491,843
General and administrative expenses		732,656			440,058		1,730,582			937,803
Total operating expenses		1,041,107			650,343		2,381,961			1,429,646


INCOME (LOSS) FROM OPERATIONS		(75,853	)		202,663		(558,617	)		252,757

NON-OPERATING INCOME (EXPENSES)
Other income		8,767			12,595		211,415			22,649
Interest incomes		10,736			-		20,223			-
Interest expenses		(86,734	)		-		(170,376	)		-
Total non-operating income (expenses)		(67,231	)		12,595		61,262			22,649

NET INCOME (LOSS) BEFORE INCOME TAX		(143,085	)		215,258		(497,355	)		275,406

PROVISION FOR INCOME TAX		-			-		800			-

NET INCOME (LOSS)		(143,085	)		215,258		(498,155	)		275,406

WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING, BASIC AND DILUTED		34,367,477			8,125,700		34,367,477			8,125,700

BASIC AND DILUTED NET INCOME (LOSS)
PER SHARE		(0.00	)		0.03	$	(0.01	)		0.03

The accompanying notes are an integral part of these consolidated unaudited financial statements

TANK SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR SIX MONTH PERIODS ENDED AUGUST 31, 2007
UNAUDITED

CASH FLOWS FROM OPERATING ACTIVITIES	2007			2006
Net income (loss)	$	(498,155	)	$	275,406
Adjustments to reconcile net income (loss) to net cash
provided by / (used in) operating activities:
Depreciation and amortization		65,234			9,110
(Increase) / decrease in current assets:
Certificate of deposit		-			(1,500,000	)
Accounts receivable		(35,272	)		(44,555	)
Prepaid expenses		160,724			24,436
Inventory		(1,922,228	)		(454,615	)
Other assets		(117,520	)		11,600
Increase / (decrease) in current liabilities:
Accounts payable and accrued expenses		3,003,714			125,689
Others payable		26,926			-
Net cash provided by (used in) operating activities		683,423			(1,552,929	)

CASH FLOWS FROM INVESTING ACTIVITIES
Payment on purchase of property and equipment		(3,106	)		(13,894	)
Net cash used in investing activities		(3,106	)		(13,894	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stocks for cash		1,082,914			-
Proceeds from (repayment of) notes payable		(1,206,583	)		1,500,000
Increase (repayment) of loan from affiliate		(324,068	)		460,177
Payments to loans for auto and equipment		(39,211	)		(4,923	)
Proceeds of loan from bank		2,219,176			-
Decrease of loans receivable		251,240			531
Increase of loan to related party		(2,790,195	)		-
Net cash provided by financing activities		(806,727	)		1,955,785

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(126,410	)		388,962

CASH AND CASH EQUIVALENTS, BEGINNING BALANCE		2,876,915			163,528

CASH AND CASH EQUIVALENTS, ENDING BALANCE	$	2,750,505		$	552,490

SUPPLEMENTAL DISCLOSURES:					-
Interest paid	$	168,632		$	-
Income tax paid	$	800		$	-


The accompanying notes are an integral part of these consolidated unaudited financial statements

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION AND DESCRIPTION OF BUSINESS

Tank Sports, Inc. (“Tank” or “the Company”) was incorporated on March 5, 2001. The Company is located in the city of El Monte, California, U.S.A. The Company is engaged in the sales and distribution of high quality recreational and transportation motorcycles, all-terrain vehicles (“ATVs”), dirt bikes, scooters, and Go Karts. The Company’s motorcycles and ATVs products are manufactured in China and Mexico.

On January 30, 2007, the Company acquired Lowprice.com, Inc., an Arizona corporation d/b/a Redcat Motors (“Redcat”) as its wholly owned subsidiary (Refer to Note 13). Redcat was created in 2001 in New Orleans, Louisiana and subsequently relocated to Phoenix, Arizona in September 2005 after Hurricane Katrina. Redcat changed its name to Tank Sports, Inc (referred as “Tank (Arizona)”) in the Arizona State with registration on March, 2007. Redcat is engaged in importing ATVs and distributing those with brand name of RedCat nationwide through its Dealer Network.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Information

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 of the U.S. Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the year ended February 28, 2007. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended February 28, 2007 included in the Company Form 10-KSB filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the respective full year.

Use of estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements for the six months ended August 31, 2007 include the financial statements of the Company and its wholly owned subsidiary Tank (Arizona). The consolidated financial statements for the six months ended August 31, 2006 contained the financial statements of the Company as the Company did not own any subsidiary during that year. Additionally, all historical share count and per share information has been adjusted for the Company’s 4-for-1 forward stock split that became effective on November 6, 2006.

All significant inter-company transactions and balances have been eliminated on consolidation.

Accounts receivable and other receivable

Accounts receivable and other receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed.

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Accounts receivable and other receivable - continued

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary from COD through a credit term up to 10 days and 30 days. Reserves are recorded primarily on a specific identification basis. Accounts receivable was $393,939, net of allowance for doubtful debts amounted to $103,187 as of August 31, 2007.

