As Filed with the Securities and Exchange Commission on February 14, 2006
Registration No. 333-129910
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
First Amendment
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TANK SPORTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
California 3751 95-4849012
- --------------------------------------------------------------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
10925 Schmidt Road
El Monte, California 91733
(626) 350-4039
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
Jing Jing Long
President
10925 Schmidt Road
El Monte, California 91733
(626)350-4093
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
THE O'NEAL LAW FIRM, P.C.
Attention: William D. O'Neal, Esq.
17100 East Shea Boulevard
Suite 400-D
Fountain Hills, Arizona 85268
(480) 812-5058 (tel)
(480) 816-9241 (fax)
Approximate date of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
2
CALCULATION OF REGISTRATION FEE
Title of Securities to be Amount to be Proposed maximum offering Proposed maximum aggregate Amount of
Registered (1) registered price per share (3) offering registration
price (US $) Fee (2)
- -----------------------------------------------------------------------------------------------------------------------
Common stock to be Offered 1,446,500 $1.00 $1,446,500 $170.37
for resale by selling
stockholders
- -----------------------------------------------------------------------------------------------------------------------
Total Registration Fee $ 170.37
(1) In the event of a stock split, stock dividend, or similar transaction
involving our common stock, the number of shares registered shall automatically
be increased to cover the additional shares of common stock issuable pursuant to
Rule 416 under the Securities Act of 1933, as amended.
(2) Fee calculated in accordance with Rule 457(c) of the Securities Act.
Estimated for the sole purpose of calculating the registration fee.
(3) Fixed offering price was set by the selling shareholders until securities
are quoted on the OTC Bulletin Board or other national exchange, and thereafter
at prevailing market prices or privately negotiated prices. There can be no
assurance that our shares will be approved for listing on the OTC Bulletin
Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED February 9, 2006
TANK SPORTS, INC.
A CALIFORNIA CORPORATION
RELATING TO THE RESALE OF UP TO 1,446,500 SHARES OF
TANK SPORTS, INC. COMMON STOCK
The prospectus and the registration statement, of which it is a part, are being
filed with the SEC to satisfy our obligations to the recipients of certain
shares of common stock (the "Selling Shareholders") of Tank Sports, Inc.
Accordingly, the prospectus and the registration statement cover the resale by
certain Selling Shareholders of 1,446,500 shares of our common stock.
There is currently no public market for our shares.
The sales price to the public was set by the selling shareholders at $1.00 per
share for a total of $1,446,500. The price of $1.00 per share is a fixed price
until the shares are listed on the OTC Bulletin Board or other national
exchange, and thereafter at prevailing market prices or privately negotiated
prices. There can be no assurance that our shares will be approved for listing
on the OTC Bulletin Board.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ____________, 2006.
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TABLE OF CONTENTS
PAGE NUMBER
PROSPECTUS SUMMARY ...................................................... 6
RISK FACTORS ............................................................ 8
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK ..................... 8
RISKS RELATING TO OUR BUSINESS .......................................... 9
FORWARD-LOOKING STATEMENTS ............................................. 14
USE OF PROCEEDS ........................................................ 15
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............... 15
DIVIDEND POLICY ........................................................ 15
MANAGEMENT'S DISCUSSION AND ANALYSIS ................................... 16
DESCRIPTION OF BUSINESS ................................................ 21
LEGAL PROCEEDINGS ...................................................... 26
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ........... 27
EXECUTIVE COMPENSATION ................................................. 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 30
DESCRIPTION OF COMMON STOCK ............................................ 30
PLAN OF DISTRIBUTION ................................................... 31
SELLING SHAREHOLDERS ................................................... 33
LEGAL MATTERS .......................................................... 37
TRANSFER AGENT ......................................................... 37
EXPERTS ................................................................ 37
INTEREST OF NAMED EXPERTS .............................................. 38
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................................ 38
DISCLOSURE OF SEC POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES ...................................................... 39
WHERE YOU CAN FIND MORE INFORMATION .................................... 39
FINANCIAL STATEMENTS ................................................... 40
INDEMNIFICATION OF DIRECTORS AND OFFICERS .............................. 61
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION ............................ 62
RECENT SALES OF UNREGISTERED SECURITIES ................................ 62
EXHIBITS ............................................................... 62
UNDERTAKINGS ........................................................... 63
SIGNATURES ............................................................. 64
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ABOUT THIS PROSPECTUS
This prospectus is part of a resale registration statement. The selling
shareholders ("Selling Shareholders") may sell some or all of their shares in
transactions from time to time.
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone else to provide you with
different information. If anyone provides you with different information, you
should not rely upon it. You should assume that the information appearing in
this prospectus, as well as the information we file with the Securities and
Exchange Commission ("SEC") and incorporate by reference in this prospectus is
accurate only as of the date of the documents containing the information. As
used in this prospectus, the terms "we", "us", "our" and "Tank" refer to "Tank
Sports, Inc." All dollar amounts refer to United States dollars unless otherwise
indicated.
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements and the notes to the financial
statements.
GENERAL
Tank Sports, Inc. was originally incorporated under the laws of the State of
California on March 5, 2001, as Bi-Tank, Inc. On June 21, 2004, we amended our
Articles of Incorporation changing our name to "Tank Sports, Inc." Our executive
offices are located at 10925 Schmidt Road, El Monte, California 91733. Our
telephone number is (626) 350-4039.
OUR BUSINESS
We market, sell and distribute recreational and transportation motorcycles,
all-terrain vehicles ("ATVs"), dirt bikes, scooters and Go Karts in the United
States and in International markets. We complement each of product lines with an
assortment of replacement parts and accessories. We market our products through
Tank Sports, Inc., as well as a network of dealers and distributors in the
United States. In the International markets, we sell our products through a
network of dealers and distributors serving countries such as Mexico, Ecuador,
Jamaica and Finland.
NUMBER OF SHARES OUTSTANDING
There were 8,125,700 shares of our common stock issued and outstanding as at
February 9, 2006.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of our
common stock being offered for sale by the Selling Shareholders. We will incur
all costs associated with this prospectus and related registration statement.
6
PROSPECTUS SUMMARY - continued
SUMMARY OF FINANCIAL DATA
The summarized financial data set forth in the table below is derived from and
should be read in conjunction with our audited financial statements for the
period from March 1, 2003 to the year ended February 28, 2004, the period from
March 1, 2004 to the year ended February 28, 2005, and our interim financial
statements for the period ending November 30, 2005, including the notes to those
financial statements which are included elsewhere in this prospectus.
As of As of
February November
28, 2005 30, 2005
(Unaudited)
- ----------------------------- ----------- -----------
Balance Sheet:
- ----------------------------- ----------- -----------
Current assets $ 493,678 $ 2,591,484
- ----------------------------- ----------- -----------
Total assets $ 730,281 $ 2,876,600
- ----------------------------- ----------- -----------
Current liabilities $ 1,308,234 $ 3,276,857
- ----------------------------- ----------- -----------
Working capital $ (814,556) $ (685,373)
- ----------------------------- ----------- -----------
Stockholders' deficit $ (577,953) $ (435,712)
- ----------------------------- ----------- -----------
Loss per Share $ (0.02) $ (0.00)
- ----------------------------- ----------- -----------
Statement of Operations:
- ----------------------------- ----------- -----------
Revenue $ 2,858,609 $ 5,722,220
- ----------------------------- ----------- -----------
Total expenses $ 809,909 $ 1,533,535
- ----------------------------- ----------- -----------
Net loss/profit $ (121,478) $ 16,541
- ----------------------------- ----------- -----------
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RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in this prospectus in evaluating our Company and its
business before purchasing shares of our common stock. Our business, operating
results and financial condition could be seriously harmed due to any of the
following risks. You could lose all or part of your investment due to any of
these risks.
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK
IF AND WHEN A MARKET FOR OUR COMMON STOCK DEVELOPS, SALES OF A SUBSTANTIAL
NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC MARKET BY THE SELLING
STOCKHOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD PRESSURE ON THE PRICE OF OUR
COMMON STOCK AND COULD AFFECT THE ABILITY OF OUR STOCKHOLDERS TO REALIZE THE
CURRENT TRADING PRICE OF OUR COMMON STOCK.
If and when a market for our common stock develops, sales of a substantial
number of shares of our common stock in the public market could cause a
reduction in the market price of our common stock. We had 8,125,700 shares of
common stock issued and outstanding as of February 9,2006. When this
registration statement is declared effective, the Selling Stockholders will be
able to resell up to 1,446,500 shares of our common stock. As a result, a
substantial number of our shares of common stock may be issued and may be
available for immediate resale, which could have an adverse effect on the price
of our common stock. As a result of any such decreases in price of our common
stock, purchasers who acquire shares from the Selling Stockholders may lose some
or all of their investment.
Any significant downward pressure on the price of our common stock as the
selling stockholders sell their shares of our common stock could encourage short
sales by the selling stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
ADDITIONAL ISSUANCES OF EQUITY SECURITIES MAY RESULT IN DILUTION TO OUR EXISTING
STOCKHOLDERS.
Our Articles of Incorporation authorize the issuance of 50,000,000 shares of
common stock. Common stock is our only authorized class of stock. The board of
directors has the authority to issue additional shares of our capital stock to
provide additional financing in the future and the issuance of any such shares
may result in a reduction of the book value or market price of the outstanding
shares of our common stock. Although we have no current plans or intention to
issue additional securities in the foreseeable future, if we do issue any such
additional shares, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other stockholders. As a result
of such dilution, if you acquire shares of our common stock from the Selling
Shareholders, your proportionate ownership interest and voting power will be
decreased accordingly. Further, any such issuance could result in a change of
control.
OUR COMMON STOCK IS CLASSIFIED AS A "PENNY STOCK" UNDER SEC RULES WHICH LIMITS
THE MARKET FOR OUR COMMON STOCK.
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RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK - continued
The SEC has adopted rules that 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). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must 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 trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their shares.
RISKS RELATED TO OUR BUSINESS
OUR AUDITORS HAVE ISSUED A "GOING CONCERN" QUALIFICATION TO THE AUDIT REPORT of
the financial statements of Tank Sports, Inc. for the year ended February 28,
2005 DUE TO THE CONTINUING LOSSES ON OPERATIONS, WHICH INDICATES THE POTENTIAL
FOR BUSINESS FAILURE OF THE COMPANY.
The independent auditor's report accompanying our February 28, 2005 audited
financial statements contains an explanatory paragraph expressing substantial
doubt about our ability to continue as a going concern. The financial statements
have been prepared "assuming that the Company will continue as a going concern."
Our ability to continue as a going concern is dependent on raising additional
capital to fund our operations and ultimately on generating future profitable
operations. There can be no assurance that we will be able to raise sufficient
additional capital or eventually have positive cash flow from operations to
address all of our cash flow needs. If we are not able to find alternative
sources of cash or generate positive cash flow from operations, our business may
not be able to continue as a going concern and could potentially fail. As a
result, shareholders could lose their entire investment in our company.
FAILURE TO RETAIN OUR EXISTING MANAGEMENT TEAM COULD NEGATIVELY IMPACT OUR
REVENUES.
Our success depends largely on the skills of certain key management, in
particular our Chairman, Ms. Jing Jing Long , our President and Treasurer , and
our Secretary, Mr. Jim Ji. We do not have employment agreements with our
executive officers, key management or other employees and, therefore, they could
terminate their employment at any time without penalty. We do not maintain key
person life insurance policies on any of our employees. While none of our key
employees has expressed any plans to leave our company in the near future, the
loss of one or more of our key employees could negatively impact our revenues
9
RISKS RELATED TO OUR BUSINESS - continued
and our ability to generate profits. We may not be able to recruit personnel on
acceptable terms to replace these individuals in a timely manner, or at all.
WE ARE ALSO DEPENDENT FOR OUR SUCCESS ON OUR ABILITY TO ATTRACT AND RETAIN
TECHNICAL MOTOR VEHICLE PERSONNEL, SALES AND MARKETING PERSONNEL AND OTHER
SKILLED MANAGEMENT.
