SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-KSB**





(Mark
      One)




o
            Annual
                report pursuant to section 13 or 15(d) of the Securities Exchange
                Act of
                1934 [*Fee
                Required*]
                for the fiscal year ended December 31, 2007 oro
            Transition
                report pursuant to section 13 or 15(d) of the Securities Exchange
                Act of
                1934 [*No
                Fee Required*]
                for the transition period from _________ to
                _________.





Commission
      File No. 333-125868





**EXECUTE
      SPORTS, INC.**


(Exact
      name of registrant as specified in its charter)




**Nevada**
            
            **30-0038070**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                Number)




21143
      Hawthorne BL #425


Torrance,
      CA 90503


**** (Address,
      Including Zip Code, Including Area Code, Of Registrant’s mailing
      address)





**Registrant’s
      telephone number, including area code:**


**(310)
      515-8902**




**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:**


None





**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:**


Common
      Stock, par value $.001 per share




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 xNO o




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




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-KSB or any amendment
      to
      this Form 10-KSB. o




The
      Registrant’s revenues for the year ended December 31, 2007 were $1,832,011.




The
      aggregate market value of the Registrant’s common stock held by non-affiliates
      (77,980,744) of the Registrant on March 7, 2008 (based on the closing sale
      price
      of US $0.012 per share of the Registrant’s common stock, as reported on
      Over-The-Counter Bulletin Board on that date) was approximately U.S. $935,769.
      Common stock held by each officer and director and by each person known to
      the
      Registrant to own 5% or more of the outstanding common stock has been excluded
      in that those persons may be deemed to be affiliates. This determination of
      affiliate status is not necessarily a conclusive determination for other
      purposes.




The
      number of shares of the Registrant’s common stock outstanding on March 7, 2008
      was 90,446,790.




Documents
      incorporated by reference: None





Transitional
      Small Business Disclosure Format (Check one): YES oNO x







TABLE
      OF
      CONTENTS




ITEM
                  NUMBER AND CAPTION
              
              PAGEPART
                  I1.
              
              Description
                of Business
              
              11A.
              
              Risk
                Factors
              
              62.
              
              Description
                of Property
              
              163.
              
              Legal
                Proceedings
              
              164.
              
              Submission
                of Matters to a Vote of Security Holders
              
              16PART
                  II5.
              
              Market
                for Common Equity and Related Stockholder Matters
              
              176.
              
              Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
              
              187.
              
              Financial
                Statements
              
              288.
              
              Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
              
              288A.
              
              Controls
                and Procedures
              
              28PART
                  III9.
              
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section
                  16(a) of the Exchange Act
              
              3010.
              
              Executive
                Compensation
              
              3211.
              
              Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
              
              3512.
              
              Certain
                Relationships and Related Transactions
              
              3613.
              
              Exhibits
                and Reports on Form 8-K
              
              3814.
              
              Principal
                Accountant Fees and Services
              
              39









**PART
      I**





**Forward
      Looking Statement**





Statements
      in this Annual Report on Form 10-KSB (including the exhibit) that are not purely
      historical facts, including statements regarding Execute Sports, Inc.'s beliefs,
      expectations, intentions or strategies for the future, may be "forward-looking
      statements" under the Private Securities Litigation Reform Act of 1995. All
      forward-looking statements involve a number of risks and uncertainties that
      could cause actual results to differ materially from the plans, intentions
      and
      expectations reflected in or suggested by the forward-looking statements. Such
      risks and uncertainties include, among others, introduction of products in
      a
      timely fashion, market acceptance of new products, cost increases, fluctuations
      in and obsolescence of inventory, price and product competition, availability
      of
      labor and materials, development of new third-party products and techniques
      that
      render Execute Sports, Inc.’s products obsolete, delays in obtaining regulatory
      approvals, potential product recalls and litigation. Risk factors, cautionary
      statements and other conditions which could cause Execute Sports, Inc.'s actual
      results to differ from management's current expectations are contained in
      Execute Sports, Inc.'s filings with the Securities and Exchange Commission.
      Execute Sports, Inc. undertakes no obligation to update any forward-looking
      statement to reflect events or circumstances that may arise after the date
      of
      this filing.




**ITEM
      1. BUSINESS**





**SUMMARY
      OF CORPORATE HISTORY**





Execute
      Sports, Inc. (the “Company,” “we” or “us”) was founded in 2002 as Padova
      International USA, Inc. to produce graphics kits and ancillary soft goods for
      the motocross, enduro and ATV markets.





In
      2003,
      the Company launched its water sports division under the “Execute” brand to
      provide wetsuits, vests, rash guards and ancillary products to the wake board
      and ski markets.





Over
      the
      past few years, we have established distribution for our products throughout
      North America, Europe, Australia, South Africa and into Asia with customers
      including GI Joe’s, Big 5, Boater’s World, Bass Pro and Overton’s.





In
      2006,
      we expanded our commitment to the action sports industry by acquiring Pacific
      Sports Group, Inc., (“PSG”) which owned and operated Academy Snowboards, Kampus
      Wakesk8s, Kampus Wake Shoes and Collective Development Bags and Bindings. During
      2006, the Company found the return on investment of the previous PSG brands
      was
      insufficient to justify spending additional resources on these brands moving
      into 2007. Thus, in January, 2007, the Company entered into a trademark transfer
      and assignment agreement whereby all right, title, interest and goodwill in
      the
      Academy brand were transferred to the two former owners of PSG. In connection
      with the transfer, all of the Company’s accounts payable and accounts receivable
      relating to this trademark were assigned as well.




1





In
      August
      2007, the Company further expanded its product mix by purchasing the right,
      title, interest and goodwill relating to the SUGAR SAND trade names, trademarks,
      service marks, and service names, including www.sugarsand.com from
      Challenger Powerboats, Inc.





The
      Company was headquartered in Laguna Niguel, California (with previous offices
      in
      San Clemente and Oceanside, California) but moved to Torrance, CA in April
      2007.
      The Company now maintains a distribution warehouse in Gardena, California with
      additional offices in Redondo Beach and Burbank CA.





During
      2007, we had two lines of business including water sports and personal
      watercraft.




**DESCRIPTION
      OF BUSINESS**





On
      January 31, 2007 we fully divested our snow sports products including snowboards
      and related accessories and apparel marketed under the “Academy” brand.