Intangible Assets

The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. There is no impairment on the intangible assets as of August 31, 2007.

Fair value of financial instruments

Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Revenue recognition

The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is recognized when the delivery is completed, the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied to be recorded as unearned revenue.

The Company determines title transfer based upon delivery date. For the customers with FOB shipping term, the Company recognizes sales and determines title transferred when delivery of items takes place. For the customers on CNF (cost and freight), the Company recognizes sales and determines title has passed when goods arrive in the port of destination.

Stock-based compensation

Effective March 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123-R, “Share-Based Payment” (��SFAS 123-R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options based on their fair values. SFAS 123-R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), which the Company previously followed in accounting for stock-based awards. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) to provide guidance on SFAS 123-R. The Company has applied SAB 107 in its adoption of SFAS 123-R.

The Company does not have any stock options plan in effect and hence there are no stock options outstanding as of August 31, 2007 and 2006.

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Income taxes

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Basic and diluted net loss per share

Net loss per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted earnings or loss per share were negative $0.01 and positive $0.03 for the six months periods ended August 31, 2007 and 2006 respectively.

Recent pronouncements

In February 2007, FASB issued FASB Statement No. 159, the Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FAS 159 for their first quarter 2007 financial statements.

The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities. The management is currently evaluating the effect of this pronouncement on financial statements.

In September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recent pronouncements - continued

a. A brief description of the provisions of this Statement

b. The date that adoption is required

c. The date the employer plans to adopt the recognition provisions of this Statement, if earlier.

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The management is currently evaluating the effect of this pronouncement on financial statements.

In September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The management is currently evaluating the effect of this pronouncement on financial statements.

Reclassifications

Certain comparative amounts have been reclassified to conform to the current year's presentation.

3.	GOING CONCERN

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern. However, the Company has accumulated deficit of $1,542,146 including a net loss of $498,155 during the six-month period ended August 31, 2007. The continuing losses have adversely affected the liquidity of the Company. Losses might continue for the immediate future. The Company faces some business risks, which includes but not limited to, its ability to maintain vendor and supplier relationships by making timely payments when due.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, to increase more sales and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management has taken many steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The acquisition and consolidation measures have strengthen its market position, included, but not limited to, restructuring of management and labor resources, consolidation of regional marketing facility, ERP system integration, inventory control, development of marketing promotion and sales network, and improvement of customer service infrastructure. With all steps taken, the Company believes that it will significantly increase its overall productivity and revenues, reduce unnecessary costs and expenses, and achieve a goal of high profit margin with the controlled budget. Management has devoted considerable effort towards (i) build “Tank” and “Redcat” brand names (ii) set up more dealers to increase sales (iii) liquidate less profitable products, and focus on selling more profitable motorcycles (iv) strive to reduce product costs and operating expenses, and (v) obtain additional equity.

Management believes that the above actions will allow the Company to continue operations through the next fiscal year.

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4.	PREPAID EXPENSES

The total prepaid insurance expenses amounted to $75,494 as of August 31, 2007.

5.	RELATED PARTIES RECEIVABLE

As of August 31, 2007 receivable from related parties amounted to $2,985,496, which included $2,772 as receivable from officer, $2,976,729 as receivable from an affiliated company “LONG Sa De CV”, and $5,995 receivable from former officers of Tank (Arizona) . The receivables are unsecured, due on demand and interest free.

6.	INVENTORIES

Inventories consist of the following as of August 31, 2007:

ATV’s & Scooters	$	3,441,543
Parts		646,577
Accessories		34,309
Less: Reserve for inventory obsolesce and slow-moving		(38,346	)
Total	$	4,084,083

7.	PROPERTY, PLANT & EQUIPMENT

Property, Plant & Equipment consist of the following as of August 31, 2007:

Machinery & Equipment	$	104,579
Furniture & Fixtures		80,929
Electronic Equipment		482,336
Automobile		40,036
Leasehold Improvement		4,500
Trademark		975
Less: Accumulated Depreciation		(265,605	)
Total	$	447,750

Depreciation expenses were $65,234 and $9,110 for the six-month periods ended August 31, 2007 and 2006, respectively.

8.	DEPOSITS

As of August 31, 2007, the Company had recorded deposit of $168,990, including $151,149 long-term inventory purchase deposits in vendors and deposit for rent and utilities of $17,841.

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Following is the detail of accounts payable and accrued expenses as of August 31, 2007:

Accounts Payable	$	3,491,560
Accrued warranty claim expense		11,322
Accrued Expenses		172,060
Other Payables		29,278
Total	$	3,704,220

10.

LOANS PAYABLE

On June 1, 2005, the company signed a five year note payable against auto loan. The loan was unsecured, with an interest of 5.90% with monthly payment of $743. As of August 31, 2007, this note payable was $23,215, of which $7,944 is current payable and $15,271 is non-current payable. Interest expense was $1,219 and $961 for the six-month period ended August 31, 2007 and 2006.