Our success depends to a significant degree upon our ability to attract,
retain and motivate highly skilled and qualified personnel. While we have not
experienced any problems attracting and retaining key personnel in the past,
failure to attract and retain necessary technical motor vehicle personnel, sales
and marketing personnel and skilled management could adversely affect our
business. If we fail to attract, train and retain sufficient numbers of these
highly qualified people, our prospects, business, financial condition and
results of operations will be materially and adversely affected.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO CHANGING CONSUMER
DEMANDS, IDENTIFY AND INTERPRET RECREATIONAL VEHICLE TRENDS AND INDUSTRY
STANDARDS AND SUCCESSFULLY MARKET NEW PRODUCTS.
The recreational vehicle industry is subject to rapidly changing consumer
demands, technological improvements and industry standards. Accordingly, we must
identify and interpret vehicle trends and respond in a timely manner. Demand for
and market acceptance of new products are uncertain and achieving market
acceptance for new products generally requires substantial product development
and marketing efforts and expenditures. If we do not continue to meet changing
consumer demands and develop successful product lines in the future, our growth
and profitability will be negatively impacted. If we fail to anticipate,
identify or react appropriately to changes in product style, quality and trends
or are not successful in marketing new products, we could experience an
inability to profitably sell our products even at lower cost margins. Because of
these risks, a number of companies in the recreational vehicle industry in
general, have experienced periods of rapid growth in revenues and earnings and
thereafter periods of declining sales and losses, which in some cases have
resulted in companies in these industries ceasing to do business. Similarly,
these risks could have a severe negative effect on our results of operations or
financial condition.
OUR BUSINESS AND THE SUCCESS OF OUR PRODUCTS COULD BE HARMED IF WE ARE UNABLE TO
MAINTAIN THEIR BRAND IMAGE.
Our success is dependent in large part to the strength of the brand names we
distribute. If we are unable to timely and appropriately respond to changing
consumer demand, the brand name and brand image we distribute may be impaired.
Even if we react appropriately to changes in consumer preferences, consumers may
consider those brand images to be outdated or associate those brands with styles
of recreational vehicles that are no longer popular. If our product lines are
deemed inexpensive but of poor quality, we may experience periods of rapid
growth in revenues and earnings followed by periods of declining sales and
losses. Our business may be similarly affected in the future.
OUR BUSINESS MAY BE NEGATIVELY IMPACTED AS A RESULT OF CHANGES IN THE ECONOMY.
Our business depends on the general economic environment and levels of consumer
spending that affect not only the ultimate consumer, but also our dealer
network. Purchases of recreational vehicles tend to decline in periods of
10
RISKS RELATED TO OUR BUSINESS - continued
recession or uncertainty regarding future economic prospects, when consumer
spending, particularly on discretionary items, declines. During periods of
recession or economic uncertainty, we may not be able to maintain or increase
our sales to existing dealers, make sales to new dealers, maintain sales levels
or maintain or improve our earnings from operations as a percentage of net
sales. As a result, our operating results may be adversely and materially
affected by downward trends in the economy, continued increases in gasoline
prices or the occurrence of events that adversely affect the economy in general.
Furthermore, in anticipation of continued increases in net sales, we have
significantly expanded our infrastructure and workforce to achieve economies of
scale. Because these expenses are fixed in the short term, our operating results
and margins will be adversely impacted if we do not continue to grow as
anticipated.
OUR OPERATING RESULTS COULD BE NEGATIVELY IMPACTED IF OUR SALES ARE CONCENTRATED
IN ANY ONE STYLE OF RECREATIONAL VEHICLE.
If any one style or group of similar styles of our recreational vehicles were to
represent a substantial portion of our net sales, we could be exposed to risk
should consumer demand for such style or group of styles decrease in subsequent
periods. While we are attempting to hedge this risk by offering a broad range of
products, our gross sales for the year ended February 28, 2005 was comprised
almost 100% by selling recreational vehicles, including 66% in Scooters, 7% in
ATVs, 14% in dirt bikes, and 13% in cruiser motorcycles. For the nine months
ended November 30, 2005, our sales was comprised of 75% in Scooters, 7% in ATVs,
6% in dirt bikes, and 12% in cruiser motorcycles. However, this may change in
the future and fluctuations in sales of any given style that represents a
significant portion of our future net sales could have a negative impact on our
operating results.
OUR INTERNATIONAL MANUFACTURING OPERATIONS ARE SUBJECT TO THE RISKS OF DOING
BUSINESS ABROAD, WHICH COULD AFFECT OUR ABILITY TO MANUFACTURE OUR PRODUCTS IN
INTERNATIONAL MARKETS, OBTAIN PRODUCTS FROM FOREIGN SUPPLIERS OR CONTROL THE
COSTS OF OUR PRODUCTS.
Substantially all of our net sales during 2004 were derived from sales of
recreational vehicles manufactured in China. Foreign manufacturing is subject to
a number of risks, including:
o political and social unrest, including our military presence in Iraq;
o changing economic conditions;
o currency exchange rate fluctuations;
o international political tension and terrorism;
o work stoppages;
o electrical shortages;
o transportation delays;
o loss or damage to products in transit;
o expropriation;
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RISKS RELATED TO OUR BUSINESS - continued
o nationalization;
o the imposition of tariffs and trade duties both international and
domestically;
o import and export controls and other non-tariff barriers;
o exposure to different legal standards (particularly with respect to
intellectual property);
o compliance with foreign laws; and
o changes in domestic and foreign governmental policies.
In particular, because all of our products are currently manufactured in China,
adverse change in trade or political relations with China or political
instability in China would severely interfere with the manufacture of our
products and would materially adversely affect our operations. Foreign
manufacturers, especially in China may be more susceptible to electrical
shortages than U.S. manufacturers, which may cause them, in some cases, to shut
down production at least one day a week. These electrical shortages may extend
the production time necessary to produce our orders, and there may be
circumstances in the future where we may have to incur premium freight charges
to expedite product to our customers. If we incur a significant amount of
premium charges to airfreight product for our customers, our gross profit will
be negatively affected if we are unable to collect those charges.
In addition, if we, or our foreign manufacturer, violate United States or
foreign laws or regulations, we may be subject to extra duties, significant
monetary penalties, the seizure and the forfeiture of the products we are
attempting to import or the loss of our import privileges. Possible violations
of United States or foreign laws or regulations could include inadequate record
keeping of our imported products, misstatements or errors as to the origin,
quota category, classification, marketing or valuation of our imported products,
fraudulent visas or labor violations. The effects of these factors could render
our conduct of business in a particular country undesirable or impractical and
have a negative impact on our operating results.
OUR BUSINESS REPUTATION COULD BE HARMED IF OUR MANUFACTURERS OR SUPPLIERS
VIOLATE LABOR OR OTHER LAWS.
We require our independent manufacturer and suppliers to operate in compliance
with applicable United States and foreign laws and regulations. Although we
promote ethical business practices, we do not control them or their labor
practices. Although we believe that we incur no direct or indirect legal
liability as a result of the labor practices of our manufacturers or suppliers,
if our independent manufacturer or suppliers violates labor or other laws or
diverges from those labor practices generally accepted as ethical in the United
States, it could result in adverse publicity for us, damage our reputation in
the United States or render our conduct of business in a particular foreign
country undesirable or impractical, any of which could harm our business.
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RISKS RELATED TO OUR BUSINESS - continued
FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR PROFITABILITY.
We generally purchase our products in U.S. dollars. However, we source
substantially all of our products overseas and, as such, the cost of these
products may be affected by changes in the value of the relevant currencies.
Changes in currency exchange rates may also affect the relative prices at which
we and foreign competitors sell products in the same market. There can be no
assurance that foreign currency fluctuations will not have a material adverse
impact on our business, financial condition and results of operations.
OUR BUSINESS IS SUBJECT TO SEASONALITY THAT MAY CAUSE OUR QUARTERLY OPERATING
RESULTS TO FLUCTUATE MATERIALLY AND CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO DECLINE.
Motorcycle and ATV sales in general are seasonal in nature since consumer demand
is substantially lower during the colder season in North America. We may endure
periods of reduced revenues and cash flows during off-season months and be
required to reduce the size of our work force or terminate some of our employees
from time to time. Building inventory during the off-season period could harm
our financial results if anticipated sales are not realized. Further, if a
significant number of our dealers are concentrated in locations with longer or
more intense cold seasons, lack of consumer demand due to seasonal factors may
impact us more adversely, further reducing revenues or resulting in reduced
revenues over a longer period of time.
COMPLIANCE WITH ENVIRONMENTAL AND SAFETY REGULATIONS COULD INCREASE OUR
PRODUCTION COSTS, DELAY INTRODUCTION OF OUR PRODUCTS AND SUBSTANTIALLY IMPAIR
OUR ABILITY TO GENERATE REVENUES AND ACHIEVE PROFITABILITY.
We must comply with numerous federal and state regulations governing
environmental and safety factors with respect to motorcycles and their use.
These various governmental regulations generally relate to air, water and noise
pollution, as well as motorcycle safety standards. If we are unable to obtain
the necessary certifications or authorizations required by government standards,
or fail to maintain them, our business and future operations would be harmed
seriously.
Use of motorcycles in the United States is subject to rigorous regulation by the
Environmental Protection Agency ("EPA"), and by state pollution control
agencies. Any failure by us to comply with applicable environmental requirements
of the EPA or state agencies could subject us to administratively or judicially
imposed sanctions such as civil penalties, criminal prosecution, injunctions,
product recalls or suspension of production.
Our business and facilities also are subject to regulation under various
federal, state and local regulations relating to resale of motorcycles and ATV
operations, occupational safety, environmental protection, hazardous substance
control and product advertising and promotion. Our failure to comply with any of
these regulations in the operation of our business could subject us to
administrative or legal action resulting in fines or other monetary penalties or
require us to change or cease our business.
IF WE MARKET AND SELL OUR PRODUCTS IN INTERNATIONAL MARKETS, WE WILL BE SUBJECT
TO ADDITIONAL REGULATIONS RELATING TO EXPORT REQUIREMENTS, ENVIRONMENTAL AND
SAFETY MATTERS, AND MARKETING OF THE PRODUCTS AND DISTRIBUTORSHIPS, AND WE WILL
BE SUBJECT TO THE EFFECT OF CURRENCY FLUCTUATIONS, ALL OF WHICH COULD INCREASE
THE COST OF SELLING OUR PRODUCTS AND SUBSTANTIALLY IMPAIR OUR ABILITY TO ACHIEVE
PROFITABILITY IN FOREIGN MARKETS.
13
RISKS RELATED TO OUR BUSINESS - continued
As a part of our marketing strategy, we intend, in the future, to market and
sell our products internationally. In addition to regulation by the U.S.
government, our products will be subject to environmental and safety regulations
in each country in which we market and sell our motorcycles. Regulations will
vary from country to country and will vary from those of the United States. The
difference in regulations under U.S. law and the laws of foreign countries may
be significant and, in order to comply with the laws of these foreign countries,
we may have to implement manufacturing changes or alter product design or
marketing efforts. Any changes in our business practices or products we sell
will require response to the laws of foreign countries and will result in
additional expense to us.
Additionally, we may be required to obtain certifications or approvals by
foreign governments to market and sell our products in foreign countries. We may
also be required to obtain approval from the U.S. government to export our
products. If we are delayed in receiving, or are unable to obtain, import or
export clearances, or if we are unable to comply with foreign regulatory
requirements, we will be unable to execute our international marketing strategy
for our products.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements," as that term is used in
federal securities laws, about our financial condition, results of operations
and business. These statements include, among others:
o statements concerning the benefits that we expect will result from our
business activities and certain transactions that we have completed, such as
increased revenues, decreased expenses and avoided expenses and expenditures;
and
o statements of our expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical facts.
These statements may be made expressly in this document or may be incorporated
by reference to documents that we will file with the SEC. You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates" or similar expressions used in this prospectus. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
"Risk Factors", that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. We caution you not to put undue reliance on
these statements, which speak only as of the date of this Prospectus. Further,
the information contained in this prospectus or incorporated herein by reference
is a statement of our present intention and is based on present facts and
assumptions, and may change at any time and without notice, based on changes in
such facts or assumptions.