Our
      water
      sports products include US Coast Guard Approved Vests, wetsuits, rash guards,
      spray tops, dry tops wakeskates and an assortment of accessories. Our products
      are marketed under the “Execute” brand name as well as various other OEM brand
      names.





The
      Company markets its Execute branded product line through a network of
      independent dealers located throughout the United States and through a multitude
      of distributors through out the world. The Company also has a major presence
      with many different on-line retailers. The “Execute” brand has existed since
      2002 and is vastly becoming one of the most respected names in the water sports
      market - especially amongst wakeboard and wakeskate consumers.





Effective
      August 29, 2007, the Company further expanded its product mix by purchasing
      the
      right, title, interest and goodwill relating to the business of designing,
      manufacturing and marketing jet powered Sugar Sand boats, including the SUGAR
      SAND trade names, trademarks, service marks, and service names, including www.sugarsand.com from
      IMAR Group, Inc. (“IMAR”), a wholly owned subsidiary of Challenger Powerboats,
      Inc. (“Challenger”). In connection with this transaction, we paid approximately
      $5 million in cash provided through a convertible debenture. Also, in connection
      with the transaction, the Company and IMAR entered into an Agreement for
      Exclusive Right of Supply, pursuant to which IMAR will manufacture and be the
      exclusive supplier of the Sugar Sand line of jet boats to the Company for an
      initial term of ten years. In addition, the Company entered into an Exclusive
      Sales and Marketing Agreement with Challenger pursuant to which Challenger
      will
      provide sales and marketing services related to the Sugar Sand boats for the
      Company for an initial term of ten years. We target the recreational boating
      market with our Sugar Sand line of products.





Key
      to
      the extension of its brands, and the acceptance of its products in the
      marketplace is the Company’s aggressive marketing strategy which consists of
      aligning its brand with leading wakeboard and wake skate athletes. In doing
      so,
      the Company establishes brand credibility amongst its target consumer base
      and
      provides its distributors with a greater ability to push its products through
      their channels.




2





We
      are a
      publicly traded company and our Common Stock trades on the Over-the-Counter
      bulletin Board of the National Quotation Service under the ticker symbol
“EXCS.”





The
      address of our principal executive office is 21143 Hawthorne BL #425, Torrance,
      CA 90503. Our telephone number is (310) 515-8902. Our website address is
      www.Executesports.com. Information contained on our website does not constitute
      part of this report and our address should not be used as a hyperlink to our
      website.




**WATERSPORTS
      BUSINESS**





We
      are a
      designer, manufacturer and distributor of high performance watersports products.
      These products include wetsuits, life vests, rash guards, wakeskates, spray
      tops, dry tops and an assortment of accessories. ****





Execute
      Sports produces a line of US Coast Guard approved vests, wetsuits and rash
      guards that are designed specifically for action water sports. We attempt to
      introduce leading technologies into our designs which include glide skin and
      segmented panels that provide for heightened water resistance and a more
      comfortable, flexible fit. In addition, our designs for 2007 feature
      women-specific and children-specific branding.





The
      entire line of “Execute” branded products is available at leading sporting goods
      stores, including BIG 5, Joe’s Outdoors and Bass Pro as well as online at The
      Sports Authority, Sport Chalet and Dick’s Sporting Goods, marine dealers and
      independently owned pro shops. Our line is also available on line at leading
      sporting goods outlets. Our primary focus has been to establish the “Execute”
branded line in the wakeboard, wake skate, water ski and PWC markets. We have
      made an effort to market our products to the mass market and not limit ourselves
      to smaller shops which are traditionally owned by the surf brands.





The
      Company is also a leading designer and manufacturer of private label products
      such as wetsuits and life vests.





*Business
      Model*




We
      currently market our products under the name of “Execute” and “Rapids.” The
      Execute brand is specific to the wake and ski market and the Rapids brand is
      specific to paddle sports **.**




The
      Company’s products are currently sold through an extensive network of
      independent dealers located throughout the United States, and through
      distributors representing dealers in Asia, Europe and other international
      markets. To promote new dealerships and to service its existing dealer network,
      the Company also contracts on an independent basis with sales representatives
      throughout the United States to represent the Company and its
      products.




3





Through
      its direct efforts, as well as through independent sales representatives, the
      Company has established distribution to more than 200 retail stores in the
      United States, including Big 5, Joe’s Outdoor, Boater’s World, Marine Max, Bass
      Pro and a slew of major on-line retailers including Amazon.com, The Sports
      Authority.com and Dicks Sporting Goods.com. Worldwide, the Company relies on
      strategic distribution partnerships to establish retail channels. Management
      believes the Company’s relationship with its distributors to be a major
      strength.





The
      Company utilizes exclusive distributors outside the United States to take
      advantage of their knowledge and experience in their respective markets and
      to
      increase market penetration of the Company’s products. Each distributor is
      subject to a distribution agreement that stipulates an exclusive territory
      for a
      term ranging from one to three years with specified minimum sales and service
      requirements for their territory.





*Competition*





Competition
      in the watersports business is generally highly competitive, with competition
      centering on product innovation, performance, styling, price, and marketing
      and
      delivery. Competition consists of a relatively small number of large producers,
      some of whom have greater financial and other resources than the Company. While
      we believe our increasingly well-recognized brand names, low cost China
      manufacturing and sourcing base, established distribution channels and
      reputation for developing and introducing innovative products have been key
      factors in the successful introduction and growth of its watersports goods,
      there are no significant technological or capital barriers to entry into the
      markets. Markets face competition from other leisure activities, and sales
      of
      leisure products are affected by economic conditions, weather patterns and
      changes in consumer tastes, which are difficult to accurately predict.





**SUGAR
      SAND BUSINESS**





Sugar
      Sand boats have been in production for more than a decade. The legacy that
      began
      in 1993 as a builder of small Mercury Sport Jet-powered boats has quickly grown
      and expanded. Since that time, engine sizes and options have grown dramatically.
      Mercury’s Sport jet has become the market standard, and many competitors have
      come and gone. Sugar Sand has remained the market leader in performance and
      style. Built to a higher standard, Sugar Sand boats range in length from 16
      to
      23 feet and are crafted under high quality standards.





Sugar
      Sand uses hand-laid fiberglass cloth to manufacture our hulls. While this is
      a
      more expensive and time-consuming process, it allows for increased strength
      and
      performance, not to mention a quieter ride. It is a reflection of how seriously
      we take the responsibility of giving you a “best in class” boat. We aim to
      design our hulls to out-perform any other boat in our class. Mixing function
      and
      form, and blending it with an exceptional array of colors, we hope to give
      our
      customers a Craft to be proud of.