On March 20, 2006, the company obtained a loan payable of $372,259 from a non-related party. The note is secured by various computer equipments and software purchased from Microsoft Capital, with an annual interest rate of 5.00%, and due on June 1, 2011. As of August 31, 2007, the balance of the note payable was $297,364, of which $72,134 is current payable and $225,230 is non-current payable. Interest expense was $8,156 for the six-month period ended August 31, 2007.

On July 14, 2006, the company obtained a line of credit of $6,500,000 from a bank. The outstanding payable ends the earlier of July 31, 2007 or when the Company pays the note in full, including principal, interest, and all the expenses involved. The annual interest rate on the loan is 8.5%. The line of credit is secured by the Company’s business assets, real property, certificates of deposit of $2,500,000 and guaranteed by the major shareholders and by the Company’s affiliate. As of August 31, 2007, the Company was in transit of the line of credit to First General Bank and has not paid the line of credit in full. The outstanding loan payable under this line of credit amounted to $3,769,829 as of August 31, 2007. The interest expense accrued for the six-month period ended August 31, 2007 was $28,282.

11.

NOTES PAYABLE

On July 31, 2007, the Company borrowed $100,000 from a related party with an interest rate of 6%. The unsecured note payable is due on July 31, 2008. The interest expense for the six-month period ended August 31, 2007 was $500.

On August 14, 2006, the Company borrowed $1,500,000 from a non-related party with an interest rate of 5.25%. This unsecured note payable is due on August 15, 2007. The note payable is subordinated to the line of credit of $6,500,000. As of August 31, 2007, the Company was in transit of the line of credit to First General Bank and has not paid this note in full. The outstanding loan payable was 1,500,000 and the interest expense for the six-months period ended August 31, 2007 was $39,798.

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11.

NOTES PAYABLE - continued

On February 15, 2007, the Company signed the “:Second Amended and Restated Promissory Note and Security Agreement” with Hexagon Financial, LLC (“Payee”). The Company is indebted to the Payee of $882,839 which reflected the book value of Payee’s inventory in related to the acquisition of Redcat as of January 28, 2007.The note has a fixed interest rate of 5% per annum. Pursuant to the agreement, the Company shall make $100,000 payments on April 5, 2007 and April 10, 2007, and $300,000 immediately upon the closing of the line of credit with United Commercial Bank but no later than August 1, 2007. And then the Company should make payments of $50,000 for every month starts in June 1, 2007 and ends on January 31, 2008. As of August 31, 2007 the outstanding note payable was $500,740 and the amount in default was $50,000.

The default amount $50,000 shall bear default interest at a rate equal to ten percent (10%) per annum. As of August 31, 2007, no default interest has been accrued.

The scheduled payments for all the loans payable and notes payable are as follows:

Years ended
2007-2008	$	5,951,147
2009		84,040
2010		86,935
2011		69,526
Total		6,191,648
Current portion	$	5,951,147
Non-current portion	$	240,501

12.

LINE OF CREDIT

Within the line of credit of $6,500,000 from a bank that the Company obtained on July 14, 2006, totaling $2,852,420 was used as bank acceptance for international trade purchases. All the purchases have been received and due for payment, the amount was recorded as accounts payable in the accompanying financials.

13.

STOCKHOLDERS’ EQUITY

On December 4, 2006, the Company entered into an Investment Agreement with an investor, Dutchess Private Equities Fund, L.P. (“the Investor”). Pursuant to this Agreement, the Investor shall commit to purchase up to $10,000,000 of the Company’s common stock over the course of thirty-six (36) months. The amount that the Company shall be entitled to request from each purchase shall be equal to, at the Company’s election, either (i) $150,000 or (ii) 200% of the average daily volume (U.S. market only) of the common stock for the three (3) trading days prior to the applicable put notice date, multiplied by the average of the three (3) daily closing prices immediately preceding the put date. The put date shall be the date that the Investor receives a put notice of a draw down by the Company. The purchase price shall be set at ninety-five percent (95%) of the lowest closing Best Bid price of the common stock during the pricing period. The pricing period shall be the five (5) consecutive trading days immediately after the put notice date. There are put restrictions applied on days between the put date and the closing date with respect to that particular Put. During this time, the Company shall not be entitled to deliver another put notice. Further, the Company shall reserve the right to withdraw that portion of the Put that is below seventy-five percent (75%) of the lowest closing bid prices for the 10-trading day period immediately preceding each put notice. As of May 31, 2007, the Company has sold 27,000 shares to the investor and received cash of $14,033.

On December 22, 2006, the Company signed Web Site Development Agreement with a consultant and agreed to pay $17,500 worth of S-8 stock after the completion of the website. 21,875 shares were issued on April 12, 2007.

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13.

