Financial Gravity Companies, Inc. - Annual Report: 2011 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2011
Commission file number: 333-144504
Kat Racing, Inc. |
(Exact Name of Registrant as Specified in its Charter) |
Nevada |
| 20-4057712 |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
9500 W. Flamingo Rd. Suite 205
Las Vegas, NV 89147
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (702) 525-2024
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes . No X .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes . No .
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | . | Accelerated filer | . |
Non-accelerated filer | . (Do not check if a smaller reporting company) | Smaller reporting company | X . |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X .
For the year ended September 30, 2011, the issuer had related party income of $16,410.
The Company’s common stock, $.001 par value is traded on the OTCBB.
The number of shares outstanding of the issuer’s common stock, $.001 par value, as of February 14, 2012 was 5,749,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
Kat Racing, Inc.
Form 10-K Annual Report
Table of Contents
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PART I |
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Item 1. | Business | 3 |
Item 1A. | Risk Factors | 4 |
Item 1B. | Unresolved Staff Comments | 6 |
Item 2. | Properties | 6 |
Item 3. | Legal Proceedings | 6 |
Item 4. | Submission of Matters to a Vote of Security Holders | 6 |
PART II |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 6 |
Item 6. | Selected Financial Data | 7 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 7 |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 8 |
Item 8. | Financial Statements and Supplementary Data | 8 |
Item 9. | Change in and Disagreements with Accountants on Accounting and Financial Disclosure | 8 |
Item 9A(T). | Controls And Procedures | 9 |
Item 9B. | Other Information | 9 |
PART III |
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Item 10. | Directors, Executive Officers, and Corporate Governance | 10 |
Item 11. | Executive Compensation | 11 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 11 |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 12 |
Item 14. | Principal Accountant Fees and Services | 12 |
PART IV |
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Item 15. | Exhibits and Financial Statement Schedules | 12 |
FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors”. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. The terms “we”, “our”, “us”, or any derivative thereof, as used herein refer to Kat Racing, Inc.
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PART 1
CORPORATE BACKGROUND
Kat Racing designs, manufactures, markets, sells and distributes custom off-road racing.
We strive to join leaders in the industry, developing and innovating so as to proffer our customers cost-efficient high quality custom-built, off-road racing and recreational vehicles. We test our parts in real-world conditions to insure high quality cars and products. We race what we sell. Our vehicles are assembled by our affiliate Kat Metal Worx, Inc. Kat Metal Worx is 100% owned by Kenny Thatcher who is the President of Kat Racing. The arrangement between Kat Metal Worx and Kat Racing is as follows. Kat Racing pays for the parts and materials to build the car. Kat Metal Worx builds all of the cars. There is no mark up on the materials or parts. Kat Racing then markets the products. The profits from the sales are split 50/50 between Kat Racing and Kat Metal Worx. Kat Metal Worx, Inc. will not charge for any labor or overhead in building a car. From time to time we may utilize the services of other companies or individuals to assemble our vehicles.
Kat Racing is engaged in the businesses of:
(1) Designing, manufacturing, marketing and selling custom fabricated off-road racing and recreational vehicles to sports and recreational enthusiasts;
(2) Providing a full-range of services that cater to the off-road automotive enthusiast, including post-purchase add-on customization and the installation of additional accessories; and
(3) The restoration, repair, servicing of these vehicles. We also intend to sell aftermarket off-road automotive parts, accessories, and related apparel assuming we are able to attract the requisite capital and resources.
Our affiliate's manufacturing operations consist of in-house production of components and parts, primarily assembly and finishing of components, painting, conversion and assembly of vehicles, and quality control, which includes performance testing of finished products under running conditions. The custom design, fabrication, finish and paint processes are moved into and out of each aspect of the manufacturing process.
We test our parts in the off road racing circuits such as SCORE International, Best in the Desert and Southern Nevada Off Road Enthusiasts. We also do testing in the desert to insure quality. We still test the lower grade parts and accessories in testing situations for use on the pre runners and sand buggies. Lower grade parts would not be used in racecars. We choose certain random races each year in which our clients use our products and cars in their racing and after the races Kat Racing inspects the cars.
Our full range of services includes brand new construction of racecars to pre-runner to sand buggies. We also offer preparation of existing vehicles and installation of parts and repairs. As of right now we were focusing strictly on the sales side of the business and have not actively marketed the services side. We have just started the marketing of the services side to include repair and maintenance. We expect to have revenue from this service side shortly. Kat Racing is currently stressing its repair and maintenance services on its website and in communications with prospective customers. Given initial interest, Kat Racing expects that it will have beginning revenues from the service side in the near future.
We are following up with past Kat Metal Worx clients as possible future clients for services and products. Kat Metal Worx has built up its own client base over its years in existence. When Kat Racing was started four years ago Kat Metal Worx had a waiting list of cars to be built. In the time since then, that list has been depleted through cars having been built and sold or through the withdrawal of names by the clients. To date Kat Metal has built 6 cars in '06, 1 in '07 and 2 cars were completed in '08.
Employees
At September 30, 2011, the Company had 1 employee, the Company’s officer and director, who devotes part time efforts to the Company and whom has not taken any salary as of September 30, 2011. None of its employees were represented by a collective bargaining arrangement.