While these forward-looking statements, and any assumptions upon which they are
based, are made in good faith and reflect our current judgment regarding the
direction of our business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other
future performance suggested herein. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
14
FORWARD-LOOKING STATEMENTS - continued
results. The safe harbor for forward-looking statements provided in the Private
Securities Litigation Reform Act of 1995 does not apply to the offering made in
this prospectus.
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the account
of the Selling Shareholders named in this prospectus. As a result, all proceeds
from the sales of the common stock will go to the Selling Shareholders and we
will not receive any proceeds from the resale of the common stock by the selling
stockholders. We have agreed to register the shares of the Selling Shareholders
as set forth in this registration statement and prospectus and incur all costs
associated with this prospectus and related registration statement.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is not listed on any exchange and there is no public trading
market for the common stock.
As of February 9, 2006, we had 39 shareholders of record. We have no outstanding
warrants or options to purchase our securities.
SHARES ELIGIBLE FOR FUTURE SALE.
Upon completion of the offering, we will have 8,125,700 shares of common stock
outstanding. A current shareholder who is an "affiliate" of our company, defined
in Rule 144 as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
our company, will be required to comply with the resale limitations of Rule 144.
Purchasers of shares in the offering, other than affiliates, may resell their
shares immediately. Sales by affiliates will be subject to the volume and other
limitations of Rule 144, including certain restrictions regarding the manner of
sale, notice requirements, and the availability of current public information
about our company. The volume limitations generally permit an affiliate to sell,
within any three month period, a number of shares that does not exceed the
greater of one percent of the outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks preceding his sale. A
person who ceases to be an affiliate at least three months before the sale of
restricted securities beneficially owned for at least two years may sell the
restricted securities under Rule 144 without regard to any of the Rule 144
limitations.
DIVIDEND POLICY
No dividends have ever been declared by the Board of Directors on our common
stock. We do not indicate the intention of paying cash dividends on our common
stock in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We have no equity compensation plan.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with our audited
financial statements and the related notes that appear elsewhere in this
registration statement. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this registration statement,
particularly in the section entitled "Risk Factors" beginning on page __ of this
registration statement. Our audited financial statements are stated in United
States Dollars and are prepared in accordance with United States Generally
Accepted Accounting Principles.
EXECUTIVE LEVEL OVERVIEW
The following discussion pertains to our results of operation and financial
position for the nine months ended November 30, 2005 and 2004, and for the
fiscal years ended February 28, 2005 and 2004. The Company's product lines
consist of all-terrain vehicles (ATVs), scooters, cruiser motorcycles, dirt
bikes and go carts. Due to the seasonality of All Terrain Vehicle (ATV), cruiser
motorcycle, scooters and dirt bikes business, and certain changes in the product
mix during various periods, results of such periods are not necessary indicative
of the results to be expected for future performance.
For the nine month period ended November 30, 2005, we generated $5,722,220 in
revenue, a 163 percent increase as compared to $2,178,860 in revenues for the
same period ended November 30, 2004. Net Income from Operations for the nine
month period ended November 30, 2005 was $16,541 compared to (104,773) for same
period ended November 30, 2004. The increase in revenue was mainly due to a
change in product mix and an increase in brand recognition. In 2005, the Company
introduced 150cc Scooters and 250cc Cruiser motorcycles to the market. The sales
of scooters increased from 2,609 units for fiscal year 2004 to 6,233 units for
the nine months ended November 30, 2005. The increase also occurred in units
sold for ATV and cruiser motorcycles, which were driven primarily by new product
introductions during the nine months ended November 30, 2005. We sell our
products through a network of 151 dealers and distributors in the United States.
The Company's gross profit for nine months ended November 30, 2005 increased 250
percent over same period ended November 30, 2004, primarily due to the higher
sales volume and a decrease in cost of goods sold.
Although the growth in revenue increased our liquidity and capital resources, we
have a working capital deficit of $685,373, cash and cash equivalent balance of
$65,616 as of November 30, 2005. Historically, we have been importing all of our
products from third party manufacturers in China with Letter of Credit paid by
an affiliate US company owned by some of our shareholders. We make payments to
this affiliate company, which in turn pays to the manufacturers. As of November
30, 2005, we owe this affiliate $2,917,170, which amount is due on demand,
interest free and unsecured. SEE CERTAIN RELATIONBSHIPS AND RELATED
TRANSACTIONS.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
PLAN OF OPERATION
Since our inception, we commenced the sale and distribution of motorcycles and
ATV's under the brand name of TANK. In order to succeed, we intend to do the
following:
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 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 have
identified 25 dealers that we expect will enter into dealer agreements with us.
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 Brand. To date, our products
have appeared in over 10 publications. We believe this publicity is critical to
creating awareness of the TANK brand. 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 brand.
Our focus in the next 12 months has been to seek necessary working capital, and
to develop 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 $180,000. 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
RESULTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2005
We generated revenues of $2,858,609 for the fiscal year ending February 28,
2005, as compared to $1,886,237 in revenues for the fiscal year ended February
28, 2004. The increase is primarily attributable to increased sales.
Our net loss for fiscal year ended February 28, 2005 was approximately
($121,478) as compared to a net loss for fiscal year ended February 28, 2004 of
approximately ($80,137). The increase in our net loss is primarily attributable
to increase in operating expenses, especially in advertising, trade show,
freight out and rents.
During the fiscal year ended February 28, 2005, we recorded operating expenses
of $809,909, consisting primarily of (i) $510,077 in general and administrative
expenses; and (ii) $299,832 in selling expenses. General and administrative
expenses generally include corporate overhead, financial and administrative
services.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
During the fiscal year ended February 28, 2005, net cash flow provided by
operating activities was $24,841. Our net cash flows used in operating
activities consisted primarily of payment of loans borrowed from Steady Star, an
S Corp in California and a related company. SEE CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.
During the fiscal year ended February 28, 2005, net cash flows used in investing
activities was $(50,796), which was primarily the result of unsecured loans made
to two unrelated parties with both payable in 2007.
FOR THE NINE MONTH PERIOD ENDED NOVEMBER 30, 2005
We generated revenues of $5,722,220 for the nine month period ending November
30, 2005, 163 percent increase as compared to $2,178,860 in revenues for the
same period ended November 30, 2004. The increase is primarily attributable to
improved brand recognition, the success of the launch of two new product lines,
150cc Scooters and 250cc VISIONTM cruiser motorcycles. Additionally, improvement
in the dealer network is contributing to the higher sales.
Our gross profit for the nine month period ended November 30, 2005, was
$1,551,278, 250 percent increase as compared to $443,790 in gross profit for the
same period ended November 30, 2004. Gross profit, as a percentage of revenue,
was twenty-seven percent for the nine month period ended November 30, 2005, an
increase from 20 percent in the comparable period of 2004. The increase growth
profit margin was primarily due to change in our product mix mainly from low
profit bicycles to high profit motorcycles.
Our net income for the nine month period ended November 30, 2005 was $16,541 as
compared to a net loss for the same period ended November 30, 2004 of
approximately ($104,773). The increase in our net income is primarily
attributable to increased sales and gross profit margin.
During the nine month period ended November 30, 2005, we recorded operating
expenses of $1,533,535, consisting primarily of (i) $598,888 in selling
expenses; and (ii) $934,647 in general and administrative expenses. General and
administrative expenses generally include corporate overhead, financial and
administrative services.
During the nine month period ended November 30, 2005, net cash flow used in
operating activities was $77,792. Our net cash flows used in operating
activities consisted primarily of $1,819,282 spent in Inventory.
During the nine month period ended November 30, 2005, net cash flows used in
investing activities was ($17,579), which was primarily the result of a purchase
of an automobile for company use.
During the nine month period ended November 30, 2005, net cash flow provided by
financing activities was ($120,046), consisting primarily of (i) $(5,654) in
loan repayment; (ii) $125,700 in capital contribution. The capital contribution
was the result of a private placement of unregistered securities based on
Regulation S of Securities Act 1933. SEE RECENT SALES OF UNREGISTERED
SECURITIES.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 2005, our current assets were $2,591,484, current liabilities
were $3,276,857, resulting in a working capital deficit of $685,373.
At November 30, 2005, we had cash and cash equivalents of $65,616.
The Company anticipates the future cash flow from revenue and existing financing
facilities would be adequate to fund our operations over the next twelve (12)
months. We have no lines of credit or other bank financing arrangements.
However, the Company is meeting its requirements from line of credit obtained by
a related party. SEE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SECTION.
Generally, we have financed operations to date through cash flow and shareholder
loans. In connection with our business plan, management anticipates additional
increases in operating expenses and capital expenditures relating to
advertisement and marketing of our brand name and the expansion of dealership
networks. We intend to finance these expenses from current and future revenues
from operations.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
MATERIAL COMMITMENTS
We have no material commitments as at the date of this registration statement.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve
(12) months.
RECENT ACCOUNTING PRONOUNCEMENTS
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 second quarter of fiscal 2006.
The Company believes that the adoption of this standard will have no material
impact on its financial statements.
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. We are evaluating the effect the adoption of this
interpretation will have on its financial position, cash flows and results of
operations.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
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 financial position or results of operations.
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 SB 2.
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 Bulletion (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 authorized
dealer in order to continue selling company's products. Dealers are required to
assemble and prep the vehicles before its 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
20
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
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.
Product warranties and insurance. Tank provides a limited warranty for parts
only for a period of six months for its ATVs, Dirt bikes, Go Cars, and Scooters
with a 50cc engine, for a period of one year 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. For each of the 12 month ended 2/29/2004
and 2/28/2005, and 6 months ended 8/31/2005, the costs of replacing damage parts
were approximately $531, $11,012 and $11,785, respectively. 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.
DESCRIPTION OF BUSINESS
CORPORATE HISTORY
Tank Sports, Inc. was originally incorporated under the laws of the State of
California on March 5, 2001, as Bi-Tank, Inc. On June 21, 2004, we amended our
Articles of Incorporation changing our name to "Tank Sports, Inc." Our principal
office and warehouse is located at 10925 Schmidt Road, El Monte, California
91733. We currently maintain a web site at http://www.tank-sports.com.
21
DESCRIPTION OF BUSINESS - continued
CURRENT BUSINESS OPERATIONS
We market, sell and distribute recreational and transportation motorcycles,
all-terrain vehicles ("ATVs"), dirt bikes, scooters and Go Karts in the United
States and international markets. We complement each of product lines with an
assortment of replacement parts and accessories, which are available at our
dealerships. We market our products through Tank Sports, Inc., as well as a
network of about 151 dealers and distributors worldwide, with over 100 dealers
in the United States. Outside of the United States, we sell our products through
an international network of dealers and distributors serving countries such as
Mexico, Ecuador, Jamaica and Finland.
We offer a full product line consisting of four cruiser motorcycles, seven dirt
bike motorcycles, eight scooters, and seven all-terrain vehicles. The cruiser
motorcycles ranges in sizes from 50cc to 250cc, dirt bikes range in size from
70cc to 250cc, scooter ranges in sizes from 50cc to 150cc and the ATVs models
are 70cc to 250cc. We also offer a bicycle line consisting of "Trials", bikes
for skill oriented riders, "Cruisers", for common use, "BMX" and Mountain Bikes.
Since we launched motorcycle and ATVs products in 2003, we have switched our
focus from bicycles to the sales and distribution of motorcycles and ATVs.
Our motorcycle and ATV products are manufactured in China. Our products are
manufactured according to our proprietary designs and standards.
Industry Background
Motorcycles
We are engaged in the sales and distribution of motorcycles, mainly off road
vehicles, dirt bikes, scooters, ATVs and Go Karts. According to MIC (Motorcycle
Industry Council, a not-for-profit, national trade association crated to promote
and preserve motorcycling and the U.S. motorcycle industry.), new motorcycle
retail sales equaled an estimated 8.2 billion dollars in 2003. On-highway
motorcycles accounted for 86%, while off-highway motorcycles and dual
motorcycles represented 12% and 2% respectively. There were 8.8 million
motorcycles in operation in the United States, or 3 motorcycles for every 100
persons. Of those, 6.9 million were used on public roads and highways, and 2.4
million were used off-road; these figures include 500,000 dual-purpose bikes,
which are designed for use on public roads and for off-highway recreational
purposes.