*Business
      Model*





Through
      our Exclusive Sales and Marketing Agreement with Challenger Powerboats, Inc.,
      the Company markets Sugar Sand through a dealer network comprised of more than
      one hundred dealers, with a footprint throughout the United States, Canada,
      Mexico, Europe, Australia, the Middle East and Japan.




4





The
      sales
      force is composed of independent and factory sales agents who concentrate on
      top
      retailers across all markets, with the United States representing the primary
      market. We also enjoy an expanding international presence through various
      distributors and dealers in many markets outside North America.





Marketing
      efforts are directed toward the expansion of the brand franchise primarily
      through boat shows, performance trials, editorial content, professional imaging,
      top notch collateral materials and website development. Retail and wholesale
      sales leads are also farmed through the marketing process. Our marketing
      objectives are focused on positioning the Company as a market leader with brand
      momentum and energy.





We
      believe our retail buyers tend to be high net worth families who enjoy the
      outdoors and boating and have a propensity to spend discretionary dollars on
      large ticket items. We target retail accounts that have demonstrated their
      ability to close sales, have service departments, can perform on-water
      demonstrations and are promotionally minded. Our product offering and sales
      programs are designed to meet the broader needs of boating enthusiasts in their
      respective segments while also uniquely satisfying colloquial requirements.





*Competition*





We
      are
      subject to strong competition from a variety of companies that could impact
      our
      ability to win business and which can increase the price pressure on our
      products. Most of our competitors have considerably greater financial, marketing
      and technological resources than we do, and we may not be able to compete
      successfully. Certain competitors operate fabrication facilities and have longer
      operating histories and presence in key markets, greater name recognition,
      larger customer bases and significantly greater financial, sales and marketing,
      manufacturing, distribution, technical and other resources. As a result, these
      competitors may be able to adapt more quickly to new or emerging technologies
      and changes in customer requirements. They may also be able to devote greater
      resources to the promotion and sale of their products.





We
      believe that we can differentiate our products by offering better value in
      the
      manufacturing process, distribution, and customer service through a partnership
      with our dealers. Our manufacturing, distribution, and customer service networks
      are based on Lean/Six Sigma, which is a system for developing metrics for
      measuring defects and improving quality as well as implementing methodologies
      to
      reduce defect levels. We devote many hours to value streaming each process
      and
      transaction to assure ourselves and our Dealer Partners that we are adding
      value
      to the products and services we provide.





We
      believe that recreational boat manufactures and the marine industry in general
      buy all of their raw materials, hardware, and soft goods from a defined list
      of
      vendors. Most products have between 3 and 5 primary vending companies that
      supply the industry. We believe quality and value are not set by the raw
      materials because they are all shared. Quality and value are established by
      the
      combination of those materials into a product that is price sensitive and
      functional. We utilize computer aided design (CAD) technologies in the
      development of schedules that utilize the common materials to produce a boat
      that is cost effective to build. We provide value through the application of
      Lean/Six Sigma and CAD/CAM methodologies to produce the Sugar Sand Jet Boats
      that we believe have extraordinary value at the dealer and retail market
      place.




5





We
      believe our products offer the following advantages over competitive
      products:





·
            Durability:
                Our hulls are constructed using hand laid “S” glass. This produces a
                fiberglass hull that is stronger yet lighter than conventional fiberglass
                hulls.





·
            High
                Performance and Stability: The Challenger performance series utilizes
                a
                “V” shape hull design that creates a much more stable boat at high speeds,
                as well as improved performance in the
                water.





·
            Best
                Cost: The prices for our commercial boats are competitive with the
                prices
                offered by our competitors.





·
            Consumer
                Features: All of our products feature components from recognized
                and
                trusted vendors. Such selections inspire consumer confidence and
                hint at
                lower warranty costs and extended product lifespans. Further, efforts
                to
                continually improve workmanship, attention to detail and cosmetics
                are
                ever present.




**Employees**





As
      of
      March 7, 2008, we had a total of 2 full-time employees. None of our employees
      are covered by collective bargaining agreements. We believe that our relations
      with our employees are good.




**ITEM
      1A. RISK FACTORS**





An
      investment in our shares involves a high degree of risk. Before making an
      investment decision, you should carefully consider all of the risks described
      herein. If any of the risks discussed herein actually occur, our business,
      financial condition and results of operations could be materially and adversely
      affected. If this were to happen, the price of our shares could decline
      significantly and you may lose all or a part of your investment. The risk
      factors described below are not the only ones that may affect us. Our
      forward-looking statements in this 10-KSB are subject to the following risks
      and
      uncertainties. Our actual results could differ materially from those anticipated
      by our forward-looking statements as a result of the risk factors below. See
      “Forward-Looking Statements.”





Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing,
      other collaborative agreements, strategic alliances, and our ability to increase
      sales. Such additional funds may not become available on acceptable terms and
      there can be no assurance that any additional funding the Company does obtain
      will be sufficient to meet the Company’s needs in the long term. Through
      December 31, 2007, a significant portion of our financing has been through
      debt
      financing and private placements of common stock and warrants. Unless our
      operations continue to generate significant revenues, we will continue to fund
      operations from cash on hand and through similar sources of capital previously
      described. We can give no assurances that any additional capital that we are
      able to obtain will be sufficient to meet our needs. Management believes that
      we
      will continue to incur net losses through for the foreseeable future. Based
      on
      our current resources, we will need additional equity or debt financing or
      we
      will need to generate revenues through sales of our products or entering into
      strategic alliances to be able to sustain our operations until we achieve
      profitability, if ever.




6





We
      have
      very limited assets upon which to rely for adjusting to business variations
      and
      for growing new businesses. While we are likely to look for new funding to
      assist in the acquisition of other profitable businesses, it is uncertain
      whether such funds will be available. If we are to grow and expand our
      operations, we will need to raise significant amounts of additional capital.
      There can be no assurance that we will be successful in raising a sufficient
      amount of additional capital, or if we are successful, that we will be able
      to
      raise capital on reasonable terms. If we do raise additional capital, our
      existing shareholders may incur substantial and immediate dilution.