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The Company does not carry key person life insurance on any of its Directorial personnel. The loss of the services of any of its executive officers or other directors could have a material adverse effect on the business, results of operations and financial condition of the Company. The Company's future success also depends on its ability to retain and attract highly qualified technical and managerial personnel.
There can be no assurance that the Company will be able to retain its key managerial and technical personnel or that it will be able to attract and retain additional highly qualified technical and managerial personnel in the future. The inability to attract and retain the technical and managerial personnel necessary to support the growth of the Company's business, due to, among other things, a large increase in the wages demanded by such personnel, could have a material adverse effect upon the Company's business, results of operations and financial condition.
THE COMPANY IS ESPECIALLY SUBJECT TO RISKS ASSOCIATED WITH THE CURRENT SLUGGISH ECONOMY AND HIGH FUEL PRICES
The current sluggish economy and high fuel prices are likely to have an adverse effect on the Company. The products of the Company are not necessities of life and as such are especially susceptible to economic downturns. This is especially true given the current high fuel prices and the high fuel burn rate of our off road vehicles.
THE OFFICERS OF THE COMPANY ARE NOT CURRENTLY RECEIVING COMPENSATION AND MAY BE SUBJECT TO OTHER EMPLOYMENT OFFERS
The officers of the Company are not currently receiving any compensation. Lack of compensation may make it more likely that they accept employment offers from other firms therefore the Company will be forced to pay compensation to retain such employees. This will create additional expenses not currently reflected in our financials. Once the Company has achieved regular cash flow, our officers will be making $36,000 a year in compensation each.
KAT MANY NOT BE ABLE TO ATTAIN PROFITABILITY WITHOUT ADDITIONAL FUNDING, WHICH MAY BE UNAVAILABLE.
Kat has limited capital resources. Unless Kat begins to generate sufficient revenues to finance operations as a going concern, Kat may experience liquidity and solvency problems. While Kat does not foresee such difficulties in the next 12 months, liquidity and solvency problems may force Kat to go out of business if additional financing is not available.
OUR OFFICERS AND DIRECTORS PROVIDE SERVICES TO US ON A PART-TIME BASIS AND HAVE NO EXPERIENCE MANAGING A PUBLIC COMPANY. AS A RESULT, WE MAY BE UNABLE TO SELL THE SHARES IN THIS OFFERING, DEVELOP OUR BUSINESS AND MANAGE OUT PUBLIC REPORTING REQUIREMENTS.
Our operations depend on the efforts of Kenny Thatcher and Julie Bauman our officers, directors and employees. They have no experience related to public company management, nor as a principal accounting officer. Because of this, we may be unable to offer and sell the shares in this offering, develop our business and manage our public reporting requirements. We cannot guarantee you that we will overcome any such obstacle.
Our officers and directors are involved in other business opportunities and may face a conflict in selecting between Kat and their other business interests. We have not formulated a policy for the resolution of such conflicts. If we lose our officers or directors to other pursuits without a sufficient warning we may, consequently, go out of business.
COMPLIANCE WITH FEDERAL, STATE AND LOCAL GOVERNMENT REGULATIONS EFFECTING PRODUCTION
We are subject to direct regulation by the Department of Transportation, Environmental Protection Agency and Federal Trade Commission as well as other local, state and federal agencies. Compliance with the regulations established by these agencies is very costly and affects our manufacturing process. Any changes in the laws or regulations imposed on us by these agencies could significantly increase our production costs and could have a very negative effect on our business.
CONSUMER DISCRETIONARY SPENDING MAY EFFECT PURCHASES
Purchases of recreational vehicles, such as our off-road vehicles are considered discretionary for consumers. Our success will therefore be influenced by a number of economic factors affecting discretionary consumer spending, such as employment levels, business conditions, interest rates, petroleum prices, and taxation rates, all of which are not under our control. Adverse economic changes affecting these factors may restrict consumer spending and thereby adversely affect our growth and profitability.
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RISK OF VEHICLE DEFECTS
Our vehicles may have unanticipated defects which could require us to recall them. A product recall could delay or even halt production until we are able to correct any such defects. Recalls may also have a materially negative effect on our brand image and public perception of our vehicles and any other products we develop and thereby adversely affect our future sales. Such recalls or other defects would also require substantial expenditures to correct.
LIABILITIES ASSOCIATED WITH OUR VEHICLES
Given the nature of our products, we expect that we will be subject to potential product liability claims that could, in the absence of sufficient insurance coverage, have a material adverse impact on our business. Although we intend to obtain adequate insurance coverage prior to commencing substantive operations, there can be no assurance that we will be able to secure or maintain adequate liability insurance to cover all product liability claims. As a new market entrant, any large product liability suits occurring early in our marketing efforts may significantly adversely affect our ability to market our vehicles. We have no current plans to purchase liability insurance and currently lack the resources to purchase such insurance.