In the 8.8 million motorcycles in use, 23.5 million people operated a motorcycle
in 2003. The MIC is the national trade association created to promote
motorcycling and to enhance the U.S. Motorcycle industry. More than 300 members
represent manufacturers and distributors of motorcycles, scooters, parts and
accessories, and interface with allied trades (such as publishing, insurance and
consultants) that support the continued development of statistics, effective
governmental efforts and industry relations. At the present time, according to
MIC, 13,924 retail outlets sell motorcycles and related products in the United
States. 45% of these retail outlets are authorized to sell new motorcycles,
scooters or all-terrain vehicles based on MIC estimates.
22
DESCRIPTION OF BUSINESS - continued
All-terrain Vehicles ("ATVs")
ATVs are four-wheel vehicles with balloon style tires designed for off-road use
and traversing rough terrain, swamps and marshland. ATVs are used for
recreation, in such sports as fishing and hunting, as well as for utility
purposes on farms, ranches and construction sites. ATVs were introduced to the
North American market in 1971 by Honda. Other Japanese motorcycle manufacturers
including Yamaha, Kawasaki and Suzuki entered the North American ATV market in
the late 1970s and early 1980s. We entered the ATV market in 2003. Also in 2003,
John Deere announced its planned entrance into the North American ATV market in
early 2004. In 1985, the number of three- and four-wheel ATVs sold in North
America peaked at approximately 650,000 units per year, then dropped
dramatically to a low of 148,000 in 1989. Since that time, the industry has
grown consistently. According to Polaris, during the calendar year 2004 the
industry grew seven percent (7%) with approximately 1,129,000 ATVs sold
worldwide.
COMPETITION
The ATV and motorcycle markets in the United States are highly competitive. A
handful of competitors dominate the powersports industry in the United States.
Our main competitors includes three North American competitors (Polaris, Arctic
Cat and Bombardier) and four Japanese competitors (Honda, Kawasaki, Suzuki and
Yamaha) Competition in such markets is based upon a number of factors, including
price, quality, reliability, styling, product features and warranties. At the
dealer level, competition is based on a number of factors including sales and
marketing support programs (such as financing and cooperative advertising).
Certain of our competitors are more diversified and have financial and marketing
resources which are substantially greater than those of our company. Our
products are competitively priced and management believes our sales and
marketing support programs for dealers are comparable to those provided by its
competitors. Our products compete with many other recreational products for the
discretionary spending of consumers. The following discussion is brief overview
of our main competitors:
Polaris: Polaris Industries, Inc. engages in designing, engineering,
manufacturing, and marketing motorized products for recreation and utility use,
including all-terrain vehicles,, snowmobiles, and motorcycles together with
related replacement parts, garments, and accessories. This company also markets
a line of recreational apparel, including helmets, jackets, bibs and pants,
leathers, and hats for its snowmobile, ATV, and motorcycle lines. It sells its
products through dealers and distributors principally located in the United
States, Canada, and Europe. Polaris Industries was formed in 1994 and is
headquartered in Medina, Minnesota. Polaris competes in ATVs, snowmobiles,
motorcycles, personal watercraft ("PWC"), and jet boats. Polaris is the market
leader in snowmobiles with more than 30% market share worldwide and is the No. 2
competitor in ATVs with more than 20% market share worldwide. Sharing
overlapping geographies and similar brand heritage, our company and Polaris
compete for the American consumer.
Arctic Cat: Arctic Cat, Inc. engages in the design, engineering, manufacture,
and marketing of snowmobiles and all-terrain vehicles. It produces snowmobiles
in 56 models and ATVs in 26 models. The company also sells snowmobile and ATV
parts, such as electric start and reverse kits, luggage racks and bags,
backrests, machine covers, windshields, track studs, carbide runners, winch
kits, snow plow kits, portable lights, and utility bags. In addition, Arctic Cat
offers garments and accessories, including suits, jackets, pants, pull-overs,
23
DESCRIPTION OF BUSINESS - continued
sweatshirts, T-shirts, riding gloves, hats, helmets, caps, boots, and gear bags.
This company sells its products in the United States, Canada, Europe, the Middle
East, and Asia through a network of independent dealers and distributors. Arctic
Cat's principal executive offices are located in Thief River Falls, Minnesota.
Based in Thief River Falls, Minnesota, Arctic Cat is our rival. Arctic Cat
competes directly with us in the ATV market. Sharing overlapping geographies and
similar brand heritage, our company and Arctic Cat compete for the American
consumer.. Arctic Cat recently surpassed Bombardier to become the No. 2
competitor in snowmobiles in the United States (No. 3 worldwide) and is the No.
6 competitor in ATVs worldwide, in management's estimation.
Bombardier: Bombardier operates under the Sea-Doo(TM) and Ski-Doo(TM) names in
the PWC and snowmobile markets, respectively, and recently entered the ATV
market (1998) using the Bombardier name. Bombardier is the No. 1 competitor in
PWC and is the No. 2 manufacturer of snowmobiles worldwide behind Polaris. In
March 2001, Bombardier purchased Outboard Marine Corp., acquiring the Johnson
and Evinrude brands of outboard motors along with the Fish-Hawk line of boats.
Bombardier is also one of the largest producers of two- and four-stroke engines
(called ROTAX), used primarily in snowmobile, watercraft, and ATV vehicles.
Honda: Honda Motor Co., Ltd. engages in the development, production, and
manufacture of motor products, ranging from small general purpose engines to
specialty sports cars. Its motorcycle business includes motorcycles, all-terrain
vehicles, and personal watercraft. This company produces motorcycles, ranging
from the 50 cubic capacity (cc) class to the 1800cc class in cylinder
displacement. Honda's motorcycle line consists of sports, business, and commuter
models. Honda also manufactures various power products, including power tillers,
portable generators, general purpose engines, grass cutters, outboard engines,
water pumps, snow throwers, power carriers, power sprayers, lawn mowers, and
lawn tractors. In addition, it also provides financing for the sale of its
motorcycles, automobiles, and power products. This company's products are
distributed primarily in Japan through outlets, including PROS authorized
dealerships. Honda Motor Co. was incorporated in 1948 and is based in Tokyo,
Japan. With combined ATV and motorcycle sales of approximately $8 billion
annually, Honda is our largest competitor in the powersports industry. Honda is
the pioneer and market leader in ATVs and holds the No. 2 position in
motorcycles behind Harley-Davidson. Honda entered the PWC market last year with
two 1,235cc models and has added an additional PWC model for its 2003 model
year. Honda's move into PWC marks its first entry into a new recreational
products category since 1971, when it introduced the industry's first ATV.
Yamaha: Yamaha Motor Company manufacture and sales of motorcycles, scooters,
electro-hybrid bicycles, boats, sail boats, Water Vehicles, pools, utility
boats, fishing boats, outboard motors, diesel engines, 4-wheel ATVs,
side-by-side vehicles, racing karts, golf cars, multi-purpose engines,
generators, water pumps, snowmobiles, small-sized snow throwers, automotive
engines, intelligent machinery, industrial-use remote control helicopters,
electrical power units for wheelchairs, helmets. Yamaha competes in each of our
major segments, including ATVs and motorcycles. Yamaha started out in the
motorcycle business in 1955 and is now a large producer of both on-highway
motorcycles (cruisers, touring, and sport bikes) and off-highway dirt bikes. In
1968, Yamaha entered the snowmobile market. Yamaha produced its first ATV in
1979 and currently offers more than a dozen ATV models, including the 660cc
sport performance Raptor.
Suzuki: Suzuki Motor Corporation's principal activity is the design and
manufacture of automobiles, motorcycles, outboard engines, general-purpose
engines and other products. Operations are carried out through the following
24
DESCRIPTION OF BUSINESS - continued
sectors: motorcycles: motor bikes, pushbikes; four-wheeled cars: light cars,
small-sized cars, normal-sized cars and others: houses, dynamos. Four-wheeled
cars accounted for 79% of fiscal 2002 revenues; motorcycles and other
two-wheelers, 19% and other operations, 2%. Oversea sales accounted for 52.8% of
fiscal 2002 revenues. Suzuki competes in the motorcycle and ATV segments of the
powersports industry. Suzuki introduced the first four-wheeled ATV in 1982, and
maintains a small market share (7%) in ATVs. In March 2002, Suzuki and Kawasaki
formed a strategic partnership for product development, engineering, and
manufacturing of both ATVs and motorcycles. Suzuki is also a 34% owner of Arctic
Cat, Inc. and provides Arctic Cat with engines used in its snowmobiles and ATVs.
Kawasaki: Kawasaki Heavy Industries' principal activities are the manufacture of
a wide range of industrial products. Operations are carried out through the
following divisions: General machinery (motorcycles, jet-skis, buggies and
gasoline engines); Industrial plant (industrial machinery, boiler and
environment equipment); Gas turbine (jet engines, general gas turbines and
motors); Aerospace ( air planes); Transportation equipment (trains, construction
machinery and precision machinery); Shipbuilder and Other. General machinery
accounted for 25 % of fiscal 2002 revenues; industrial plant, 20%; gas turbine,
15%; aerospace; 14%; transport equipment; 11%; shipbuilder, 8% and other, 7%.
From the class leading Ninja(R) sportbikes and thundering Vulcan(TM) cruisers to
the rugged Brute Force(TM) ATVs, Mule(TM) utility vehicles and JET SKI(R)
watercraft, Kawasaki products lead the powersports industry around the globe.
Kawasaki's success is in designing and manufacturing products that offer
balanced performance, high quality, reliability and excellent fit and finish.
Kawasaki is the No. 3 competitor in PWC, the No. 4 competitor in heavyweight
motorcycles, and the No. 4 competitor in ATVs. This company is also a market
leader in the utility vehicle segment of the ATV market. Kawasaki has a full
line of ATVs and introduced the first V-Twin 700cc four-stroke "ultra high
performance" sport ATV in the first quarter of 2003.
GOVERNMENT REGULATION
Use of motorcycles in the United States is subject to regulation by the
Environmental Protection Agency ("EPA"), and by state pollution control
agencies. Any failure by us to comply with applicable environmental requirements
of the EPA or state agencies could subject us to administratively or judicially
imposed sanctions such as civil penalties, criminal prosecution, injunctions,
product recalls or suspension of production.
Motorcycles are subject to considerable safety standards and requirements under
the provisions of the National Traffic and Motor Vehicle Safety Act and the
rules promulgated under this Act by the National Highway Traffic Safety
Administration ("NHTSA"). We could suffer recalls of our motorcycles if they
fail to satisfy applicable safety standards administered by the NHTSA.
Emission and noise standards for dirt bike motorcycles and all-terrain vehicles
vary from state to state. Some states have no registration requirements for
off-road vehicles and others such as California have stringent standards. The
Enforcement Division of the California Air Resources Board ("CARB") has the
responsibility for preventing the illegal sale and use of non-conforming or
non-California certified vehicles, engines, and emissions related parties in
California. One category that the Enforcement Division regulates is Off-Highway
Recreational Vehicles.
Regulations apply to off-road motorcycles and all-terrain vehicles manufactured
on or after January 1, 1997, and all off-road vehicles sold in California, model
year 1998 or later, must be certified by the CARB. There are two types of
25
DESCRIPTION OF BUSINESS - continued
certifications available, a compliant certification ("green sticker") and a
non-compliant certification ("red sticker"). A vehicle certified compliant meets
the emission standards set forth by the regulation and when registered will
receive a green sticker from the Department of Motor Vehicles. The green sticker
allows the vehicle to be ridden in any designated riding area at any time during
the year. A non-compliant vehicle receives a red sticker at the time of
registration. It limits the use of the vehicle according to the regulations,
which may allow for seasonal riding.
We have recently received Carb Green for our 110CC ATV, CARB and EPA
certificates for our 150CC Scooters, CARB, EPA, DOT for our 250CC Vision
Cruisers and Red Sticker for all of our off road models, except for the 110 CC
ATV. We currently have application pending for 250CC ATV Mudder, 250CC Eudoro
Dirt Bike and 250CC Sports Bike with the EPA. Beginning in January 2006, uniform
federal standards will replace those of individual states, including California,
and we are in the process of ensuring that our 2006 models comply with the
pending reforms.