**Risks
      Related To Our Business:**





**We
      have historically incurred losses and may continue to incur losses in the
      future, which may impact our ability to implement our business strategy and
      adversely affect our financial condition.**





In
      the
      audit of our financial statements, our auditors, Bedinger & Company, have
      questioned our ability to continue as a going concern. This is based on our
      history of reported losses. We had a net loss of $2,671,410 for the fiscal
      year
      ended December 31, 2007 and a net loss of $5,608,910 for the fiscal year ended
      December 31, 2006.





The
      majority of net loss for the year ended December 31, 2007 was incurred due
      to
      debenture related amortization expenses of $1,469,015, interest expense of
      $685,621, salaries and related payroll taxes and expenses of $344,447, and
      professional fees of $689,231.





We
      expect
      to decrease our operating expenses by refocusing on our core businesses and
      trimming our non core business related expenses. However, we cannot provide
      assurance that we will be profitable or generate sufficient profits from
      operations in the future. If our revenue growth does not continue, we may
      experience a loss in one or more future periods. We may not be able to reduce
      or
      maintain our expenses in response to any decrease in our revenue, which may
      impact our ability to implement our business strategy and adversely affect
      our
      financial condition. This would also have a negative impact on our share
      price.




7





**Our
      business is subject to “seasonal” or “cyclical” factors.**





***Watersports***





There
      is
      a cyclical component of our waters sports businesses wherein we receive a
      relatively larger portion of revenue because our water sports customers submit
      the majority of their purchase orders for product in the months of September
      through November for the coming sales year and are shipped in January through
      May. Currently, the majority of our water sports business is driven by the
      wakeboarding/waterski industry, which historically is the most active in the
      spring and summer months. We anticipate this cyclical aspect of our water sports
      business to continue for the foreseeable future but can make no assurances
      that
      will be the case.





**Our
      industry is highly competitive and we may not be able to compete effectively,
      which could reduce demand for our services.**





The
      markets in which we operate are intensely competitive. Our primary competitors
      for wetsuits include Jet Pilot, Body Glove, O’Neill, Rip Curl and Quiksilver.
      Our primary competitors for Sugar Sand boats include Yamaha Marine Group,
      building approximately 6,000 units per year and Sea Doo, a Bombardier Company
      building approximately 6,000 units per year. The market for the Company’s
      products is characterized by competing businesses introducing products similar
      to those offered by the Company. There are relatively low barriers to entry
      into
      the watersports business whereas the barriers into the power boat business
      are
      somewhat higher. Many of the Company’s competitors or potential competitors have
      longer operating histories, longer customer relationships and significantly
      greater financial, managerial, sale and marketing and other resources than
      does
      the Company. The Company is vulnerable to a competitor making a late, but
      well-funded, run at the Company if it is not aggressive in quickly attaining
      a
      consumer base sufficient for the Company to rely on for sustainable cash flow,
      and strategic partners as well as establishing a strong brand identity.





**Our
      success is tied to dependence on key personnel** .





The
      Company’s success depends to a significant extent upon efforts and abilities of
      its key personnel, including our CEO and our President, as well as other key
      creative and strategic marketing personnel. Competition for highly qualified
      personnel is intense. The loss of any executive officer, manager or other key
      employee could have a material adverse effect upon the Company’s business,
      operating results and financial condition. If the Company is not able to
      efficiently replace its key personnel with qualified individuals, its business
      and operational activities could suffer. In turn, if the Company’s operational
      activities decline, its financial performance and overall financial condition
      will also suffer. This would have an adverse affect on our share price. No
      assurances can be given that a replacement for any of our key personnel could
      be
      located if their services were no longer available. At present, we do not have
      key man insurance.





**Our
      success is also tied to the performance of Challenger Powerboats, Inc. to
      effectively execute under the agreement for exclusive right of supply and
      exclusive sales and marketing agreement.**





The
      Company has placed a high degree of reliance on the ability of Challenger
      Powerboats, Inc. to perform under our Agreement for Exclusive Right of Supply
      and Exclusive Sales and Marketing Agreement. The Company can provide no
      assurances that Challenger will effectively meet their obligations under the
      respective agreements. If Challenger falls short of annual sales goals or has
      significant quality issues, the Company would incur significant losses which
      would have a material adverse effect on our financial position.




8





**We
      are a high risk early stage company.**





The
      Company is a high-risk early stage company with limited operating history in
      a
      competitive industry. In addition, the Company’s limited operating history
      provides a limited basis on which to base an evaluation of its business and
      prospects. In addition, the Company’s revenue model relies substantially on the
      assumption that the Company will be able to successfully expand its sales and
      distribution channels in key markets. The Company’s prospects must be considered
      in light of the risks, uncertainties, expenses and difficulties frequently
      encountered by companies in the earliest stages of development. To be successful
      in our markets, the Company must, among other things:





·
            Continue
                to expand distribution and sales channels for its products;


·
            Attract
                and maintain customer loyalty;


·
            Continue
                to establish and increase awareness of the Company’s brand and develop
                customer loyalty;


·
            Provide
                desirable products to customers at attractive prices;


·
            Establish
                and maintain strategic relationships with strategic partners and
                affiliates;


·
            Rapidly
                respond to competitive developments;


·
            Build
                an operations and customer service structure to support the Company’s
                business; and


·
            Attract,
                retain and motivate qualified personnel.





The
      Company cannot guarantee that it will be able to achieve these goals, and its
      failure to do so could have a material adverse effect on the Company’s business.
      If the Company’s business suffers as a result of failing to meet any one or all
      of the above listed goals, its financial performance and financial condition
      will suffer. This will also have an adverse affect on the price of the Company’s
      shares.





Moreover,
      there can be no assurance that the Company’s financial resources will be
      sufficient to enable it to operate for the length of time that management
      expects, or that the Company will be able to obtain additional funding when
      the
      Company’s current financial resources are exhausted. The Company expects that
      its revenues and operating results will fluctuate significantly in the future.





There
      can
      be no assurance that any or all of the Company’s efforts will be successful or
      that the Company will ever be profitable. If the Company’s efforts are
      unsuccessful or other unexpected events occur, purchasers of the shares offered
      hereby could lose their entire investment.




9





**We
      may need additional financing to support business growth, and this capital
      might
      not be available on acceptable terms, or at all, which could adversely affect
      our financial condition.**





The
      Company’s financial resources are limited and the amount of funding that it will
      require to develop and commercialize its products is highly uncertain. Adequate
      funds may not be available when needed or on terms satisfactory to the Company.
      Lack of funds may cause the Company to delay, reduce and/or abandon certain
      of
      all aspects of its product development programs.