ENVIRONMENTAL RISK ASSOCIATED WITH PRODUCTION LIABILITIES
Our business operations and facilities, particularly those of our affiliate Kat Metal Worx, Inc., are subject to a number of federal, state and local environmental laws and regulations. Although we believe that our operations and facilities are in material compliance with such laws and regulations, the risk of environmental liabilities cannot be completely eliminated. There can be no assurance that future changes in such laws, regulations or the nature of our operations will not require us to make significant additional capital expenditures to ensure compliance in the future. Our failure to comply with environmental laws could result in the termination of our operations, impositions of fines, or liabilities in excess of our capital resources. We do not maintain environmental liability insurance, and if we are required to pay the expenses related to any environmental liabilities, such expenses could have a material adverse effect on our operations.
RISKS OF NON-APPROVAL FROM, ENVIRONMENTAL PROTECTION AGENCY, DEPARTMENT OF TRANSPORTATION, STATE AND LOCAL AGENCIES
We may be required to obtain approvals and make certifications regarding compliance with federal, state and local regulations regarding the noise, emissions and safety characteristics of our vehicles. In addition, our affiliate's manufacturing facility may be required to comply with environmental and safety standards. The potential delays and costs that could result from obtaining such regulatory approvals and complying with, or failing to comply with, such regulations could result in delays in vehicle assembly and adversely affect operating results.
RISK OF NOT BEING ABLE TO COMPETE WITH LARGER COMPANIES
The market for the type of vehicles we manufacture is extremely competitive and we expect that competition will increase in the future. Our competitors include many large companies that have substantially greater market presence and financial resources than we do.
We believe that our ability to compete successfully depends on a number of factors including:
1. design of high performance and quality vehicles;
2. market presence;
3. timely delivery of our vehicles;
4. competitive pricing policies;
5. the timing and introduction of our products and services into the market; and
6. our ability to keep up with existing and emerging industry trends.
Current or increased competition may either prevent us from entering or maintaining a place in the vehicle manufacturing market. We cannot guarantee that we will have the financial resources or marketing and manufacturing capabilities to compete successfully. If we cannot successfully compete, we probably will be forced to terminate our operations. See "Business Competition".
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DEPENDENCE ON VEHICLE PARTS AND MATERIALS SUPPLIERS
We rely on third party suppliers to produce the parts and materials we use to manufacture our vehicles. If our suppliers are unable or unwilling to provide us with the parts and supplies, we will be unable to produce our vehicles. We cannot guarantee that we will be able to purchase the parts we need at reasonable prices or in a timely fashion. If we are unable to purchase the supplies and parts we need to manufacture our vehicles, we will experience severe production problems, which may possibly result in the termination of our operations.
RISKS ASSOCIATED WITH NOT KEEPING OUR PRODUCTS AND TECHNOLOGY CURRENT AND COMPETITIVE
Our success depends on our ability to develop innovative competitive vehicles that meet changing customer demands. The off-road racing industry is subject to rapidly changing technology and emerging competition. We cannot assure you that we will be able to successfully identify new opportunities and develop and bring new products to market in a timely manner, nor can we guarantee you that products developed by our competitors will not make our products non-competitive or obsolete. Also, we cannot assure you that we will have the capital resources or the ability to implement any new technology.
RISK ASSOCIATED WITH MARKET ACCEPTANCE OF OUR PRODUCT LINE
Our success depends on whether or not our products are accepted in the market. You should be aware that development stage companies introducing new products into the market are subject to a high level of uncertainty and risk. Because the market for our vehicles is new and evolving we cannot predict the size and future growth rate, if any, of the market. We cannot assure you that the market for our vehicles will develop or that demand for our vehicles will emerge or become economically sustainable. Market acceptance of our products depends on our ability to establish a brand image and a reputation for high quality, which will differentiate our brand of products from our competitors. There can be no assurance that our products will be perceived as being of high quality and differentiated from such other products, or that we will be successful in establishing our intended brand image. In addition, our management team has no experience manufacturing or marketing vehicles on a large scale. Our management's lack of experience could result in the failure of our ability to sell our vehicles.
RELIANCE UPON KEY PERSONNEL AND NECESSITY OF ADDITIONAL PERSONNEL
KAT is largely dependent upon the personal efforts and abilities of existing management, especially Kenny Thatcher (President) and Julie Bauman (Secretary). The success of KAT will also be largely dependent upon the ability of KAT to continue to attract quality management and employees to help operate KAT as its operations may grow.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
The Company does not own any property at the present time and has no agreements to acquire any property. Our executive offices are located at 9500 W. Flamingo Rd. Suite 205, Las Vegas, NV 89147. (The space is approximately 150 square feet total) and is provided by a shareholder at no cost. We believe that this space is adequate for our needs at this time, and we believe that we will be able to locate additional space in the future, if needed, on commercially reasonable terms.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market Information. Our Common Stock is trading on the OTC:BB. No assurance can be given that any active market for our Common Stock will ever develop.
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(b) Holders. As of September 30, 2011, there were 32 record holders of all of our issued and outstanding shares of Common Stock.
(c) Dividend Policy
We have not declared or paid any cash dividends on our Common Stock and do not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends, if any, is within the discretion of the Board of Directors and will depend on our earnings, if any, our capital requirements and financial condition and such other factors as the Board of Directors may consider.
ITEM 6. SELECTED FINANCIAL DATA.
