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):
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
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.
PART 1
ITEM 1. BUSINESS.
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.
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.
ITEM 1A. RISK FACTORS.
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.
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".
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.
ITEM 2. PROPERTIES
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.
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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.
(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.