There
      are
      a number of factors that we cannot control that could require us to seek
      additional financing to support further demand for those products in the market
      both through existing distribution channels and potentially through new ones,
      and to finance the development, production and distribution of new products,
      as
      well as the development of new distribution channels and new markets.





The
      Company plans to seek additional financing which may include the issuance of
      equity or convertible debt securities. If additional funds are raised through
      the issuance of equity or convertible debt securities, the percentage ownership
      of the stockholders of the Company will be reduced, stockholders may experience
      additional dilution and such securities may have rights, preferences and
      privileges senior to those of the Company’s Common Stock. There can be no
      assurance that additional financing will be available on terms favorable to
      the
      Company or at all. If adequate funds are not available or are not available
      on
      acceptable terms, the Company may not be able to fund its expansion, take
      advantage of unanticipated acquisition opportunities, develop or enhance
      products or respond to competitive pressures. Such inability could have a
      material adverse effect on the Company’s business, and ability finance its
      operations. If the Company cannot finance its operations, the affect on our
      stock price will be adverse.





**Our
      quarterly operating results may fluctuate in future periods and, as a result,
      we
      may fail to meet investor expectations, which could cause the price of our
      common stock to decline.**





As
      a
      result of our history of incurring net losses, the relatively short-term nature
      of our licensing, distribution and partner agreements, we may not be able to
      accurately predict our operating results on a quarterly basis, if at all. We
      expect to experience significant fluctuations in our future quarterly operating
      results due to a variety of factors, many of which are outside of our control,
      including:





·
            the
                Company’s ability to establish and strengthen brand awareness;


·
            the
                Company’s success, and the success of its strategic partners, in promoting
                the Company’s products;


·
            the
                overall market demand for water sports and Sugar Sand products of
                the type
                offered by the Company and in general;


·
            pricing
                changes for our products as a result of competition or otherwise;


·
            the
                amount and timing of the costs relating to the Company’s marketing efforts
                or other initiatives;




10




·
            the
                timing of contracts with strategic partners and other
                parties;  ·
            fees
                the Company may pay for distribution and promotional arrangements
                or other
                costs it incurs as it expands its operations;


·
            the
                Company’s ability to compete in a highly competitive market, and the
                introduction of new products by the Company;
                and


·
            economic
                conditions specific to the water sports and power boat industries
                and
                general economic conditions.





We
      believe period-to-period comparisons of our operating results are not
      necessarily meaningful, and you should not rely upon them as indicators of
      future performance. It is also possible that in the future, our operating
      results will be below the expectations of public market analysts and investors
      due to quarterly fluctuations rather than our overall performance. In that
      event, the trading price of our common stock may decline.





**Our
      watersports business relies heavily on four major customers for
      revenue.**





Historically,
      four primary customers have accounted for more than 90% of our business. The
      three primary customers account for more than 72% of our water sports revenue
      during the year ended December 31, 2007. If any of these customers decides
      to
      exit the water sports market, or to select one of our competitor’s products over
      our own, our business would be materially adversely impacted. Other larger,
      better capitalized competitors could offer these customers preferable price
      points or other incentives that we might not be able to compete with. If we
      were
      to lose any one of these customers our business and financial condition would
      likely be negatively impacted. In turn our financial results would decline
      and
      our share price would also likely decline.





**We
      rely on two major manufacturers of our wetsuit and vest
      products.**





Sheico,
      Hydrodynamic, and Spoturn manufacture 100% of our products. All manufacturing
      is
      based in mainland China and Thailand. If these facilities were inaccessible
      to
      us for political reasons or in the event of a natural disaster, our business
      would be materially adversely affected. We might not be able to transition
      our
      manufacturing business to another manufacturer in a timely manner and the costs
      of changing facilities as well as the costs of manufacturing elsewhere could
      be
      prohibitively high. In addition, each of these manufacturers are “contract”
manufacturers and consequently are not solely obligated to service our account.
      In which case, other larger customers might demand more of these manufacturers’
resources, which in turn, could cause delays in their ability to provide us
      with
      timely delivery of product. If, for any of the reasons stated above, we are
      not
      able to timely respond to purchase orders through our existing contract
      manufacturing partners, we would likely see a negative impact in our business
      and operations. In turn, this would have a material adverse impact on our
      financial results and our share price would likely decline.





**We
      could have difficulty in the management of potential
      growth.**





The
      Company anticipates that a period of expansion will be required to address
      potential growth in its customer base, market opportunities and personnel.
      This
      expansion will place a significant strain on the Company’s management,
      operational and financial resources. To manage the expected growth of its
      operations and personnel, the Company will be required to implement new
      operational and financial systems, procedures and controls, and to expand,
      train
      and manage its growing employee base. The Company also will be required to
      expand its finance, administrative and operations staff. Further, the Company
      anticipates entering into relationships with various strategic partners and
      third parties necessary to the Company’s business. There can be no assurance
      that the Company’s current and planned personnel, systems, procedures and
      controls will be adequate to support the Company’s future operations, that
      management will be able to hire, train, retain, motivate and manage required
      personnel for planned operations, or that Company management will be able to
      identify, manage and exploit existing and potential strategic relationship
      and
      market opportunities. The failure of the Company to manage growth effectively
      could have a material adverse effect on the Company’s business because it might
      be unable to meet purchase order demands from its customers, or maintain a
      level
      of inventory sufficient to support demand. This could cause the Company to
      lose
      customer and distribution relationship that would, in turn have an adverse
      affect on the Company’s results of operations and financial condition. In which
      case, the Company’s share price could be adversely affected.




11





**If
      we chose to acquire new or complementary businesses, services or technologies,
      we may not be able to complete those acquisitions or successfully integrate
      them.**





In
      addition to organic growth to expand our operations and market presence, we
      intend to pursue a growth strategy driven by acquisitions and business
      combinations of complementary business, services or technologies or engage
      in
      other strategic alliances with third parties. Any such transactions would be
      accompanied by the risks commonly encountered in such transactions, including,
      among others, the difficulty of assimilating operations, technology and
      personnel of the combined companies, the potential disruption of our ongoing
      business, the inability to retain key technical and managerial personnel, the
      inability of management to maximize our financial and strategic position through
      the successful integration of acquired businesses, additional expenses
      associated with amortization of acquired intangible assets, the maintenance
      of
      uniform standards, controls and policies and the impairment of relationships
      with existing employees and customers. We may not be successful in overcoming
      these risks or any other potential problems. Any acquisition may have a material
      adverse effect on our business if it any of the risks stated above materialize,
      and each of the risks stated above could bring about adverse operating results,
      which in turn, would negatively impact the Company’s financial condition. In
      turn, the price of our common stock would be negatively affected.