STOCKHOLDERS’ EQUITY - continued

On January 30, 2007, the Company completed the acquisition of one hundred percent (100%) of the issued and outstanding common stock of Lowprice.com, Inc., an Arizona corporation d/b/a RedCat Motors (the “Redcat”) pursuant to a Stock Purchase Agreement, as amended (the “Agreement”) by and among the Company, (the Shareholders), the Company and Hexagon. The Company purchased 100% of the common stock of Redcat from the Shareholders for an aggregate purchase price of $1.00. Further, the Company made a capital contribution to the Company consisting of $1,000,000 in cash, which was paid to the Company upon the Closing. The Company further issued to Hexagon 400,000 shares of the common stock of the Company which was valued at the fair market price and an additional $200,000 capital contribution in cash for the settlement of debt.

On August 16, 2007, the Company signed Share Buyback Agreement with Hexagon Financial LLC and agreed to purchase from Hexagon 264,350 shares of the common stock of the Company at a price of $1.05 per share for a total purchase price of $277,568 and to pay in cash no later than October 30, 2007. The window date is extendable to December 31, 2007. As of August 31, 2007 no common shares have been bought back.

On December 28, 2006, the Company board of directors approved the Private Placement Memorandum and started to offer up to 500 units of the Company’s securities at $10,000 per unit. Each unit consists of 10,500 shares of the Company’s common stock (“Shares”) and 5,000 warrants (“Warrants”) to purchase one share of the Company’s common stock at an exercise price of $2.00 per share. The Warrants will be immediately exercisable and will remain exercisable for one year. The Unit offered including the Shares, Warrants and the common shares issuable exercise of the Warrants, are being issued as restricted securities under the federal securities laws, and investors’ right to sell, transfer, pledge or otherwise dispose of any of the shares will be limited by the 1933 Act and the rules and regulations and any applicable state securities laws. No sales commissions will be paid to the Company in connection with this offering. The offering was terminated on February 28, 2007 and the Company sold 1,144,500 shares of common stock and granted 545,000 shares of Warrants in this offering. The cash proceeds for the issuance of shares amounted to $1,090,000. The Company actually issued the 1,144,500 shares on March 9, 2007.The fair value of the warrants was $27,567 and was calculated using the Black-Scholes option pricing model using the following assumptions: risk free rate of return of 4.75%, volatility of 103%, and dividend yield of 0% and expected life of one year. The Company recorded the value of warrants net of the gross proceeds received out of this offering.

On February 1, 2007, the Company board of directors approved to issue $50,943 worth of unrestricted shares to former RedCat employees as bonus for 90 days of employment starting February 1, 2007. The 81,914 shares were actually issued at the market prices to the eligible employees on April 11, 2007.

On May 20, 2007, the Company board of directors issued 2,080,000 shares of common stocks and 250,000 warrants excisable for two years to an investor pursuit of the Private Placement Memorandum The proceeds received from the issuance of the shares consists of the cash of $900,000 and $100,000 direct purchase deposit to a vendor . The fair value of the warrants $52,641 was calculated by using the Black-Scholes option pricing model and followed the assumptions of: risk free rate of return of 4.92%, volatility of 93%, dividend yield of 0% and expected life of two years. The Company recorded the value of warrants net of the gross proceeds received out of this offering. According to the management, this investor will sit on the board as an independent board member.

14.

WARRANTS

Following is a summary of the warrant activity for the three-month period ended August 31, 2007:

Outstanding, February 28, 2007	545,000
Granted during the six-month period	250,000
Forfeited during the six month period	-
Exercised during the six month period	-
Outstanding, August 31, 2007	795,000

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14.

WARRANTS - continued

Following is a summary of the status of warrants outstanding at August 31, 2007:

Outstanding Warrants			Exercisable Warrants

Exercise Price	Number	Average Remaining Contractual Life	Average Exercise Price	Number	Intrinsic Value

$2.00	545,000	1.00	$2.00	545,000	$0 .00
$1.50	250,000	2.00	$1.50	250,000	$0 .00

The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows:

The 545,000 warrants granted on February 27, 2007:

Risk-free interest rate	4.75%
Expected life of the options	1.00 year
Expected volatility	103%
Expected dividend yield	0

The 250,000 warrants granted on May 20, 2007:

Risk-free interest rate	4.92%
Expected life of the options	2.00 year
Expected volatility	93%
Expected dividend yield	0

15.

RELATED PARTIES

Lease

On August 1, 2005, Tank entered into a lease agreement for the new facilities in which they operate. The lessors are Tank’s two main shareholders who are also Tank’s directors. The term of the lease is 60 months with monthly payments of $19,900. As of August 31, 2007, none was due.

Rent expenses were $119,400 for both the six months ended August 31, 2007 and 2006, respectively.

Related party receivable

On August 1, 2006, the Company signed a credit agreement with LONG Sa De CV (“Long Company”), whereas the Company agrees to let Long Company to utilize the line of credit of the Company up to $5,500,000 for the Letter of Credit issued to vendors in China for one year. In exchange, Long Company agrees to pay up to 6% of service charges to the Company to cover the lending costs and service charges from its bank. The Company’s Chairman and Director are also the officers of Long Company. As of August 31, 2007, total $2,976,729 was charged to Long Company for opening letter of credit and was recorded as related party receivable in the accompanying financial statements. Total $178,604 service charge receivable was recorded as of August 31, 2007.