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Certain statements in this report and elsewhere (such as in other filings by the Company with the Securities and Exchange Commission ("SEC"), press releases, presentations by the Company of its management and oral statements) may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and "should," and variations of these words and similar expressions, are intended to identify these forward-looking statements. Actual results may materially differ from any forward-looking statements. Factors that might cause or contribute to such differences include, among others, competitive pressures and constantly changing technology and market acceptance of the Company's products and services. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Kat Racing, Inc. was incorporated on December 5, 2005. As of the date of this document, we have generated no revenues and substantial expenses. This resulted in a net loss of since inception, which is attributable to general and administrative expenses.
Since incorporation, we have financed our operations primarily through minimal initial capitalization.
To date we have not implemented our fully planned principal operations. The continued realization of sales revenues in the next 12 months is important in the execution of the plan of operations. However, we cannot guarantee that it will generate such growth. If we do not produce sufficient cash flow to support our operations over the next 12 months, we may need to raise additional capital by issuing capital stock in exchange for cash in order to continue as a going concern. There are no formal or informal agreements to attain such financing. We cannot assure any investor that, if needed, sufficient financing can be obtained or, if obtained, that it will be on reasonable terms. Without realization of additional capital, it would be unlikely for operations to continue.
Kat Racing, Inc.’s management does not expect to conduct any research and development.
Kat Racing, Inc. currently does not own any significant plant or equipment that it would seek to purchase or sell in the near future.
Our management does not anticipate any significant changes in the number of employees in the next 12 months. Currently, we believe the services provided by our officers and directors are sufficient at this time.
We have not paid for expenses on behalf of any director. Additionally, we believe that this practice will not materially change.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
(ii) RESULTS OF OPERATIONS
The Company has earned no significant revenue or profits to date, and the Company anticipates that it will continue to incur net losses for the foreseeable future. The Company incurred a net loss of $33,847 for the year ended September 30, 2011, as compared to a net loss of $21,529 for 2010. From the date of inception December 5, 2005, to September 30, 2011, the Company lost a total of $ 186,331. Most labor and services have been compensated with issuances of stock or cash payment has been deferred.
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Liquidity and Capital Resources
The Company has financed its expenses and costs thus far through financing and through the increase in its accounts payable, payments made by others for the company and by the settlement of the payable amounts with shares of common stock of the Company and with its minimal revenue. As of September 30, 2011, the Company had a cash of $2,673 compared to cash of $2,725 as September 30, 2010.
For the most recent fiscal year, 2011, the Company incurred a loss in the amount of $33,847 and $21,529 for 2010. Both years’ losses are a result of organizational expenses and expenses associated with setting up a Company structure in order to begin implementing its business plan. The Company anticipates that until these procedures are completed, it will not generate revenues, and may continue to operate at a loss thereafter, depending upon the performance of the business.
During the period from December 5, 2005 (date of inception) through September 30, 2011, the Company has incurred an accumulated net loss of $186,331 and has not attained profitable operations. The Company is dependent upon obtaining adequate financing to enable it to pursue its business plan and manage its operations so that they are profitable.
(iii) The Company has limited financial resources available, which has had an adverse impact on the Company's liquidity, activities and operations. These limitations have adversely affected the Company's ability to obtain certain projects and pursue additional business. There is no assurance that the Company will be able to raise sufficient funding to enhance the Company's financial resources sufficiently to generate volume for the Company, or to engage in any significant research and development, or purchase plant or significant equipment.
Management has been successful in raising sufficient funds to cover the Company’s immediate expenses including the cost of auditing and filing required documents for 2011.
The Company as a whole may continue to operate at a loss for an indeterminate period thereafter, depending upon the performance of its new businesses. In the process of carrying out its business plan, the Company will continue to identify new financial partners and investors. However, it may determine that it cannot raise sufficient capital to support its business on acceptable terms, or at all. Accordingly, there can be no assurance that any additional funds will be available on terms acceptable to the Company or at all. As of September 30, 2011, the company was authorized to issue70,000,000 shares of common stock.
Commitments
We do not have any commitments, which are required to be disclosed in tabular form as of September 30, 2011.
Off-Balance Sheet Arrangements
As of September 30, 2011, we have no off-balance sheet arrangements such as guarantees, retained or contingent interest in assets transferred, obligation under a derivative instrument and obligation arising out of or a variable interest in an unconsolidated entity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the index to the Financial Statements below, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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ITEM 9A.
CONTROLS AND PROCEDURES
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2011 using the criteria established in “ Internal Control - Integrated Framework ” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of September 30, 2011, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.
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We did not maintain appropriate cash controls – As of September 30, 2011, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.
2.
We did not implement appropriate information technology controls – As at September 30, 2011, the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2011 based on criteria established in Internal Control—Integrated Framework issued by COSO.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of September 30, 2011, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth information concerning our officers and directors as of September 30, 2011:
Name | Age | Position | Period of Service(1) |
Kenny Thatcher | 34 | President, Director | Since December 2005 |
Julie Bauman | 37 | Secretary, Treasurer, Director | Since December 2005 |
Notes:
(1) A Director will hold office until the next annual meeting of the stockholders, which shall be held in January of 2010. At the present time, Officers are appointed by the Board of Directors and will hold office until he or she resigns or is removed from office. The maximum number of directors we are authorized to have is at the discretion of the Board of Directors. However, in no event may we have less than one director. Although we anticipate appointing additional directors, we have not identified any such person(s).