**We
      will incur increased costs as a result of being a public company and this may
      adversely affect our operating results.**





As
      a
      public company, we incur significant legal, accounting and other expenses that
      we did not incur as a private company. We also anticipate that we will incur
      costs associated with recently adopted corporate governance requirements,
      including requirements under the Sarbanes-Oxley Act of 2002, as well as new
      rules implemented by the SEC and the OTCBB. We expect these rules and
      regulations will increase our legal and financial compliance costs and make
      some
      activities more time consuming and costly. We are currently evaluating and
      monitoring developments with respect to these new rules, and we cannot predict
      or estimate the amount of additional costs we may incur or the timing of such
      costs.




12





**New
      rules, including those contained in and issued under the Sarbanes-Oxley Act
      of
      2002, may make it difficult for us to retain or attract qualified officers
      and
      directors, which could adversely affect the management of our business and
      our
      ability to obtain or retain the trading status of our common stock on the Over
      the Counter Bulletin Board Market.**





We
      may be
      unable to attract and retain qualified officers, directors and members of board
      committees required for our effective management as a result of the recent
      and
      currently proposed changes in the rules and regulations which govern
      publicly-held companies, including, but not limited to, certifications from
      executive officers and requirements regarding audit committee financial experts.
      The perceived increased personal risk associated with these recent changes
      may
      deter qualified individuals from accepting these roles. The enactment of the
      Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of new
      rules
      and regulations and the strengthening of existing rules and regulations by
      the
      SEC, as well as the adoption of new and more stringent rules by OTCBB.
      Furthermore, certain aspects of these recent and proposed changes heighten
      the
      requirements for board and committee membership, particularly with respect
      to an
      individual’s independence from the corporation and level of experience in
      finance and accounting matters. We may have difficulty attracting and retaining
      directors with the requisite qualifications. If we are unable to attract and
      retain qualified officers and directors, we may be unable to maintain the
      trading status of our common stock on the OTCBB Market.





**If
      we fail to maintain an effective system of internal controls, we may not be
      able
      to accurately report our financial results or prevent fraud. As a result,
      current and potential stockholders could lose confidence in our financial
      reporting, which would harm our business and the trading price of our stock.**





Effective
      internal controls are necessary for us to provide reliable financial reports
      and
      effectively prevent fraud. If we cannot provide reliable financial reports
      or
      prevent fraud, our operating results could be harmed. Any failure to implement
      required new or improved controls, or difficulties encountered in their
      implementation, could harm our operating results or cause us to fail to meet
      our
      reporting obligations. Inferior internal controls could also cause investors
      to
      lose confidence in our reported financial information, which could have a
      negative effect on the trading price of our stock.





**Risks
      Relating To Our Common Stock:**





**The
      market price of our common stock is likely to be highly volatile, which could
      cause investment losses for our stockholders and result in stockholder
      litigation with substantial costs, economic loss and diversion of our resources.**





The
      trading price of our common stock is highly volatile and could be subject to
      wide fluctuations as a result of various factors, many of which are beyond
      our
      control, including:





·
            developments
                concerning licenses and trademarks by us or a competitor;






13




·
            announcements
                by us or our competitors of significant contracts, acquisitions,
                commercial relationships, joint ventures or capital commitments;


·
            actual
                or anticipated fluctuations in our operating results;


·
            introductions
                of new products by us or our competitors;


·
            changes
                in the number of our distribution partners;


·
            loss
                of key employees;


·
            changes
                in the market valuations of similar companies; and


·
            changes
                in our industry and the overall economic environment.





In
      addition, the stock market in general, and the OTCBB have experienced extreme
      price and volume fluctuations that have often been unrelated or disproportionate
      to the operating performance of the listed companies. These broad market and
      industry factors may seriously harm the market price of our common stock,
      regardless of our operating performance. In the past, following periods of
      volatility in the market, securities class action litigation has often been
      instituted against these companies. Litigation against us, whether or not a
      judgment is entered against us, could result in substantial costs, and
      potentially, economic loss, and a diversion of our management’s attention and
      resources.





**We
      plan to continue to pay for consulting and professional services fees with
      our
      stock and this would be dilutive to investors.**





In
      the
      past we have issued shares to consultants and professional services providers
      as
      a means of paying certain professional service fees and consulting agreements.
      We plan to continue to use our stock in the future as a means of paying for
      these kind of services, and believe that doing so will enable us to retain
      a
      greater percentage of our operating capital to pay for operations, product
      development and purchase of additional inventory.





Price
      and
      volume fluctuations in our stock might negatively impact our ability to
      effectively use our stock to pay for services, or it could cause us to offer
      stock as compensation for services on terms that are not favorable to the
      Company and its shareholders. If we did resort to granting stock in lieu of
      cash
      for consulting and professional services fees under unfavorable circumstances,
      it would result in increased dilution to investors.





**Management
      has broad discretion to use the proceeds from financing activities for business
      activities that may not be successful, which could affect the trading price
      of
      our common stock.**





We
      intend
      to use the net proceeds from financing activities to pay certain outstanding
      obligations, increase working capital, fund capital expenditures, finance our
      international expansion and fund marketing activities. Accordingly, management
      will have significant flexibility in applying the net proceeds of this offering.
      The failure of management to apply such funds effectively could have a material
      adverse effect on our business, results of operations and financial condition.




14





**There
      is a limited market for our common stock.**





Our
      common stock is traded in the Over-the-Counter Bulletin Board market. This
      may
      cause delays in the timing of transactions, reductions in the number and quality
      of securities analysts’ reporting on us, and the extent of our coverage in the
      media. Trading in our common stock has been sporadic, and at present, there
      is a
      limited market for it. There can be no assurance that a stronger market will
      develop. Even if such a market does develop, it may not be sustained.