TANK SPORTS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

15.

RELATED PARTIES - continued

Due to affiliate

The Company has an affiliated company Steady Star facilitated the Company to purchase merchandize from China. Steady Star obtains the international letter of credit from bank and then pay for the vendors in China for the merchandize purchased by the Company. After the Company receives the merchandise, the Company makes payment to Steady Star. The Company’s Chairman and Director are the main shareholders of Steady Star Company. As of August 31, 2007, the amount due to this affiliate was $1,278,046 of which $80,000 is current payable and $1,198,046 is non-current payable. The amount is due on demand, interest free, and unsecured.

Accounts receivable

Total amount of $104,932 accounts receivable was from one of the Company’s officer’s close relative and the collection of this accounts receivable was guaranteed by the officer of the Company.

16.

COMMITMENTS

On August 1, 2005, Tank entered into a lease agreement with one of the Company’s director for a term of 60 months with monthly payments of $19,900.

Minimum annual rent expense for Tank for the next 3 years subsequent to August 31, 2007 is as follows:

Period Amount

1 year after $238,800

2 year after $238,800

3 year after $218,900

On December 25, 2005, the Company’s subsidiary Redcat entered into a lease agreement for a term of 36 months until January 31, 2009. The rent expense for six-month period ended August 31, 2007 was $119,492.

Minimum annual rent expense for Tank (Arizona) for the next 2 years subsequent to August 31, 2007 is as follows:

Period Amount

1 year after $254,515

2 year after $106,048

17.

SUBSEQUENT EVENT

On September 12, 2007, the Company obtained $7,280,000 credit line from First General Bank. The annual interest rates are 0.5% over the Collaterized Deposit Rate on the $3,280,000 credit line and prime rate on the $4,000,000 credit line. These credit lines are to replace the existing credit line granted by United Commercial Bank. The maturity date of the loan is on September 18, 2008. The loan is secured by the Company’s business assets, real property, certificates of deposit of $3,280,000 and guaranteed by the major shareholders and by the Company’s affiliate.

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations

The following discussion is intended to provide an analysis of our financial condition and Plan of Operation and should be read in conjunction with our financial statements and the notes thereto set forth herein. The matters discussed in this section that is not historical or current facts, deal with potential future circumstances and developments. Our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below.

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION

Plan of Operation

Since our inception, we have commenced the sale and distribution of motorcycles and ATV's under the brand name of TANK, and RedCat, the brand which we obtained through the acquisition of Lowprice.com, Inc.

We signed Letter of intent to acquire 100% of People’s Motor International Co., Ltd. (PMI) shares on September 24, 2007. PMI, incorporated in 2001 in British Virgin Island, has manufacturing facilities in Pudong, Shanghai and is currently distributing products in six continents, including the sales and support center located in Tempe, Arizona, USA and Hong Kong. PMI is recognized as one of the foremost buggy/go-kart developers and manufacturers in China, with products ranging from 90cc to 1100cc engine displacement. PMI sells its product under the brand name of DZ (Dazon). All products with a trademark of DZ are EPA/CARB/EEC certified with production quality endorsed by ISO 9001-2000 and CCC (China Compulsory Certificate on Product Quality). PMI is also the owner of three motorcycle and scooter patents in USA. It has a strong research and development capacity, product and market compatibility that will enhance and extend our current product lines. The proposed acquisition will increase our market exposure, speed up penetration into ATV and buggy kart market sector in the USA, Europe and China. The acquisition is scheduled to be executed by the end of October 2007.

Consolidation and Integration after Acquisition

On January 30, 2007, Tank Sports Inc. successfully completed its acquisition of one hundred percent (100%) of the issued and outstanding common stock of Lowprice.com, Inc., an Arizona corporation d/b/a RedCat Motors (the “Company”).

The consolidation and integration measures that we have taken by the company to further strengthen our market position included, but not limited to, restructuring of management and operation team, consolidation of regional warehouse facility, ERP system integration, inventory control, development of marketing promotion and sales plan, improvement of customer service infrastructure. With all steps taken, management believes that we will significantly increase our overall productivity and revenues, and reduce unnecessary costs and expenses. We anticipate that these measures will help achieve a goal of high profit margin with the controlled budget.

Since we have established stronger manufacturing resources in China, our successful acquisition of Lowprice.com, Inc. has strengthened a complementary to regional dealership network and synergy in a wider product mix of On and Off-road power sports vehicles. After acquisition, the Redcat and Tank dealership network has a total of 580-combined dealers.