(2) Both Kenny Thatcher and Julie Bauman have held their respective offices/positions since December 2005 and are expected to continue to hold their offices/positions until the next annual meeting of our stockholders. At the date of this prospectus, we are not engaged in any transactions, either directly or indirectly, with any persons or organizations considered promoters.
Background of Directors, Executive Officers, Promoters and Control Persons
Kenny Thatcher
President and Director - Mr. Thatcher’s the owner/fabricator for Kat Metal Worx, Inc. He learned how to fabricate and weld back in high school. He attended a trade school that taught him how to work with fabricate and weld metal. In 1995 he graduated high school and started work with RAMM Corp. There he put his skills to work welding and fixing large machinery. In 1997 he went to work with Cashman Equipment as a welder and mechanic for large machinery. In 1999 he started work with Clark County doing maintenance. He continued to use his skills fabricating and welding in different jobs that would arise. In 2001 he went to work for Patrick signs where he was able to put his artistic talent to work. He designed, fabricated and welded signs for many companies around town. In August 2003 he started his own company called Kat Metal Worx, Inc. His company specializes in designing, fabricating and building off road racecars, sand dune buggies and pre-runners. His shop has grown from himself to a crew of four employees with a waiting list to get your car built or fixed. In December 2005, he started Kat Racing, Inc.
Julie Bauman
Secretary, Treasurer, and Director - Ms. Bauman is a native of Las Vegas, Nevada. Ms. Bauman graduated in 1992 and immediately went to work for a real estate firm as an office manager (Prudential Hallmark Realty from 1991-94). From there she went to work for National Title as a commercial escrow assistant. While working for national Title, Ms. Bauman started a window covering company to new and existing homeowners. Ms. Bauman eventually left National Title to run her company, which was eventually sold to another company. Ms. Bauman then became a commercial escrow officer of 1st American Title where she managed a four-person team in handling multi-million dollar deals for her current client base. Ms. Bauman was one of the largest producers for 1st American Title, which is one of the largest publicly traded title companies in the U.S.A.
Ms. Bauman worked at National Title from 1994 to 1998 and from 2000 to 2001. She worked at First American Title from 2001 to March 2006 and Fiesta Blinds from 1993 to March 2006. She started Kat Racing, Inc. in December 2005. Since March 2006, Ms. Bauman’s only employment has been with Kat Racing, Inc.
Compensation and Audit Committees
As we only have two board members and given our limited operations, we do not have separate or independent audit or compensation committees. Our Board of Directors has determined that it does not have an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K. In addition, we have not adopted any procedures by which our shareholders may recommend nominees to our Board of Directors.
10
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of our Common Stock (collectively, the “Reporting Persons”) to report their ownership of and transactions in our Common Stock to the SEC. Copies of these reports are also required to be supplied to us. To our knowledge, during the fiscal year ended September 30, 2011 the Reporting Persons complied with all applicable Section 16(a) reporting requirements.
Code of Ethics
We have not adopted a Code of Ethics given our limited operations. We expect that our Board of Directors following a merger or other acquisition transaction will adopt a Code of Ethics.
ITEM 11. EXECUTIVE COMPENSATION.
Kenny Thatcher and Julie Bauman are our sole officers and directors. They do not receive any regular compensation for their services rendered on our behalf. They did not receive any compensation during the years ended September 30, 2011 and 2010. No officer or director is required to make any specific amount or percentage of his business time available to us.
Director Compensation
We do not currently pay any cash fees to our sole director, nor do we pay director’s expenses in attending board meetings.
Employment Agreements
We are not a party to any employment agreements.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information as of September 30, 2011 regarding the number and percentage of our Common Stock (being our only voting securities) beneficially owned by each officer, director, each person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known by us to own 5% or more of our Common Stock, and all officers and directors as a group.
Class | Name & Address of Certain Beneficial Owners | Amount of Beneficial Ownership | Percent of Class |
Common | Michael Zuliani 6260 S. Rainbow Blvd. Suite 100 Las Vegas, NV 89118 | 2,000,000 | 34.78% |
Common | Julie Bauman 10120 W. Flamingo Rd. Suite 205 Las Vegas, Nevada 89147 | 2,000,000 | 34.78% |
Common | Kenny Thatcher 9070 Duncan Ave., Las Vegas, Nevada 89108 | 400,000 | 6.96% |
Common | B and Z Consulting, LLC 6260 S. Rainbow Blvd. Suite 100 Las Vegas, Nevada 89118 | 300,000 | 5.22% |
Common | Officers and Directors as a Group | 2,400,000 | 41.75% |
Unless otherwise indicated, we have been advised that all individuals or entities listed have the sole power to vote and dispose of the number of shares set forth opposite their names. For purposes of computing the number and percentage of shares beneficially owned by a security holder, any shares which such person has the right to acquire within 60 days of September 30, 2011 are deemed to be outstanding, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other security holder.
We currently do not maintain any equity compensation plans.
11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Our Board of Directors consist solely of Kenny Thatcher and Julie Bauman. They are not independent as such term is defined by a national securities exchange or an inter-dealer quotation system.