**Future
      sales of our common stock by existing shareholders under Rule 144 could decrease
      the trading price of our common stock.**





As
      of
      December 31, 2007, a total of 38,455,460 shares of our outstanding common stock
      were “restricted securities” and could be sold in the public markets only in
      compliance with Rule 144  adopted
      under the Securities Act of 1933 or other applicable exemptions from
      registration. Rule 144 provides that a person holding restricted securities
      for
      a period of six months may thereafter sell. Further, affiliates of the Company
      may sell after a one-year holding period, in brokerage transactions, an amount
      of shares not exceeding in any three-month period the greater of either (i)
      1%
      of the issuer’s outstanding common stock or (ii) the average weekly trading
      volume in the securities during a period of four calendar weeks immediately
      preceding the sale. Possible or actual sales of our common stock by present
      shareholders under Rule 144 could have a depressive effect on the price of
      our
      common stock.





**Our
      common stock is subject to “penny stock” rules.**





Our
      common stock is classified as a penny stock by the Securities and Exchange
      Commission. This classification severely and adversely affects the market
      liquidity for our common stock. The Commission has adopted Rule 15g-9, which
      establishes the definition of a “penny stock,” for the purposes relevant to us,
      as any equity security that has a market price of less than $5.00 per share
      or
      with an exercise price of less than $5.00 per share, subject to certain
      exceptions. For any transaction involving a penny stock, unless exempt, the
      rules require: (i) that a broker or dealer approve a person’s account for
      transactions in penny stocks; and (ii) the broker or dealer receive from the
      investor a written agreement to the transaction, setting forth the identity
      and
      quantity of the penny stock to be purchased. In order to approve a person’s
      account for transactions in penny stocks, the broker or dealer must (i) obtain
      financial information and investment experience objectives of the person; and
      (ii) make a reasonable determination that the transactions in penny stocks
      are
      suitable for that person and the person has sufficient knowledge and experience
      in financial matters to be capable of evaluating the risks of transactions
      in
      penny stocks. The broker or dealer must also deliver, prior to any transaction
      in a penny stock, a disclosure schedule prepared by the Commission relating
      to
      the penny stock market, which, in highlight form, sets forth (i) the basis
      on
      which the broker or dealer made the suitability determination and (ii) that
      the
      broker or dealer received a signed, written agreement from the investor prior
      to
      the transaction. Disclosure also has to be made about the risks of investing
      in
      penny stocks in public offerings and secondary trading and about the commissions
      payable to the broker-dealer and registered representative, current quotations
      for the securities and the rights and remedies available to an investor in
      cases
      of fraud in penny stock transactions. Finally, monthly statements have to be
      sent disclosing recent price information for the penny stock held in the account
      and information on the limited market in penny stocks.




15




**ITEM
      2. DESCRIPTION OF PROPERTY**




The
      Company maintains a distribution warehouse in Gardena, California with sales
      offices in Redondo Beach, Burbank and Torrance, CA. The Company does not
      currently lease office space.





**ITEM
      3. LEGAL PROCEEDINGS**




A
        former
        investor, Todd Hahn (“Hahn”), has threatened a suit against the Company. There
        have been no communications between the parties since early 2007 and no suit
        has
        been filed. We are presently unsure whether an action is likely to proceed.
        Based upon investigation by counsel with management and a review of the
        pertinent documents, the action appears to lack merit, thus management intends
        to vigorously oppose any claim. There is little likelihood of success on
        the
        threatened claim, and even if successful, such success would have no material
        affect on the operations of the business.
  The
        Company brought a claim against Duane Pacha and Jeff Baughn (“Pacha and Baughn”)
        relating to losses suffered by the Company for fraud and breach of contract
        in
        the purchase of Pacific Sports. The suit was filed in the Superior Court
        of
        California, County of San Diego (Case No. 37-2007-0065224-CU-BC-CTL) on April
        19, 2008 and claims $1,200,000. A claim for breach of an employment agreement
        has been asserted by each of Messrs. Pacha and Baughn in the aggregate amount
        of
        approximately $200,000. The Company’s suit against Messrs. Pacha and Baughn was
        filed and then stayed pending arbitration of the employment disputes. Presently,
        we are waiting for Messrs. Pacha and Baughn to proceed before the AAA with
        their
        claims. Management intends to aggressively pursue its cross-claim against
        Messrs. Pacha and Baughn and vigorously oppose the claims by them. The
        likelihood of an unfavorable outcome is low since the claims against Messrs
        Pacha and Baughn are likely to offset any success they may obtain on their
        claims.
  A
        former
        employee, Craig Hudson (“Hudson”), is attempting to collect on a former note
        with an alleged past due amount of approximately $32,000. The Hudson matter
        is
        set for mediation and then trial in the beginning of April, 2008 in Superior
        Court of California, County of Los Angeles  (Case
        No.
        BC371103); this suit was filed on May 15, 2007. Management is attempting
        to seek
        a settlement of the matter but we expect there will be a recovery against
        the
        Company, but for an amount less than the amount sought and such amount would
        not
        have a material affect on the operations of the business.
  The
        Company received a claim for alleged unpaid services by Coburn Mikacich
        (“Mikacich”) in the amount of $21,600. The Mikacich matter, filed in the
        Superior Court of California, County of Sacramento (Case No. 07AS02941) on
        June
        27, 2007 is in the process of being transferred from Sacramento County to
        Los
        Angeles County, California. No answer has been filed by us yet in the case.
        Management intends to vigorously oppose his claims and believes that there
        is
        little likelihood of success, and even if successful, such success would
        have no
        material affect on the operations of the business.
  Our
        former Chief Financial Officer, Sheryl Gardner (“Gardner”), has filed a claim
        against the Company in the Superior Court of California, County of Los Angeles
        (Case No. BC382104) on December 12, 2007, alleging certain amounts owned
        on a
        note, fraud in inducement to sign a subsequent note and for unpaid vacation
        time. Ms. Gardner is seeking $323,231.02 in damages. A demurrer to the complaint
        has been filed to be heard in April, 2008. Discovery is likely to begin
        thereafter. Management intends to vigorously oppose her claims and potentially
        file a cross-claim for monies due. The likelihood of an unfavorable outcome
        is
        low since the claims against Ms. Gardner are likely to offset any success
        which
        may be obtained.
  Ta
        Hwa
        Manufacturer (“Ta Hwa”), by a previous Chinese manufacturer of the Company’s
        products, brought suit against the Company in the Superior Court of California,
        County of Los Angeles (Case No. YC055925) on September 17, 2007 alleging
        unpaid
        invoices in the amount of approximately $250,000. Discovery is almost complete
        and a settlement conference is set for mid-April, 2008. Management intends
        to
        vigorously oppose its claims, and potentially file a cross-claim for monies
        due
        against Ta Hwa and related parties. There is little likelihood of success
        on the
        threatened claim.
  A
        former
        officer of the Company, Scott Swendener (“Swendener”), has brought a claim for
        indemnification for credit card charges and breach of contract. The suit
        was
        filed in the Superior Court of California, County of Orange (Case No. 07SL03977)
        on August 30, 2007 and Swendender is seeking $24,000.00 damages. The case
        is in
        the process of discovery. Management intends to vigorously oppose his claims.
        However, even if successful, such success would have no material affect on
        the
        operations of the business.
  The
        Company has filed suit against 449 Corporation, WDHQ, Inc., Donald Swedo
        and
        Charlene Swedo for unpaid notes (“449”) in the amount of approximately $500,000.
        The suit was filed in the Superior Court of California, County of San Diego
        (Case No. 37-2007-00069024-CU-BC-CTL) on December 6, 2006. The 449 matter
        is set
        for a hearing in May 2008 upon our demurrer and discovery will be proceeding
        shortly. Management intends to aggressively pursue its claims. An unfavorable
        outcome would have no material affect on the operations of the
        business.