We have started the operation under the Tier I ERP system that we obtained through the acquisition to manage our sales through six warehouses nationwide. The system will allow the customers to place product and parts orders, make payment of the orders, and monitoring the order status 24/7 without personnel involvement. By using the system, we are building up a largest parts center warehouse for the Chinese motorcycles and ATVS in the US territory in El Monte by combining parts departments in Tank and Redcat Motors, where more than 3000 types of products and parts/accessories are in bar-coded and scanned into bin locations. Because of this, Tank/Redcat after-sell service platform will become a value-added product to its customers and bring additional profitability. Parts and accessories has become a major focus for our business expansion. Tank expects to supply its dealers with helmets, goggles, apparel and other personalized products to boost sales and profit. Tank intends to gain its brand identity and increases new sales and profit margin.

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations - continued

Tank's Operational Model

We have been developing a global development plan to further integrate our ability in R&D, OEM sourcing and manufacturing, sales and service network.

For further expansion of our sales network worldwide and capacity of manufacturing of a variety product lines, we have been actively seeking for strategic investment and business partners and alliances through merger and acquisition. We also plan to expand our market shares to the areas of South America, Middle East, and Africa. For example, we have reached exclusive sales agreement with Jianshe Motor Industry Corporation, the second largest motorcycle/ATV manufacturer in China, for 250cc and 400cc ATV in the USA market. We are negotiating a joint venture deal with a leading 600CC on-road motorcycle manufacturer in China to increase its larger capacity product lines.

Tank's Operational and Sales Goal in 2007-2008

We plan to achieve a total number of 900 dealerships, which includes 100 exclusive dealers (dealers that only sell Tank products) with a sales objective of each dealer in the amount of $150,000 - $500,000. Currently, we have a total number of 580 dealers in the US market.

Through partnership with leading manufacturers and suppliers and our joint R&D effort to develop new generation products, we intend to enhance our dealership standardization by adding more product lines to our dealers.

We are undertaking a redundancy cut-off plan for a cost effective operation. So far, we have reduced our total number of employees from 42 to 29 through the execution of the plan. We seek to achieve a goal ratio of $1 million in sales per employee. From the analysis of our basic operational expenses, we found out that the current level of staffing can still keep overall expenses under $4.30 million annually. This level of expense can support the company's revenue up to between $23 and $30 million. This plan hopefully will result in increased gross profit and net income.

Reasons for Increase of Expenses for 2008 Fiscal Year

The following factors have contributed to the increase of expenses for the 2008 fiscal year:

(1)	Filing and overhead expenses for auditing and reporting to OTCBB board
(2)	Adjustment of dealership structure (drop in dealership number due to standardizing dealership selection criteria)
(3)	Fees and requirements of filing and permitting for new product models' entry to the market
(4)	Increased premium of insurance coverage (increase of insured items)
(5)	Overpaid dealership incentive and commission package (need to be adjusted)
(6)	Break-even of sales volume for maximum profit margin
(7)	Additional compensation for staffing adjustments (release and rehiring)
(8)	Additional expenses for storage/sales facility relocation
(9)	Organization restructuring cost and severance pay post RedCat acquisition

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations - continued

1.	Generate Dealer Interest and Recruit Dealers. We have used our power sports vehicles to create awareness within the power sports industry. We have also displayed these vehicles at trade shows and events to generate dealer interest in TANK and RedCat products. We intend to continue our promotional efforts through public relations program, attending and displaying our products at dealer trade shows, direct mail efforts and direct solicitations of prospective customers. We believe our dealer qualification criteria are strict and they include experience, reputation, ability to serve the geographic territory and financial strength.
2.	Generate Consumer Interest and Develop the TANK and RedCat Brand Awareness. To date, our products have appeared in over 10 publications. We believe this publicity is critical to creating awareness of the TANK and RedCat brands. We intend to continue our public relations efforts to create additional consumer interest and to support our dealers in targeted advertising and marketing efforts in their geographic territories. We also plan to continue to attend trade shows and events targeted to consumers to provide them with opportunities to see, and in some cases ride, our products. We believe these efforts, as well as mailing information to persons who have inquired about our products, will generate the customer awareness we believe is necessary to sell our products, and to develop the TANK and RedCat brands.
3.	Continue to Merge and Acquire More Industry Entities in Both US and China Market. The Tank management has realized that the business expansion has to be achieved by organic growth and merger and acquisition. With the first merger transaction done with the Lowprice.com, Inc, the company has been able to gain skills and knowledge to do similar transactions in the future. We plan to acquire PMI that has extensive product lines and strong management team that will bring the company into the next growth level.

Our focus in the next 12 months has been to seek necessary working capital, and to further execute our marketing plan. Our marketing plan focuses on dealers and the retail market, through comprehensive print advertising, participation in trade shows and other direct marketing efforts. Our marketing strategy is based on a reliable product, consistent quality and the delivery of a unique name and image. We estimate the necessary proceeds to implement this marketing campaign to be $220,000. We do not plan to carry out these actions until we have secured funds from our cash flows to fully fund this marketing plan. At this time, it is uncertain as if we can secure necessary financing.

FOR THE SIX MONTHS ENDED AUGUST 31, 2007

We generated revenues of $7,041,677 for the six months period ended August 31, 2007, a 16.30% increase as compared to $6,054,910 in revenues for the same period ended August 31, 2006. The increase is primarily attributable to improvement in the dealer network and wider product line achieved through RedCat acquisition.