Patents, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
Contracts
In order to protect our valuable brand names from competitors, we have filed
trademark applications for our most popular product lines; "URBAN", "TRAIL",
"TANK" and "VISION" brand names with the U.S. Patent and Trademark office. We
intend to apply for additional trademark and copyright protection for any future
product offerings.
RESEARCH AND DEVELOPMENT ACTIVITIES
We have not engaged in any research and development activities.
EMPLOYEES
We currently have a total of eighteen (18) full time employees.
DESCRIPTION OF PROPERTY
Our principal office and warehouse is located at 10925 Schmidt Road, El Monte,
CA 91733. On August 1, 2005, we entered into a lease agreement with Jing Jing
Long and Jiang Yong Ji for the facilities in which we operate. The term of the
lease is 60 months with monthly payments of $19,900. The landlords are also
officers, directors and majority shareholders of the Company. SEE CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our
company, nor are we involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial shareholder, is an
adverse party or has a material interest adverse to our interest.
26
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
All of our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.
Our directors and executive officers, their ages, positions held are as follows:
NAME AGE POSITION WITH THE COMPANY
- ----------------------- ---- ------------------------------
Jiangyong Ji 50 Chairman
10925 Schmidt Road
El Monte, CA 91733
Jing Jing Long 53 President, Treasurer and Director
10925 Schmidt Road
El Monte, CA 91733
Jim Ji 25 Secretary and Director
10925 Schmidt Road
El Monte, CA 91733
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience of
each director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed.
Jiangyong Ji, age 50, has served as CEO and director of Tank Sport, Inc. from
March 2001 to present; served as co-founder of Steady Star, Inc, a California
Corporation from 1994 to present; served as President, CEO and director of LONG
Sa De CV from September 1998 to present; served as President, CEO and director
of KTMMEX SA DE CV from February 2002 to present. Mr. Ji was the accounting
manager for Beijing Group Wuzhou Hotel, a hotel management company, from Sep
1987 to Dec 1992. Mr. Ji has a bachelor degree from the Air Force Medical School
of People's Republic of China.
Jing Jing Long, age 53, has served as treasurer and director of Tank Sport, Inc.
from March 2001 to present; served as President and co-founder of Steady Star,
Inc., a California Corporation from 1994 to present; served as Manager of Panama
Hua Mei Group, Co. from 1988 to 1991. Ms. Long received a bachelor degree from
First Army Medical School of People's Republic of China.
Jim Ji, age 25, has served as general manager, secretary and director of Tank
Sports, Inc. since September, 2003; served as Technical Support department
supervisor of Giga Fast Ethernet, Inc., a California Corporation, from September
1999 to September 2003. Mr. Ji has received a bachelor's degree from ITT
Technical College.
FAMILY RELATIONSHIPS
Ms. Jing Jing Long is the spouse of Mr. Jiangyong Ji, and Mr. Jim Ji is the son
of Mr. Jiangyong Ji.
27
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past five years, none of our directors, executive officers or persons
that may be deemed promoters is or have been involved in any legal proceeding
concerning (i) any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (ii) any conviction in a
criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses); (iii) being subject to any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction permanently or temporarily enjoining, barring,
suspending or otherwise limiting involvement in any type of business, securities
or banking activity; or (iv) being found by a court, the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law (and the judgment has not been
reversed, suspended or vacated).
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the compensation
paid by our company for services rendered in all capacities to Tank Sports, Inc.
from March 1, 2004 through the fiscal year ended February 28, 2005, of all
officers and directors of our company. We presently have no pension, health,
annuity, insurance, profit sharing or similar benefit plans. Executive
compensation is subject to change concurrent with our company's requirements.
SUMMARY COMPENSATION TABLE
None of our executive officers received an annual salary and bonus that exceeded
$100,000 during the fiscal year ending February 28, 2005. The following table
sets forth the compensation received by Jiangyong Ji, Jing Jing Long and Jim Ji.
We currently do not have any compensation or employment agreements with any of
our executive officers, and we do not anticipate entering into any such
agreements in the foreseeable future.
ANNUAL COMPENSATION LONG TERM
COMPENSATION
NAME AND FISCAL SALARY OTHER SECURITIES
PRINCIPAL POSITION YEAR UNDERLYING
OPTIONS
- -------------------- --------- --------------------------------- --------------
Jiangyong Ji 2005 12,506.88 -0- -0-
Chairman 2004 17,964.23 -0- -0-
2003 25,932.80 -0- -0-
Jing Jing Long 2005 10,856.40 -0- -0-
President, Treasurer 2004 16,481.15 -0- -0-
Director 2003 24,674.00 -0- -0-
Jim Ji 2005 27,527.52 -0- -0-
Secretary and 2004 24,113.04 -0- -0-
Director 2003 1,541.30 -0- -0-
28
EXECUTIVE COMPENSATION - continued
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
COMPENSATION OF DIRECTORS
Generally, our Directors do not receive salaries or fees for serving as
directors, nor do they receive any compensation for attending meetings of the
Board of Directors. Directors are entitled to reimbursement of expenses incurred
in attending meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 2001, Steady Star, Inc., an S Corp, owned by Mr. Ji and Ms. Long (each
50%) ("Steady Star") loaned a total of $90,000 to Tank. Steady Star also
invested $10,000 in "paid in capital" into Tank. Steady Star then become the
100% shareholder of Tank. Steady Star received 10,000 shares of common stock of
Tank for its $10,000 investment. The $90,000 was no interest bearing loan with
maturation date of April 2002. We were able to fund our start up operations with
this loan.
On January 30, 2005, the board of Steady Star consented to a non-liquidation
dividend of its ownership of the 10,000 shares of Tank to its only 2
shareholders, Mr. Ji and Ms. Long, each 5,000 shares.
On March 15, 2005, Mr. Ji gifted a total of 1,501 shares to 8 individuals.
On August 16, 2003, Tank and Steady Star, a related company, jointly entered
into a lease agreement for the term of 36 months with a monthly payment of
$7,840, of which $4,075 was allocated to Tank. The leased space was located at
1718 Floradale Ave, South El Monte, CA 91733 with 15,404 square feet for
warehouse and office use. As we expanded, the space lacked efficient warehouse
space and office presentation required for us to further our business
development.
On August 1, 2005, Tank entered into a new lease agreement for a new facility in
which they operate. The Lessors are Mr. Ji and Ms. Long, whom jointly own the
new warehouse and office. The term of the lease is 60 months with monthly
payments of $19,900. The new space locates at 10925 Schmidt Road, El Monte, CA
91733 with 27,263 square foot industrial building situated on approximately
51,400 square foot of land. The new space is adequate for our current operation.
Tank makes purchase of products from third party vendors in China by having
Steady Star issuing letter of credit to the third party vendor when Tank issues
purchase order to vendors. Upon end of term of the letter of credit, Tank remits
payment to Steady Star, which in turn pays to the vendors. As of the fiscal year
ended February 28, 2005 and the nine months ended November 30, 2005, the amounts
due to Steady Star were $1,285,894 and $2,917,170 (unaudited) respectively. The
amount is due on demand, interest free and unsecured.
Tank and Steady Star share one credit card, which is commonly held under our two
shareholders who are also our directors. The credit card is for business related
purposes only. Tank and Steady Star makes payments to the credit card for each
company's share of the expenses accordingly, each directly to the credit card
company. As of November 30, 2005, the amount due was $1,610, which is due on
demand, interest free and unsecured.
29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 9, 2006, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. All shares included in
the table represent all shares that could be obtained by the individuals listed
within sixty (60) days from the date of this Registration Statement. Each person
has sole voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
- ------------------------- ----------------------- ------------------------
Jiangyong Ji 2,679,200 32.97%
Chairman
Jing Jing Long
President, Treasurer 4,000,000 49.23%
and Director
Jim Ji
Secretary and Director 0 0.00%
All Officers, Directors 6,679,200 81.20%
And 5% Shareholders
CHANGES IN CONTROL
We are unaware of any contract or other arrangement the operation of which may
at a subsequent date result in a change in control of our Company.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 50,000,000 common shares with a par value of $0.001.
As of February 9, 2006, we had 8,125,700 common shares outstanding. Upon
liquidation, dissolution or winding up of the corporation, the holders of common
stock are entitled to share ratably in all net assets available for distribution
to common stockholders after payment to creditors. The common stock is not
convertible or redeemable and has no preemptive, subscription or conversion
rights. Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. There are no cumulative voting
rights.
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefore at such times and in such
amounts as our board of directors may from time to time determine. Holders of
common stock will share equally on a per share basis in any dividend declared by
the board of directors. We have not paid any dividends on our common stock and
do not anticipate paying any cash dividends on such stock in the foreseeable
future.
In the event of a merger or consolidation, all holders of common stock will be
entitled to receive the same per share consideration.
30
PLAN OF DISTRIBUTION
The Selling Shareholders of the common stock of Tank Sports, Inc., and any of
their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their shares of common stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions. The
sales price to the public has been determined by the shareholders to be $1.00
per share. The price of $1.00 per share was arbitrarily determined by the
Selling Shareholders and bears no relationship to our book value. The price of
$1.00 per share is a fixed price until the securities are listed on the OTC
Bulletin Board or other national exchange, and thereafter at prevailing market
prices or privately negotiated prices. There can be no assurance that our shares
will be approved for listing on the OTC Bulletin Board.
The Selling Shareholders may use any one or more of the following methods when
selling shares:
- - ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- - block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- - purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately negotiated transactions;
- - settlement of short sales entered into after the date of this prospectus;
- - broker-dealers may agree with the Selling Shareholders to sell a specified
number of such shares at a stipulated price per share;
- - a combination of any such methods of sale;
- - through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise; or
- - any other method permitted pursuant to applicable law.
The Selling Shareholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each Selling Shareholders does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
In connection with the sale of our common stock or interests therein, the
Selling Shareholders may enter into hedging transactions with broker-dealers or
31
PLAN OF DISTRIBUTION - continued
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Shareholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Shareholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Shareholder has informed us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock.
We are required to pay certain fees and expenses incurred by us incident to the
registration of the shares.
Because the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Currently there
are no shares of our common stock eligible for resale pursuant to Rule 144. Each
Selling Shareholders has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Shareholders.
The resale shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states, the resale shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
Selling Shareholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
Selling Shareholders or any other person. We will make copies of this prospectus
available to the Selling Shareholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.
32
SELLING SHAREHOLDERS
The Selling Shareholders may offer and sell, from time to time, any or all of
the common stock registered pursuant to this Registration Statement. Because the
Selling Shareholders may offer all or only some portion of the 1,446,500 shares
of common stock to be registered, no estimate can be given as to the amount or
percentage of these shares of common stock that will be held by the selling
stockholders upon termination of the offering.
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock by the Selling Shareholders as of February
9, 2006, and the number of shares of common stock covered by this prospectus.
The number of shares in the table represents an estimate of the number of shares
of common stock to be offered by the selling stockholder. None of the Selling
Shareholders is a broker-dealer, or an affiliate of a broker-dealer to our
knowledge.
Selling Shareholders
Shares of Common Stock Owned Prior to Offering Shares of Common Stock to be
Offered for Sale Shares of Common Stock Owned After the Offering Percentage of
Common Stock Owned Before the Offering Percentage of Common Stock Owned After
the Offering How Selling Shareholders originally obtained their shares.