Various related party transactions are reported throughout the notes to our financial statements and should be considered incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
M & K CPA’s is our independent registered public accounting firm.
Audit Fees
The aggregate fees billed by M & K CPA’s for professional services rendered for the audit of our annual financial statements and review of financial statements included in our quarterly reports on Form 10-Q or services that are normally provided in connection with statutory and regulatory filings were $5,250 for the fiscal years ended September 30, 2011 and 2010.
Audit-Related Fees
There were no fees billed by M & K CPA’s for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements for the fiscal years ended September 30, 2011 and 2010, respectively.
Tax Fees
The aggregate fees billed by M&K CPA’s for professional services for tax compliance, tax advice, and tax planning were $0 and $0 for the fiscal years ended September 30, 2011 and 2010, respectively.
All Other Fees
There were no fees billed by M&K CPA’s for other products and services for the fiscal years ended September 30, 2011 and 2010, respectively.
Pre-Approval Policy
We do not currently have a standing audit committee. The above services were approved by our Board of Directors.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following financial statements and the report of our independent registered public accounting firm, are filed herewith.
·
Report of Independent Registered Public Accounting Firm
·
Balance Sheets at September 30, 2011 and 2010
·
Statements of Operations for the years ended September 30, 2011 and 2010and for the cumulative period from December 5, 2005 (Date of Inception) to September 30, 2011
·
Statements of Changes in Shareholders’ Deficiency for the period from December 5, 2005 (Date of Inception) to September 30, 2011
·
Statements of Cash Flows for the years ended September 30, 2011 and 2010, and for the cumulative period from December 5, 2005 (Date of Inception) to September 30, 2011
·
Notes to Financial Statements
12
2. Financial Statement Schedules.
Schedules are omitted because the information required is not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits Incorporated by Reference or Filed with this Report.
Exhibit |
| Description |
31.1 |
| Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002* |
|
|
|
31.2 |
| Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002* |
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32.1 |
| Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.* |
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|
32.2 |
| Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.* |
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Kat Racing, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of Kat Racing, Inc. (a development stage company) as of September 30, 2011 and 2010 the related statements of operations, changes in stockholders' deficit, and cash flows for the years ended September 30, 2011and 2010 and the period from December 5, 2005 (inception) through September 30, 2011. 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 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kat Racing, Inc., as of September 30, 2011 and 2010, and the results of its operations and cash flows for the periods described above in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has a working capital deficit and incurred an accumulated net loss from operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
February 14, 2012
F-1
F-2
KAT RACING, INC. | |||||||||||
(A Development Stage Company) | |||||||||||
Statements of Operations | |||||||||||
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| From Inception | |
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| on December 5, | |
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| For the Year Ended |
| 2005 Through | |||||
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| September 30, |
| September 30, | |||||
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| 2011 |
| 2010 |
| 2011 | |||
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| |||
REVENUES |
| $ | - |
| $ | - |
| $ | - | ||
COST OF SALES |
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| - |
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| - |
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| - | ||
GROSS MARGIN |
|
| - |
|
| - |
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| - | ||
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OPERATING EXPENSES |
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| General and administrative |
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| 16,048 |
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| 4,705 |
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| 148,012 | |
| Profession Fees –Legal |
|
| - |
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| 3,500 |
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| 3,500 | |
| Professional Fees |
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| 29,543 |
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| 4,073 |
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| 33,776 | |
| Professional Fees-Accounting |
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| - |
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| 7,700 |
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| 7,700 | |
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| Total Operating Expenses |
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| 45,591 |
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| 19,978 |
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| 192,988 |
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OTHER INCOME (EXPENSE) |
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| Related Party Income |
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| 16,410 |
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| - |
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| 16,410 |
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| Interest expense |
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| (4,666) |
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| (1,551) |
|
| (9,753) |
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NET OTHER INCOME (EXPENSE) |
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| 11,744 |
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| (1,551) |
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| 6,657 | ||
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NET LOSS |
| $ | (33,847) |
| $ | (21,529) |
| $ | (186,331) | ||
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BASIC LOSS PER SHARE |
| $ | (0.01) |
| $ | (0.00) |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
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| 5,749,000 |
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| 5,749,000 |
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The accompanying notes are a integral part of these financials statements. | |||||||||||
F-3
KAT RACING, INC. | |||||||||||||
(A Development Stage Company) | |||||||||||||
Statements of Stockholders' Equity (Deficit) | |||||||||||||
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| Deficit |
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| Accumulated |
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| Additional |
| During the |
| Total | |||
| Common Stock |
| Paid-In |
| Development |
| Stockholders' | ||||||
| Shares |
| Amount |
| Capital |
| Stage |
| Equity (Deficit) | ||||
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Balance, December 5, 2005 | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
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Common stock issued for cash at $0.00375 per share | 4,000,000 |
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| 4,000 |
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| 11,000 |
|
| - |
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| 15,000 |
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Common stock issued for services | 300,000 |
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| 300 |
|
| - |
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| - |
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| 300 |
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Common stock issued for cash at $0.05 per share | 1,049,000 |
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| 1,049 |
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| 51,401 |
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| - |
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| 52,450 |
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Common stock issued for contributed capital | 400,000 |
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| 400 |
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| 35,100 |
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| - |
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| 35,500 |
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Net loss from inception through September 30, 2006 | - |
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| - |
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| - |
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| (14,420) |
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| (14,420) |
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Balance, September 30, 2006 | 5,749,000 |
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| 5,749 |
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| 97,501 |
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| (14,420) |
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| 88,830 |