Our gross profit for the six months period ended August 31, 2007 was $1,823,344, an 8.38% increase as compared to $1,682,403 in gross profit for the same period ended August 31, 2006. Gross profit, as a percentage of revenue, was 26% for the six months period ended August 31, 2007, a 2% decrease from 28% in the comparable period of 2006. The decreased was primarily due to increased manufacturing costs affected by fluctuations in Chinese currency (RMB) exchange rates and increased ocean freight and trucking cost.

Our net loss for the six months period ended August 31, 2007 was approximately ($498,155), a drop of almost 3 times as compared to a net gain for the same period ended August 31, 2006 of approximately $275,406. The net loss was primarily attributable to increase in operating expenses, especially in increased payroll and taxes after merger of Lowprice.com, advertising, trade show, freight out, rents, and product liability and warranty insurances.

During the six months period ended August 31, 2007, we recorded operating expenses of $2,381,961, consisting primarily of (i) $1,730,582 in general and administrative expenses; and (ii) $651,380 in selling expenses. For the same period ended August 31, 2006, we recorded operating expenses of $1,429,646, consisting primarily of (i) $937,803 in general and administrative expenses; and (ii) $491,843 in selling expenses. General and administrative expenses generally include corporate overhead, warehouse storage, insurance, financial and administrative services.

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations - continued

Net cash flow provided by operating activities were $683,423 during the six months period ended August 31, 2007. Our net cash flows provided by and used in operating activities consisted primarily of ($1,922,228) in inventory, $3,003,714 in accounts payable and accrued expenses. During the six months period ended August 31, 2006, net cash flow used in operating activities were $1,552,929.

Net cash flows used in investing activities were $3,106 during the six months period ended August 31, 2007, consisting of primarily the purchase of fixed assets. Net cash flows used in investing activities were $13,894 during the six months period ended August 31, 2006, which was primarily the result of purchases of computers and other office equipments and interior modification of an office space.

Net cash flow used in financing activities were $806,727 during the six months period ended August 31, 2007, which was primarily due to proceeds of loan from bank of $2,219,176, issuance of common stock for cash of $1,082,914, repayment of notes payable of $1,206,583 and increase of loan to related party of $2,790,195. During the same period ended August 31, 2006, net cash flows provided by financing activities were $1,955,785, consisting primarily of $1,500,000 increase in note payable and $460,177 increase in due to affiliate.

LIQUIDITY AND CAPITAL RESOURCES

As of August 31, 2007, our current assets were $10,289,517, current liabilities were $9,860,827, resulting in a working capital surplus of $428,690.

As of August 31, 2007, we had cash and cash equivalents of $2,750,505.

We anticipate the future cash flow from revenue and existing financing facilities would be adequate to fund our operations over the next twelve (12) months. On September 12, 2007, we entered into a loan agreement with First General Bank of total $7,280,000 to replace the existing credit line of $6,500,000 with United Commercial Bank. The increase in credit line is needed to finance the purchase of inventory and working capital. This loan is secured by our business assets, three personal properties owned by our major shareholders, personal guarantees by the major shareholders and by the Company’s affiliate, certificate deposits of $1,000,000 in the name of Tank Sports, Inc. and other certificates of deposits by our shareholders and unrelated parties. Generally, we have financed operations to date through cash flow and equity investors. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to advertisement and marketing of our brand names, the expansion of dealership networks, and mergers and acquisitions. We intend to finance these expenses from current and future revenues from operations and from other financing arrangement.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

MATERIAL COMMITMENTS

We have no material commitments as at the date of this report.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." This statement applies to all voluntary changes in accounting principle and requires retrospective application to prior periods' financial statements of changes in accounting principle, unless this would be impracticable. This statement also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations - continued

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company's first fiscal year that begins after September 15, 2006.

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant- date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective beginning in the Company's first quarter of fiscal 2006.

In June 2005, the EITF reached consensus on Issue No. 05-6, determining the Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. EITF 05-6 is not expected to have a material effect on its consolidated financial position or results of operations.

In March 2006 FASB issued SFAS 156 `Accounting for Servicing of Financial Assets' this Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:

	1.	Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract.
	2.	Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.
	3.	Permits an entity to choose `Amortization method' or `Fair value measurement method' for each class of separately recognized servicing assets and servicing liabilities.
	4.	At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity's exposure to changes in fair value of servicing assets or servicing liabilities that a service elects to subsequently measure at fair value.
	5.	Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations - continued

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are identified and described in Note 2 to the financial statements. The preparation of our financial statements in conformity with U.S. generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Tank continually evaluates its critical accounting policies and estimation procedures. Estimates are often based on historical experience and on assumptions that are believed to be reasonable under the circumstances, but which could change in the future. Some of Tank's accounting policies and estimation procedures require the use of substantial judgment, and actual results could differ materially from the estimates underlying the amounts reported in the consolidated financial statements. A summary of our significant accounting policies is included in Note 2 to our financial statements which are included in PART I. FINANCIAL INFORMATION of this Form 10 - KSB.