Percentage How Selling
Shares of Shares of Percentage of of Common Shareholders
Selling Shareholders Shares of Common Common Stock Common Stock Common Stock Stock Owned originally
Stock Owned to be Offered Owned After Owned Before After the obtained
Prior to Offering for Sale the Offering the Offering Offering their shares
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
Gifted by
existing
Richard Lui 150,400 150,400 0 1.85% 0 shareholder
on March 15,
2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
Gifted by
existing
Mui Hoo Lui Chong 150,400 150,400 0 1.85% 0 shareholder
on March 15,
2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
Gifted by
existing
Monica Ning Na Ding 149,600 149,600 0 1.84% 0 shareholder
on March 15,
2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
33
Percentage How Selling
Shares of Shares of Percentage of of Common Shareholders
Selling Shareholders Shares of Common Common Stock Common Stock Common Stock Stock Owned originally
Stock Owned to be Offered Owned After Owned Before After the obtained
Prior to Offering for Sale the Offering the Offering Offering their shares
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
154,400
shares were
gifted by
existing
shareholder
Yang Jie Ou 162,400 162,400 0 2.00% 0 on March 15,
2005
8,000 shares
was purchased
from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
154,400
shares were
gifted by
existing
shareholder
Li Yan Lu 155,400 155,400 0 1.91% 0 on March 15,
2005
1,000 shares
was purchased
from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
153,600
shares were
gifted by
existing
shareholder
Yong Tao Jiang 153,800 153,800 0 1.89% 0 on March 15,
2005
200 shares
was purchased
from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
144,400
shares were
gifted by
existing
shareholder
Rui Quan Wu 194,000 194,000 0 2.39% 0 on March 15,
2005
50,000 shares
was purchased
from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
34
Percentage How Selling
Shares of Shares of Percentage of of Common Shareholders
Selling Shareholders Shares of Common Common Stock Common Stock Common Stock Stock Owned originally
Stock Owned to be Offered Owned After Owned Before After the obtained
Prior to Offering for Sale the Offering the Offering Offering their shares
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
214,000
shares were
gifted by
existing
shareholder
Haiyan Chu 214,000 214,000 0 2.63% 0 on March 15,
2005
70,000 shares
was purchased
from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Yun Qi 8,000 8,000 0 0.10% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Li Chen 2,000 2,000 0 0.02% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Chang Zheng Lei 1,800 1,800 0 0.02% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Jiang Huai Ji 1,500 1,500 0 0.02% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
Ming Yang 400 400 0 0.00% 0 purchased
from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Li Li 1,000 1,000 0 0.01% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Wei An Tang 600 600 0 0.01% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Yan Liang Chen 300 300 0 0.00% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Ling Chen 200 200 0 0.00% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Yun Yue Lin 100 100 0 0.00% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
35
Percentage How Selling
Shares of Shares of Percentage of of Common Shareholders
Selling Shareholders Shares of Common Common Stock Common Stock Common Stock Stock Owned originally
Stock Owned to be Offered Owned After Owned Before After the obtained
Prior to Offering for Sale the Offering the Offering Offering their shares
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Ju Huang 100 100 0 0.00% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Xin Jun Mao 100 100 0 0.00% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Zhi Qian Zeng 4,000 4,000 0 0.05% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Jin Li Zhou 1,000 1,000 0 0.01% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Zhi Yi Xue 10,000 10,000 0 0.12% 0 from Reg S in
October 2005
purchased
Xiao Ling Long 10,000 10,000 0 0.12% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Yuk Lan Tse 20,000 20,000 0 0.25% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Pei Yong 5,000 5,000 0 0.06% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Jian Nong Yong 5,000 5,000 0 0.06% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Ming Xue 5,000 5,000 0 0.06% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Ling Ji 20,000 20,000 0 0.25% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Yu Jun Wang 2,000 2,000 0 0.02% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Maribel Roblero Garcia 3,000 3,000 0 0.04% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Estela Guadalupe Hernandez 1,000 1,000 0 0.01% 0 from Reg S in
Velazo October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
36
Percentage How Selling
Shares of Shares of Percentage of of Common Shareholders
Selling Shareholders Shares of Common Common Stock Common Stock Common Stock Stock Owned originally
Stock Owned to be Offered Owned After Owned Before After the obtained
Prior to Offering for Sale the Offering the Offering Offering their shares
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Edgar Valencia Gonzalez 1,000 1,000 0 0.01% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Blanca Vazquez Sanchez 400 400 0 0.00% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Wen Kun Wang 3,000 3,000 0 0.04% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Yu Shuang Ou 5,000 5,000 0 0.06% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
purchased
Ning Chen 5,000 5,000 0 0.06% 0 from Reg S in
October 2005
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
Total 1,446,500 1,446,500 0 17.80% 0
----------------------------- ------------------ --------------- ---------------- --------------- -------------- ---------------
We will require the Selling Shareholders to suspend the sales of the securities
offered by this prospectus upon the occurrence of any event that makes any
statement in this prospectus or the related registration statement untrue in any
material respect or that requires the changing of statements in these documents
in order to make statements in those documents not misleading.
LEGAL MATERS
The validity of the common stock offered by this prospectus has been passed upon
by The O'Neal Law Firm, P.C., 17100 East Shea Boulevard, Suite 400-D, Fountain
Hills, Arizona 85268.
TRANSFER AGENT
Our transfer agent is First American Stock Transfer, 706 E. Bell Road, Suite
202, Phoenix, Arizona 85022.
EXPERTS
The financial statements of Tank included in this registration statement have
been audited by Kabani & Company, Inc., Certified Public Accountants, to the
extent and for the period set forth in their reports appearing elsewhere in the
registration statement, and are included in reliance upon such reports given
upon the authority of said firms as experts in auditing and accounting.
37
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency basis
or had, or is to receive, in connection with the offering, a substantial
interest, directly or indirectly, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant or any of
its parents, subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in and/or disagreements with Kabani & Company, Inc.
on accounting and financial disclosure matters.
DISCLOSURE OF SEC POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 204 of the California General Corporation Law permits a corporation to
include in its Articles of Incorporation provisions eliminating or limiting the
personal liability of directors for monetary damages in an action brought by or
in the right of the corporation for breach of a director's fiduciary duties,
subject to certain limitations. Section 317 of the California General
Corporation Law requires a corporation to indemnify its directors and other
agents to the extent they incur expenses in successfully defending lawsuits
brought against them by reason of their status as directors or agents. Section
317 also permits a corporation to indemnify its directors and other agents to a
greater extent than specifically required by law.
Our Articles of Incorporation, as amended, eliminate the personal liability of
directors of the Company for monetary damages to the fullest extent permissible
under California law. Our Bylaws require that our company, to the maximum extent
permitted by California law, indemnify each of our agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding arising by reason of the fact such person is
or was an agent of Tank. The term "agent" includes any person who (i) is or was
a director, officer, employee or other agent of Tank; (ii) is or was serving at
the request of Tank, as a director, officer, employee or agent of another
business entity; or (iii) was a director, officer, employee or agent of a
corporation which was a predecessor corporation of Tank or of another enterprise
at the request of such predecessor corporation.
The effect of these provisions in our Articles of Incorporation and Bylaws is to
eliminate our ability and that of our shareholders (through shareholder
derivative suits) to recover monetary damages against a director except as
limited by California law. These provisions do not limit or eliminate the rights
of Tank or those of any shareholder to seek non-monetary relief. In any
proceeding arising by reason of the fact a person is or was an agent of Tank,
the agent will be indemnified if he or she acted in good faith and in a manner
the person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of the person was unlawful. There can be no indemnification with
respect to any matter as to which the agent is adjudged to be liable to Tank,
38
DISCLOSURE OF SEC POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES -
continued
unless and only to the extent that the court in which such proceeding was
brought determines upon application that, in view of all of the circumstances of
the case, the agent is fairly and reasonably entitled to indemnity for expenses
as the court shall deem proper.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling Tank
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any document we file at the Commission's Public Reference Room 100 F
Street, N.E., Washington, D.C. You may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can
also obtain copies of our Commission filings by going to the Commission's
website at http://www.sec.gov.
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, under the Securities Act with respect to the securities
offered under this prospectus. This prospectus, which forms a part of that
registration statement, does not contain all information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits. The Internet site of the SEC
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
No finder, dealer, sales person or other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by Tank
Sports, Inc. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date of this prospectus.
39
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Financial Statements Page
Independent Auditor report ......................................... 41
Balance Sheet ..................................................... 42
Statement of Operations ............................................ 43
Statement of Changes in Stockholder's deficit ...................... 44
Statement of Cash Flows ............................................ 45
Notes to Financial Statements ...................................... 46
Financial Statements for nine months ending 11/30/2005
Balance Sheet (UNAUDITED) .......................................... 53
Statement of Operations (UNAUDITED) ................................ 54
Statement of Cash Flows (UNAUDITED) .................................55
Notes to Financial Statements (UNAUDITED) ...........................56
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors and Shareholders
Tank Sports, Inc.
We have audited the accompanying balance sheet of Tank Sports, Inc. as of
February 28, 2005 and the related statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended February 28, 2005.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tank Sports, Inc., as of
February 28, 2005 and the results of its operations and its cash flows for each
of the two years in the period ended February 28, 2005, in conformity with
accounting principles generally accepted in the United States of America.
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has accumulated deficit of $587,953 at February 28, 2005
including a net loss of $121,478 during the year ended February 28, 2005. These
factors as discussed in Note 3 to the financial statements, raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
- ------------------------------
Los Angeles, California
September 12, 2005
41
TANK SPORTS, INC.
BALANCE SHEETS
February 28, 2005
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 40,941
Accounts receivable, net 90,400
Other receivable 23,000
Inventory 333,094
Prepaid expense 6,243
----------
Total current assets 493,678
PROPERTY AND EQUIPMENT, NET 15,862
LOANS RECEIVABLE 196,618
OTHER ASSETS 24,123
----------
TOTAL ASSETS $ 730,281
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Due to affiliate $ 1,285,894
Other payables 16,287
Accrued liabilities 6,053
----------
Total current liabilities 1,308,234
COMMITMENTS
STOCKHOLDERS' DEFICIT
Share capital ($0.001 par value, authorized 50,000,000 shares,
issued and outstanding 8,000,000 shares) 10,000
Accumulated deficit (587,953)
----------
Total stockholders' deficit (577,953)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 730,281
==========
The accompanying notes are an integral part of these financial statements
42
TANK SPORTS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004
Years Ended
February 28, February 29,
2005 2004
----------- -----------
REVENUE $ 2,858,609 $ 1,886,237
COST OF GOODS SOLD 2,170,044 1,409,157
----------- -----------
GROSS PROFIT 688,565 477,080
OPERATING EXPENSES
Selling expenses 299,832 159,850
General and administrative expenses 510,077 396,758
----------- -----------
Total operating expenses 809,909 556,608
----------- -----------
INCOME (LOSS) FROM OPERATIONS (121,344) (79,528)
NON-OPERATING INCOME (EXPENSES)
Other income 765 38
Interest income (expense) (899) (647)
----------- -----------
Total non-operating income (expenses) (134) (609)
----------- -----------
NET INCOME (LOSS) $ (121,478) $ (80,137)
=========== ===========
WEIGHTED AVERAGE SHARES OF SHARE CAPITAL
OUTSTANDING, BASIC AND DILUTED * 8,000,000 8,000,000
=========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.02) $ (0.01)
=========== ===========
* The basic and diluted net income (loss) per share has been restated to
retroactively effect a 1:800 forward stock split on October 10, 2005
The accompanying notes are an integral part of these financial statements
43
TANK SPORTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED FEBRUARY 28, 2005 AND 2004
Common Stock
----------------------- Total
Number of Accumulated stockholders'
shares Amount Deficit deficit
--------- --------- --------- ---------
Balance at February 28, 2003 8,000,000 $ 10,000 $(386,338) $(376,338)
Net loss for the year ended February 29, 2004 -- -- (80,137) (80,137)
--------- --------- --------- ---------
Balance at February 29, 2004 8,000,000 10,000 (466,475) (456,475)
Net loss for the year ended February 28, 2005 -- -- (121,478) (121,478)
--------- --------- --------- ---------
Balance at February 28, 2005 * 8,000,000 $ 10,000 $(587,953) $(577,953)
========= ========= ========= =========
* Total number of issued and outstanding shares of common stock has been
restated to retroactively effect a 1:800 forward stock split
The accompanying notes are an integral part of these financial statements
44
TANK SPORTS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004
Years Ended
February February
28, 2005 29, 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(121,478) $ (80,137)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,203 3,334
(Increase) decrease in current assets:
Accounts receivable (2,231) 58,764
Other receivable (23,000) --
Inventory 359,284 (65,248)
Prepaid expense (214) (4,634)
Other assets 10,417 (23,520)
Increase (decrease) in current liabilities:
Due to affiliate (187,195) 232,269
Other payables (17,942) 29,519
Accrued liabilities 997 4,251
--------- ---------
Net cash provided by operating activities 24,841 154,598
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment on purchase of property (629) (20,809)
Loans receivable (50,167) (146,451)
--------- ---------
Net cash used in investing activities (50,796) (167,260)
--------- ---------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (25,954) (12,662)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 66,896 79,558
--------- ---------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 40,941 $ 66,896
========= =========
The accompanying notes are an integral part of these financial statements
45
TANK SPORTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Tank Sports ("Tank" or "the Company") was incorporated on March 5, 2001 as
Bi-Tank, Inc. On June 21, 2004, the Company amended its Articles of
Incorporation and changed its name to Tank Sports, Inc. The Company is located
in the city of South 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of 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.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and cash in time deposits,
certificates of deposit and all highly liquid debt instruments with original
maturities of three months or less.