Imputed interest on related party payable | - |
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| - |
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| 1,010 |
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| - |
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| 1,010 |
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Net loss for the year ended September 30, 2007 | - |
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| - |
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| - |
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| (105,271) |
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| (105,271) |
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Balance, September 30, 2007 | 5,749,000 |
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| 5,749 |
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| 98,511 |
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| (119,691) |
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| (15,431) |
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Imputed interest on related party payable | - |
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| - |
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| 1,152 |
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| - |
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| 1,152 |
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Net loss for the year ended September 30, 2008 | - |
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| - |
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| - |
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| (9,682) |
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| (9,682) |
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Balance, September 30, 2008 | 5,749,000 |
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| 5,749 |
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| 99,663 |
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| (129,373) |
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| (23,961) |
Imputed interest on related party payable | - |
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| - |
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| 1,374 |
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| - |
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| 1,374 |
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Net loss for the year ended September 30, 2009 | - |
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| - |
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| - |
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| (1,582) |
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| (1,582) |
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Balance, September 30, 2009 | 5,749,000 |
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| 5,749 |
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| 101,037 |
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| (130,955) |
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| (24,169) |
Contributed Capital | - |
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| - |
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| 2,000 |
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| - |
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| 2,000 |
Imputed interest on related party payable | - |
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| - |
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| 1,551 |
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| - |
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| 1,551 |
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Net Loss for the year ended September 30, 2010 | - |
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| - |
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| - |
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| (21,529) |
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| (21,529) |
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Balance, September 30, 2010 | 5,749,000 |
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| 5,749 |
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| 104,588 |
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| (152,484) |
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| (42,147) |
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Imputed interest on related party note payable | - |
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| - |
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| 4,666 |
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| - |
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| 4,666 |
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Net Loss for the year ended September 30, 2011 | - |
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| - |
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| - |
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| (33,847) |
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| (33,847) |
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Balance September 30, 2011 | 5,749,000 |
| $ | 5,749 |
| $ | 109,254 |
| $ | (186,331) |
| $ | (71,328) |
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The accompanying notes are an integral part of these financial statements. | |||||||||||||
F-4
KAT RACING, INC. | |||||||||||
(A Development Stage Company) | |||||||||||
Statements of Cash Flows | |||||||||||
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| From Inception | ||||
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| on December 5, | ||||
| For the Year Ended |
| 2005 Through | ||||||||
| September 30, |
| September 30, | ||||||||
| 2011 |
| 2010 |
| 2011 | ||||||
OPERATING ACTIVITIES |
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| Net loss | $ | (33,847) |
| $ | (21,529) |
| $ | (186,331) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: |
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| Stock based compensation |
| - |
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| - |
|
| 300 | |
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| Imputed interest |
| 4,666 |
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| 1,551 |
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| 9,753 | |
| Changes in operating assets and liabilities |
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| ||
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| Increase (decrease) in accounts payable |
| 2,015 |
|
| 401 |
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| 2,114 | |
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| Net Cash Used in Operating Activities |
| (27,166) |
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| (20,379) |
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| (174,164) |
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INVESTING ACTIVITIES |
| - |
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| - |
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| - | |||
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FINANCING ACTIVITIES |
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| Borrowing from related parties |
| 27,114 |
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| 20,545 |
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| 71,887 | |
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| Common stock issued for cash |
| - |
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| - |
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| 67,450 | |
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| Contributed capital |
| - |
|
| 2,000 |
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| 37,500 | |
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| Net Cash Provided by Financing Activities |
| 27,114 |
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| 22,545 |
|
| 176,837 |
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| NET INCREASE (DECREASE) IN CASH |
| (52) |
|
| 2,166 |
|
| 2,673 | |
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| |||
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| CASH AT BEGINNING OF PERIOD |
| 2,725 |
|
| 559 |
|
| - | |
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| |||
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| CASH AT END OF PERIOD | $ | 2,673 |
| $ | 2725 |
| $ | 2,673 | |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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| CASH PAID FOR: |
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| Interest | $ | - |
| $ | - |
| $ | - | |
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| Income Taxes | $ | - |
| $ | - |
| $ | - | |
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The accompanying notes are an integral part of these financial statements. | |||||||||||
F-5
KAT RACING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND 2010
1.
Organization and Description of Business
Nature of Business
Kat Racing, Inc. (the Company) was incorporated in the State of Nevada on December 5, 2005. The Company is engaged in the principal business activity of manufacturing cost-effective and innovative off-road racing cars for any off-road enthusiast.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The Company follows accounting principles generally accepted in the United States of America. In the opinion of management all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
Use of Estimates
The preparation of the 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. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Basic (Loss) per Common Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at September 30, 2011 and 2010, the Company had no potentially dilutive shares.