In applying these policies, estimates and judgments affect the amounts at which accounts receivable, inventory, and certain liabilities are recorded and the useful lives of property and equipment. We apply our accounting policies on a consistent basis. Changes in circumstances are considered in our estimates and judgments. Future changes in circumstances could result in changes in amounts at which assets and liabilities are recorded. Future changes could also affect the estimated useful levels of property and equipment, which could result in changes in depreciation expense or write offs or write downs of such assets.

Revenue Recognition. The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is recognized when the delivery to customers (independent dealers and distributors) is completed and ownership is transferred, the price is fixed and determinable, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received prior to completing all aforementioned criteria are recorded as unearned revenue. The Company's dealers enter into an annual renewable contract and are required to maintain status as an authorize dealer in order to continue selling company's products. Dealers are required to assemble and prep the vehicles before they are sold, inform customer on warranties information and to repair and service the vehicles. The Company sets a fixed pricing structure each year. All dealers must follow the pricing structure or no more than 12% above or below the MSRP. Any additional discounts will need approval from the Company. The Company offers a limited and parts only warranties to all its dealers, distributors and retail customers. Tank requires its customer to be responsible for a 15% restocking fee for all unused return and shipping fees are non refundable. Used merchant cannot be returned without reason and the defective merchandise must be repaired. Tank has not historically recorded any significant sales return allowances because it has not been required to repurchase a significant number of units. However, should there be an adverse change in retail sales could cause this situation to change.

Allowance for Doubtful Accounts. The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and change in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

Inventory. Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Machinery and equipment. Machinery and Equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized.

Income taxes. The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations - continued

Product warranties and insurance. Tank provides a limited warranty for parts only for a period of twelve months for its ATVs, Dirt bikes, Go Cars, and Scooters with a 50cc engine, for a period of three years for its cruiser motorcycles with Trademark "VISION" and Scooters with 150cc and 250 cc engines. Tank's standard warranties require the Company or its dealers to repair or replace defective products during such warranty periods at no cost to the consumer. Major cost incurred in connection with warranty obligations is the cost of new parts replacing the damage/defective parts. We have not recorded a liability for warranty obligations because they were immaterial for the periods presented; and we have recorded expenses when the costs were actually incurred. Tank insures its product liability claims with ACORD Jordan and Jordan Insurance Agency, LLC. The product liability coverage are up to $1,000,000 limit per occurrence, $50,000 limits on damage to rented premises, $1,000,000 to personal injury, $2,000,000 to general aggregate and $2,000,000 limit to products comp/or aggregate. Historically, the Company has not experienced any threatened litigation or product liability claim. The Company believes that based on its historical product liability claim experience, the product liability insurance will be sufficient to cover any such claim.

Item 3. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act of 1934 are recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Principal Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Within the 90 days prior to the filing date of this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of our Principal Executive Officer/Principal Accounting Officer. Based upon that evaluation, we have concluded that our disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Exchange Act.

Changes in Internal Controls

There were no significant changes in our internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Changes in Securities

On March 20, 2007, we received $1,000,000 investment fund from an accredited investor (as “ Investor”) under the private placement agreement. Under the agreement, Investor purchased two million and eighty thousand (2,080,000) shares of Tank Sports restricted common stock with two hundred fifty thousand ( 250,000) warrants at an exercise price of $1.50 valid within two (2) years of the agreement date. According to the agreement, Investor will sit on the board as an independent board member.

We relied upon Section 4(2) of the Securities Act of 1933, as amended (the "Act") and Regulation D promulgated thereunder. Our officers and directors determined the sophistication of our investor, as the investor was an “accredited investor.” The investor completed a subscription agreement whereby the investor certified that said investor was “accredited”, purchasing the shares for his own account, with investment intent. This offering was not accompanied by general advertisement or general solicitation and the shares were issued with a Rule 144 restrictive legend.

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5: Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

31.1 Certificate of Principal Executive Officer

31.2 Certificate of Principal Accounting Officer

32.1 Certification Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

Form 8-k filed on April 11, 2007, and amended on April 12, 2007.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TANK SPORTS, INC.

(Registrant)




Date: October 15, 2007	By:	/s/ Jing Jing Long
		Jing Jing Long
		Title: Principal Executive Officer




Date: October 15, 2007	By:	/s/ Jing Jing Long
		Jing Jing Long
		Title: Principal Accounting Officer
		Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.




Date: October 15, 2007	By:	/s/ Jing Jing Long
		Jing Jing Long
		Title: Director




Date: October 15, 2007	By:	/s/ Jiangyong Ji
		Jiangyong Ji
		Title: Director




Date: October 15, 2007	By:	/s/ Jim Ji
		Jim Ji
		Title: Director

Tank Sports (TNSP) Inactive 10QSB2008 Q2 Quarterly report (small business)