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.
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. Allowance for doubtful debts amounted to
$40,783 as of February 28, 2005.
Inventory
Inventories are valued at the lower of cost (determined on a weighted average
basis) or market. Management compares the cost of inventories with the market
value and an allowance is made for writing down the inventories to the market
value, if lower. Inventories comprised of finished goods amounting $333,094 as
of February 28, 2005.
Loans receivable
On January 10, 2004 and December 20, 2004, the Company loaned $146,451 and
$50,167 to two unrelated parties at interest rate of 6% per annum. The loans are
unsecured, both principal and interest are payable on January 10, 2007 and
December 20, 2007, respectively.
46
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Other assets
Other assets comprised of deposits amounting $24,123 as of February 28, 2005.
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. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation of equipment is provided using the straight-line method for
substantially all assets with estimated lives of 5 years for office equipment
and machinery. The following were the details of the property and equipment as
of February 28, 2005:
Machinery & equipment $24,382
Less: Accumulated depreciation (8,520)
---------
Net $ 15,862
==========
Due to affiliate
The Company issues purchase orders to third party vendors in China. However, the
third party vendors are paid by a US company owned by the shareholder of the
Company. This affiliated company issues letter of credit in favor of vendors
when the Company issues purchase order to the vendors. The Company makes payment
to this affiliated company, which in turn pays to the vendors. The amount due to
this affiliate were $1,285,894 as of February 28, 2005. The amount is due on
demand, interest free and unsecured.
Long-lived assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal. Based on its
review, the Company believes that, as of February 28, 2005, there were no
significant impairments of its long-lived assets.
47
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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 at the date of
shipment to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectbility is reasonably assured. Payments received before
all of the relevant criteria for revenue recognition are satisfied to be
recorded as unearned revenue.
Advertising costs
The Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the years ended
February 29, 2004 and February 28, 2005 were $18,037 and $50,772, respectively.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company uses the intrinsic value method prescribed by APB 25 and has
opted for the disclosure provisions of SFAS No.123.
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 income (loss) per share
Net income (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
income (loss) per share for all periods presented has been restated to reflect
the adoption of SFAS No. 128. Basic net income (loss) per share is based upon
48
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
the weighted average number of common shares outstanding. Diluted net income
(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.
Recent pronouncements
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 second quarter of fiscal 2006.
The Company believes that the adoption of this standard will have no material
impact on its financial statements.
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. We are evaluating the effect the adoption of this
interpretation will have on its financial position, cash flows and results of
operations.
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.
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
$587,953 including a net loss of $121,478 during the year ended February 28,
2005. The 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.
49
3. GOING CONCERN - continued
Management has taken the following 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. Management devoted considerable effort
towards (i) build "Tank" brand (ii) set up sales channels to increase sales
(iii) liquidate less profitable products, and focus on selling more profitable
motorcycles (vi) obtain additional equity. Management believes that the above
actions will allow the Company to continue operations through the next fiscal
year.
4. SHAREHOLDERS' EQUITY
In April 2001, Steady Star, Inc. became a 100% shareholder of the Company. On
January 30, 2005, the board of Steady Star, Inc. consented a non-liquidating
dividend of its ownership of the 10,000 pre forward-split shares (note 11) of
the Company (5,000 pre forward-split shares each) to Steady Star, Inc.'s only 2
shareholders. On March 15, 2005, one of the shareholders gifted a total of 1,501
pre-split shares of his portion to 8 individuals.
5. INCOME TAXES
The Company incurred net operating losses for tax purposes of approximately
$544,717 through February 28, 2005. Differences between financial statement and
tax losses consist primarily of bad debts allowance of $40,783 at February 28,
2005. The net operating loss carry forward may be used to reduce taxable income
through the year 2025. Net operating loss for carry forward for the State of
California is generally available to reduce taxable income through the year
2010. The availability of the Company's net operating loss carry forward is
subject to limitation if there is a 50% or more positive change in the ownership
of the Company's stock. The provision for income taxes consists of the state
minimum tax imposed on corporations.
The gross deferred tax asset balances, due to net operating loss carry forward
and allowance for bad debts, were $217,887 as of February 28, 2005. A 100%
valuation allowance has been established against the deferred tax assets, as the
utilization of the loss carry forward cannot reasonably be assured. Components
of deferred tax assets at February 28, 2005 are as follows:
Net operating loss $ 234,200
Allowance for bad debt (16,313)
-----------
Deferred tax asset 217,887
Less: valuation allowance (217,887)
-----------
$ -
===========
50
5. INCOME TAXES - continued
The following is a reconciliation of the provision for income taxes at the U.S.
federal and California state income tax rate to the income taxes reflected in
the Statements of Operations:
February 28, February 29,
2005 2004
Tax expense (credit)
at statutory rate-federal (34)% (34)%
State tax expense net of federal tax ( 6) ( 6)
Changes in valuation allowance 40 40
------------ --------------
Tax expense at actual rate - -
============ ==============
6. BASIC AND DILUTED NET LOSS PER SHARE
Net income (loss) per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
Basic net income (loss) per share is based upon the weighted average number of
common shares outstanding. Diluted net income (loss) per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Weighted average number of shares used to compute basic and
diluted loss per share is the same since there are no dilutive securities. The
basic and diluted net income (loss) per share has been restated to retroactively
effect a 1:800 forward stock split on October 10, 2005.
7. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company had four major vendors that each provided over 10 % of the Company's
purchases for the year ended February 29, 2004. Total purchases from these
vendors were 91 % of the Company's total inventory purchases for the year ended
February 29, 2004. The Company had two major vendors that each provided over 10%
of the Company's inventory for the year ended February 28, 2005. Total purchases
from these vendors were 85% of the Company's total inventory purchases for the
year ended February 28, 2005.
There were no major customers whose purchases accounted for over 10% of the
Company's total revenue for the year ended February 29, 2004. There was one
major customer whose purchases accounted for 13% of the total revenue for the
year ended February 28, 2005. The total receivable balance due from this
customer was $12,892 as of February 28, 2005.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95. The Company paid $647
and $899 for interest for the years ended February 29, 2004 and February 28,
2005, respectively. The Company paid $800 each year for income tax for the years
ended February 29, 2004 and February 28, 2005.
51
9. RELATED PARTIES
Lease commitment
In August 16, 2003, Tank and its affiliated company entered into a lease
agreement for the facilities in which they operate. The term of the lease is 36
months with monthly payments of $7,840, of which approximately $4,075 is
allocated to Tank. Rent expense was $37,903 and $63,170 for the years ended
February 29, 2004 and February 28, 2005.
On August 1, 2005, Tank entered into another lease agreement for the new
facilities in which they operate. The lessors are Tank's 2 shareholders who are
also Tank's directors. The term of the lease is 60 months with monthly payments
of $19,900.
Minimum annual rent payments for Tank for each of the next 5 years are
approximately $238,800 each year.
Due to related parties and purchases
The Company purchases from third party vendors in China. However, the third
party vendors are paid by a US company owned by some of the shareholders of the
Company. This affiliated company issues letter of credit in favor of vendors
when the Company issues purchase order to the vendors. The Company makes payment
to this affiliated company, which in turn pays to the vendors. The amounts due
to this affiliate were $1,285,894 as of February 28, 2005. The amount is due on
demand, interest free and unsecured.
10. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
year presentation.
11. SUBSEQUENT EVENTS (unaudited)
On October 10, 2005, Tank Sports, Inc. amended its articles to increase its
number of authorized shares from 1,000,000 to 50,000,000 shares, at par value of
$0.001 and a forward split of 800 shares for one. The financial statements have
been retroactively restated for the effects of forward stock splits.
On October 10, 2005, Tank Sports, Inc. board consented a Regulation S offering
of 300,000 shares of common stock at $1.00 per share. As of October 30, 2005,
Tank Sports, Inc. closed the Regulation S offering and was able to collect
$125,700 from 34 shareholders.
52
Financial Statements for nine months ending 11/30/2005
TANK SPORTS, INC.
BALANCE SHEET
NOVEMBER 30, 2005
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash & cash equivalents $ 65,616
Accounts receivable, net 324,962
Other receivable 31,590
Inventory 2,152,376
Prepaid expense 16,940
-----------
Total current assets 2,591,484
PROPERTY AND EQUIPMENT, NET 64,075
LOANS RECEIVABLE 196,618
OTHER ASSETS 24,423
-----------
TOTAL ASSETS $ 2,876,600
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 102,114
Accrued liabilities 153,411
Customer deposit 99,951
Loan payable 1,960
Due to related parties 2,251
Due to affiliate 2,917,170
-----------
Total current liabilities 3,276,857
LONG TERM LIABILITIES
Loan payable 35,454
-----------
Total liabilities 3,312,312
COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock (authorized 50,000,000 shares,
$0.001 par value, issued and outstanding
8,125,700 shares) 8,126
Additional paid in capital 127,574
Accumulated deficit (571,412)
-----------
Total stockholders' deficit (435,712)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,876,600
===========
The accompanying notes are an integral part of these
unaudited financial statements
53
TANK SPORTS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED NOVEMBER 30, 2005 AND 2004
(UNAUDITED)
Three Month Periods Ended Nine Month Periods Ended
November 30, November 30, November 30, November 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
REVENUE $ 3,099,860 $ 764,763 $ 5,722,220 $ 2,178,860
COST OF GOODS SOLD 2,353,305 624,973 4,170,942 1,735,070
----------- ----------- ----------- -----------
GROSS PROFIT 746,555 139,790 1,551,278 443,790
OPERATING EXPENSES
Selling expenses 341,392 67,076 598,888 195,265
General and administrative expenses 423,200 100,286 934,647 354,063
----------- ----------- ----------- -----------
Total operating expenses 764,592 167,363 1,533,535 549,328
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (18,037) (27,572) 17,743 (105,539)
NON-OPERATING INCOME (EXPENSES)
Other income -- -- 258 762
Interest income (expense) (631) -- (1,460) 3
----------- ----------- ----------- -----------
Total non-operating income (expenses) (631) -- (1,202) 766
----------- ----------- ----------- -----------
NET INCOME (NET LOSS) $ (18,667) $ (27,572) $ 16,541 $ (104,773)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OF SHARE CAPITAL
OUTSTANDING, BASIC AND DILUTED 8,044,202 8,000,000 8,014,627 8,000,000
=========== =========== =========== ===========
BASIC AND DILUTED NET INCOME (NET LOSS) PER SHARE $ (0.00) $ (0.00) $ 0.00 $ (0.01)
=========== =========== =========== ===========
* The basic and diluted net income (loss) per share has been restated to
retroactively effect a 1:800 forward stock split on October 10, 2005
The accompanying notes are an integral part of these
unaudited financial statements
54
TANK SPORTS, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED NOVEMBER 30, 2005 AND 2004
(UNAUDITED)
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Net Loss) $ 16,541 $ (104,771)
Adjustments to reconcile net income (net loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,902 4,219
(Increase) decrease in current assets:
Accounts receivable (234,562) (33,984)
Other receivable (8,590) (23,000)
Inventory (1,819,282) 182,440
Prepaid expense (11,497) 6,030
Other assets 500 (103)
Increase (decrease) in current liabilities:
Accounts payable 102,114 --
Customer deposit 92,951 8,516
Due to affiliate 1,633,527 (1,003)
Other payables -- 3,998
Accrued liabilities 142,604 (5,058)
----------- -----------
Net cash provided by (used in) operating activities (77,792) 37,284
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment on purchase of property (17,579) (629)
Loans receivable -- (50,167)
----------- -----------
Net cash used in investing activities (17,579) (50,796)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan repayment (5,654) (2,942)
Capital contribution 125,700 --
----------- -----------
Net cash provided by (used in) financing activities 120,046 (2,942)
----------- -----------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 24,675 (16,454)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 40,941 66,896
----------- -----------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 65,616 $ 50,442
=========== ===========
The accompanying notes are an integral part of these
unaudited financial statements
55
TANK SPORTS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Tank Sports, Inc. ("Tank" or "the Company") was incorporated in the state of
California on March 5, 2001. The Company is located in the city of South 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.