Revenue Recognition
The Company will recognize revenue in accordance with Accounting Standards Codification No. 605, REVENUE RECOGNITION ("ASC-605"), ASC-605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
F-6
Fair Value of Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable and amounts due to related parties. Pursuant to ASC 820 and 825, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Income Taxes
The Company provides for income taxes in accordance with FASB ASC 740-10, which require the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
FASB standards require the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 39% to the net loss before provision for income taxes for the following reasons:
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| September 30, |
| September 30, |
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| 2011 |
| 2010 |
Income tax expense at statutory rate | $ | 13,200 | $ | 8,396 |
Common stock issued for services |
| -0- |
| -0- |
Valuation allowance |
| (13,200) |
| (8,396) |
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Income tax expense per books | $ | -0- | $ | -0- |
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Net deferred tax assets consist of the following components as of: |
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| September 30, |
| September 30, |
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| 2011 |
| 2010 |
Deferred tax asset | $ | 72,669 | $ | 59,469 |
Valuation allowance |
| (72,669) |
| (59,469) |
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Net deferred tax asset | $ | -0- | $ | -0- |
F-7
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $186,331 for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years. Net operating loss carry forwards begin to expire in 2025.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company had not incurred any advertising expense as of September 30, 2011 and 2010.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. There were no cash equivalents as of September 30, 2011 or 2010.
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Stock-based compensation.
As of September 30, 2011, the Company had not issued not issued any shares for services.
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Warranty and Product Liability Reserve
The Company will maintain a reserve for the estimated value of the parts and services to be delivered under its warranty agreements and the estimated uninsured product liability. The initial reserve will be 5% of sales. After one year the Company will estimate the accrual to the reserve based upon historical rates of claims made by customers as a percentage of sales of its off road cars. The Company has not yet realized sales of its off road cars. Accordingly, the Company has not recorded a reserve for warranty and product liability as of September 30, 2011 or 2010. The Company will begin accruing the warranty and product liability reserve when sales of off roads cars commence.
Development Stage Company
The Company is considered a development stage company, having limited operating revenues during the period presented, as defined by Accounting Standards Codification ASC 915-205 “Development-Stage Entities”. ASC 915-205 requires companies to report their operations, shareholders equity and cash flows since inception through the date that revenues are generated from management’s intended operations, among other things. Management has defined inception as December 5, 2005. Since inception, the Company has incurred a net loss of $186,331 Management has provided financial data since December 5, 2005, “Inception”, in the financial statements.
Concentration of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk are cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of FDIC insurance limits. As of September 30, 2011 and 2010, there were no deposits in excess of federally insured limits.
F-8
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on January 1, 2012. The Company does not expect that the guidance effective in future periods will have a material impact on its financial statements.
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. This amendment explains which modifications constitute troubled debt restructurings (“TDR”). Under the new guidance, the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification to be considered a TDR, certain basic criteria must still be met. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year of adoption. The Company does not expect that the guidance effective in future periods will have a material impact on its financial statements.
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
2.
COMMON STOCK
On December 5, 2005, the Company received $15,000 from its founders for 4,000,000 shares of its common stock in order to establish the Company. On December 27, 2005, the Company issued 300,000 shares of its common stock for services. The stock was valued at $0.001 per share, which represented management’s best estimate of the market value of the stock. On the same date, the Company also issued 400,000 shares of its common stock in exchange for contributed capital valued at $35,500. On August 13, 2006, the Company completed an unregistered private offering under the Securities Act of 1933, as amended, relying upon the exemption from registration afforded by Rule 504 of Regulation D promulgated there under. The Company sold 1,049,000 shares of its $0.001 par value common stock at a price of $0.05 per share for $52,450 in cash. There were no common stock sales or other transactions that took place between September 30, 2006 and September 30, 2011.
F-9
3.
RELATED PARTY TRANSACTIONS
The Company recognized related party income in the amount of $16,410 for the year ended September 30, 2011. The income is from marketing services and lead generation provided to entities controlled by Mike Zulliani who is a 34% shareholder of Kat Racing, Inc. This has been classified as other income in the income statement due the services performed not a part of the company’s regular operations.
The Company had received $71,887 as of September 30, 2011 as an advance from related parties to fund ongoing operations. The related party payable is non interest bearing, unsecured and due upon demand. The Company has recorded imputed interest expense of $4,666 and $1,551 for fiscal years end September 30, 2011 and 2010 as additional paid-in capital.
4.
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 $186,331 as of September 30, 2011. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. The preceding raises substantial doubt about the Company’s ability to continue as a going concern.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. These funds would be used to market the Company’s products. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
5.
SUBSEQUENT EVENTS
There were no reportable subsequent events from September 30, 2011 through the date this report is filed.
F-10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Kat Racing, Inc. |
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Date: Feb. 13, 2012 |
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| By: /s/ Julie Bauman |
| Julie Bauman, Secretary |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Date: Feb. 13, 2012 |
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| By: /s/ Kenny Thatcher |
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| Kenny Thatcher, President and Director |
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| (Principal Executive Officer) |
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Date: Feb. 13, 2012 |
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| By: /s/ Julie Bauman |
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| Julie Bauman, Chief Financial Officer |
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| (Principal Financial and Accounting Officer) |
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