Basis of Preparation
The accompanying Interim Condensed Financial Statements are prepared in
accordance with rules set forth in Retaliation SB of the Securities and Exchange
Commission. As said, these statements do not include all disclosures required
under generally accepted principles and should be read in conjunction with the
audited financial statements for the year ended February 28, 2005. In the
opinion of management, all adjustments consisting of normal reoccurring accruals
have been made to the financial statements. The results of operation for the
nine months ended November 30, 2005 are not necessarily indicative of the
results to be expected for the fiscal year ending February 28, 2006.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
period presentation.
2. RECENT PRONOUNCEMENTS
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 second quarter of fiscal 2006.
The Company believes that the adoption of this standard will have no material
impact on its financial statements.
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. We are evaluating the effect the adoption of this
interpretation will have on its financial position, cash flows and results of
operations.
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.
56
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. The Company has accumulated deficit of $571,412 and
negative working capital of $685,373 as of November 30, 2005. The 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 the following 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. Management devoted considerable effort
towards (i) build "Tank" brand (ii) set up sales channels to increase sales
(iii) liquidate less profitable products, and focus on selling more profitable
motorcycles (vi) obtain additional equity.
Management believes that the above actions will allow the Company to continue
operations through the next fiscal year.
4. LOAN RECEIVABLE
On January 10, 2004 and December 20, 2004, the Company loaned $146,451 and
$50,167 to two unrelated parties at interest rate of 6% per annum. The loans are
unsecured, both principal and interest are payable on January 10, 2007 and
December 20, 2007, respectively.
5. INCOME TAXES
Through November 30, 2005, the Company incurred net operating losses for tax
purposes of approximately $564,202. Differences between financial statement and
tax losses consist primarily of bad debts allowance of $7,210 as of November 30,
2005. The net operating loss carry forward may be used to reduce taxable income
through the year 2025. Net operating loss for carry forward for the State of
California is generally available to reduce taxable income through the year
2010. The availability of the Company's net operating loss carry forward is
subject to limitation if there is a 50% or more positive change in the ownership
of the Company's stock. The provision for income taxes consists of the state
minimum tax imposed on corporations.
The gross deferred tax asset balance, due to net operating loss carry forward
and allowance for bad debts, as of November 30, 2005 was $225,681. A 100%
valuation allowance has been established against the deferred tax assets, as the
utilization of the loss carry forward cannot reasonably be assured. Components
of deferred tax assets at November 30, 2005 are as follows:
57
5. INCOME TAXES - continued
Net operating loss $ 228,565
Allowance for bad debt (2,884)
------------
Deferred tax asset 225,681
Less: valuation allowance (225,681)
------------
$ -
============
The following is a reconciliation of the provision for income taxes at the U.S.
federal and California state income tax rate to the income taxes reflected in
the Statements of Operations:
November 30, November 30,
2005 2004
Tax expense (credit) at statutory rate-federal 34% (34)%
State tax expense net of federal tax 6 ( 6)
Changes in valuation allowance (40) 40
------------ -----------
Tax expense at actual rate - -
============ ===========
6. BASIC AND DILUTED NET INCOME (NET LOSS) PER SHARE
Net income (net loss) per share is calculated in accordance with the Statement
of financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
Basic net income (net loss) per share is based upon the weighted average number
of common shares outstanding. Diluted net income (net loss) per share is based
on the assumption that all dilutive convertible shares and stock options were
converted or exercised. Weighted average number of shares used to compute basic
and diluted loss per share is the same since there are no dilutive securities.
7. STOCKHOLDERS' EQUITY
On October 10, 2005, Tank Sports, Inc. amended its articles to increase its
number of authorized shares from 1,000,000 to 50,000,000 shares, at par value of
$0.001 and a forward split of 800 shares for one. The financial statements have
been retroactively restated for the effects of forward stock splits.
On October 10, 2005, Tank Sports, Inc. board consented a Regulation S offering
of 300,000 shares of common stock at $1.00 per share. As of October 30, 2005,
Tank Sports, Inc. closed the Regulation S offering, 125,700 shares were issued
and collected $125,700 from 34 shareholders.
On November 23, 2005, the Company filed a registration statement under the
Securities Act of 1933 (SB-2) to register 1,446,500 shares of its common stock.
The registration statement is under the review of Security and Exchange
Commission. Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities.
58
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The Company paid $0 and $800 for income tax in the nine month periods ended
November 30, 2005 and 2004, respectively. The Company paid $1,460 and $0 for
interest during the nine month periods ended November 30, 2005 and 2004,
respectively.
9. RELATED PARTIES
On August 1, 2005, Tank entered into another lease agreement for the new
facilities in which they operate. The lessors are Tank's two shareholders who
are also Tank's directors. The term of the lease is 60 months with monthly
payments of $19,900. As of November 30, 2005, the amount due was $641. The
amount is due on demand, interest free and unsecured.
Minimum annual rent expense for Tank for the year subsequent to November 30,
2005 is as follows:
Period Amount
1 year after November 30, 2005 $ 238,800
Rent expenses were $117,221 and $55,020 for the nine month periods ended
November 30, 2005 and 2004, respectively.
Tank and its affiliated company share one credit card. The credit card is a
commonly held card under Tank's 2 shareholders who are also Tank's directors.
The credit card is for business related purposes only. Tank and its affiliated
company will make payments for each company's share of the expenses accordingly
directly to the credit card company. As of November 30, 2005, the amount due was
$1,610. The amount is due on demand, interest free and unsecured.
The Company issues purchase orders to third party vendors in China. However, the
third party vendors are paid by a US company owned by some of the shareholders
of the Company. This affiliated company issues letter of credit in favor of
vendors when the Company issues purchase order to the vendors. The Company makes
payment to this affiliated company, which in turn pays to the vendors. As of
November 30, 2005, the amount due to this affiliate was $2,917,170. The amount
is due on demand, interest free and unsecured.
10. COMMITMENT
On August 16, 2003, Tank and its affiliated company commonly entered into a
lease agreement for the facilities in which they operate. The term of the lease
is 36 months with monthly payments of $7,840, of which approximately $4,075 is
allocated to Tank. The minimum annual rent expense for this lease agreement for
the year subsequent to November 30, 2005 is $34,638.
On August 1, 2005, Tank entered into another lease agreement for the new
facilities in which they operate. The lessors are Tank's 2 shareholders who are
also Tank's directors. The term of the lease is 60 months with monthly payments
of $19,900.
59
Dealer Prospectus Delivery Obligation
Until 90 days from the effective date of this Registration Statement, all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
60
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 204 of the California General Corporation Law permits a corporation to
include in its Articles of Incorporation provisions eliminating or limiting the
personal liability of directors for monetary damages in an action brought by or
in the right of the corporation for breach of a director's fiduciary duties,
subject to certain limitations. Section 317 of the California General
Corporation Law requires a corporation to indemnify its directors and other
agents to the extent they incur expenses in successfully defending lawsuits
brought against them by reason of their status as directors or agents. Section
317 also permits a corporation to indemnify its directors and other agents to a
greater extent than specifically required by law.
Our Articles of Incorporation, as amended, eliminate the personal liability of
directors of the Company for monetary damages to the fullest extent permissible
under California law. Our Bylaws require that our company, to the maximum extent
permitted by California law, indemnify each of our agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding arising by reason of the fact such person is
or was an agent of Tank. The term "agent" includes any person who (i) is or was
a director, officer, employee or other agent of Tank; (ii) is or was serving at
the request of Tank, as a director, officer, employee or agent of another
business entity; or (iii) was a director, officer, employee or agent of a
corporation which was a predecessor corporation of Tank or of another enterprise
at the request of such predecessor corporation.
The effect of these provisions in our Articles of Incorporation and Bylaws is to
eliminate our ability and that of our shareholders (through shareholder
derivative suits) to recover monetary damages against a director except as
limited by California law. These provisions do not limit or eliminate the rights
of Tank or those of any shareholder to seek non-monetary relief. In any
proceeding arising by reason of the fact a person is or was an agent of Tank,
the agent will be indemnified if he or she acted in good faith and in a manner
the person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of the person was unlawful. There can be no indemnification with
respect to any matter as to which the agent is adjudged to be liable to Tank,
unless and only to the extent that the court in which such proceeding was
brought determines upon application that, in view of all of the circumstances of
the case, the agent is fairly and reasonably entitled to indemnity for expenses
as the court shall deem proper.
61
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with this
registration:
SEC Registration Fees $ 170.37
Printing and Engraving Fees (1) $ 3,000.00
Accounting Fees and Expenses $ 42,500.00
Legal Fees and Expenses $ 24,000.00
Transfer Agent Fees and Expenses (1) $ 750.00
- ------------------------------------------------------------------
TOTAL $ 70,420.37
(1) We have estimated these amounts.
RECENT SALES OF UNREGISTERED SECURITIES
From October 10, 2005 through October 30, 2005, we conducted an offering of 125,
700 shares of our common stock to 34 investors residing in China and Mexico at a
price of $1.00 per share for an aggregate value to our company of $125,700.
We relied upon Regulation S of the Securities Act of 1933, as amended (the
"Act"). Our officers and directors determined the sophistication of our
investors, as the investors were all foreign accredited investors. Each investor
completed a subscription agreement whereby the investors certified that they
were purchasing the shares for their own accounts, 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. No shares were
sold to investors residing within the United States of America. In addition, we
complied with the applicable requirements of Rules 902 and 903 of the Act.
EXHIBITS
Exhibit # Description
- --------- --------------------------------------
3.1 Articles of Incorporation (1)
3.2 Amendment to Articles of Incorporation (1)
3.3 Amendment to Articles of Incorporation (1)
3.4 Bylaws (1)
4.1 Office and Warehouse Lease (1)
4.2A Minutes of Special Meeting of Board of Directors
4.2B Minutes of Special Meeting of Board of Directors
4.3 Old Office and Warehouse Lease
5.1 Opinion and Consent of Counsel
23.1 Consent of Independent Auditor
(1) Incorporated by reference from Form SB-2/A filed November 23, 2005
62
UNDERTAKINGS
The undersigned registrant hereby undertakes:
1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(b) To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which is being
registered) any deviation from the high or low end of the estimated maximum
range may be reflected in the form of prospectus filed with the commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(c) To include any additional or changed material information on the plan of
distribution.
2) For determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered and the
offering of the securities at that time to be the initial bona fide offering.
3) File a post-effective amendment to remove from registration any of the
securities being registered, which remain unsold at the end of the offering.
4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Tank
pursuant to provisions of the State of California or otherwise, we have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and we will be
governed by the final adjudication of such issue.
63
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned in the city
of El Monte, California on February 9, 2006.
TANK SPORTS, INC.
By: /s/ Jing Jong Long
--------------------------
Jing Jong Long,
Principal Executive Officer
By: /s/ Jing Jong Long
----------------------------
Jing Jong Long
Principal Financial Officer
Principal Accounting Officer
In accordance with the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: February 9, 2006 /s/ Jiangyong Ji
-------------------------------
Jiangyong Ji, Chairman
Date: February 9, 2006 /s/ Jing Jing Long
-------------------------------
Jing Jing Long, President, Director
Date: February 9, 2006 /s/ Jim Ji
------------------------------
Jim Ji, Director
64