**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of security holders during the fourth quarter
      of the fiscal year covered by this report.




16





**PART
      II.**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





Our
      common stock was first cleared for trading on the NASD OTC bulletin board on
      February 17, 2006 under the ticker symbol “EXCS” and has been trading since that
      time. The following table sets forth the range of high and low sales prices
      for
      the Company’s common stock for the periods indicated:




HIGH
              
              LOWFiscal
                  2007:1st
                  Quarter
              
              $
              0.09
              
              $
              0.022nd
                  Quarter
              
              
              0.04
              
              
              0.023rd
                  Quarter
              
              
              0.03
              
              
              0.024th
                  Quarter
              
              
              0.02
              
              
              0.01Fiscal
                  2006:1st
                  Quarter
              
              $
              0.53
              
              $
              0.382nd
                  Quarter
              
              
              0.50
              
              
              0.243rd
                  Quarter
              
              
              0.26
              
              
              0.094th
                  Quarter
              
              
              0.10
              
              
              0.02





Such
      prices represent quotations between dealers, without dealer markup, markdown
      or
      commissions, and may not represent actual transactions.





**Holders**





As
      of
      December 31, 2007, there were 87,456,541 shares of common stock outstanding
      and
      approximately eighty one (81) record holders of common equity. The number of
      shareholders of record does not include beneficial owners of common stock whose
      shares are held in the names of various dealers, clearing agencies, banks,
      brokers and other fiduciaries.





**Dividends**





We
      have
      not declared any dividends on our common stock and we do not expect to declare
      dividends in the foreseeable future since we intend to utilize our earnings,
      if
      any, to finance our future growth, including possible acquisitions.





**Transfer
      Agent**





The
      Transfer Agent and Registrar for the Company’s common stock is First American
      Stock Transfer. Its address is 706 East Bell Road, Suite 202, Phoenix, AZ,
      85022
      and its telephone number at that location is 602-485-1346.




17





**Equity
      Compensation Plans**





Effective
      January 1, 2006, the Board of Directors of the Company adopted the 2006 Execute
      Sports, Inc. Non-Employee Directors’ Stock Incentive Plan (the “Plan”). The Plan
      generally provides for the grant of either nonqualified options, restricted
      stock and/or deferred stock to directors at not less than the fair market value
      of our common stock as of the grant date. No nonqualified option, restricted
      stock and/or deferred stock shall be granted pursuant to the Plan ten years
      after the Effective Date. In the event of our change in control (including
      our
      merger with or into another corporation, or sale of substantially all our
      assets), the Plan provides that each outstanding option will fully vest and
      become exercisable. The maximum number of options that can be granted under
      the
      Plan is 1,500,000. As of December 31, 2007, no options or deferred stock was
      issued and outstanding.





**Issuance
      of Restricted Stock**





During
      the year ended December 31, 2007, the Company issued an aggregate of 3,632,085
      shares of restricted stock to members of the Board of Directors and the
      Company’s CEO.





**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





Our
      representatives and we may from time to time make written or oral statements
      that are “forward-looking,” including statements contained in this 10-KSB and
      other filings with the Securities and Exchange Commission, reports to our
      stockholders and news releases. All statements that express expectations,
      estimates, forecasts or projections are forward-looking statements within the
      meaning of the Act. In addition, other written or oral statements which
      constitute forward-looking statements may be made by us or on our behalf. Words
      such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” “projects,” “forecasts,” “may,” “should,” variations of such words
      and similar expressions are intended to identify such forward-looking
      statements. These statements are not guarantees of future performance and
      involve risks, uncertainties and assumptions which are difficult to predict.
      Therefore, actual outcomes and results may differ materially from what is
      expressed or forecasted in or suggested by such forward-looking statements.
      We
      undertake no obligation to update publicly any forward-looking statements,
      whether as a result of new information, future events or otherwise. Important
      factors on which such statements are based are assumptions concerning
      uncertainties, including but not limited to uncertainties associated with the
      following:





(a)
      volatility or decline of our stock price;





(b)
      potential fluctuation in quarterly results;





(c)
      our
      failure to earn revenues or profits;




18





(d)
      inadequate capital and barriers to raising the additional capital or to
      obtaining the financing needed to implement its business plans;





(e)
      inadequate capital to continue business;





(f)
      changes in demand for our products and services;





(g)
      rapid
      and significant changes in markets;





(h)
      litigation with or legal claims and allegations by outside parties;
      or





(i)
      insufficient revenues to cover operating costs.





There
      is
      no assurance that we will be profitable, we may not be able to successfully
      develop, manage or market our products and services, we may not be able to
      attract or retain qualified executives and technology personnel, our products
      and services may become obsolete, government regulation may hinder our business,
      additional dilution in outstanding stock ownership may be incurred due to the
      issuance of more shares, warrants and stock options, or the exercise of warrants
      and stock options, and other risks inherent in the our businesses.





The
      following discussion should be read in conjunction with the Company’s
      Consolidated Financial Statements and the notes thereto and the other
      information included in this Annual Report on Form 10-KSB.





**Overview**





Moving
      into 2007 we decided to concentrate corporate resources on our water sports
      business where the Company has a proven track record.





Our
      water
      sports products include wetsuits, vests, rash guards, spray tops, dry tops,
      wakeskates and an assortment of accessories. Our goods are marketed under the
      “Execute” and “Rapid” brands, as well as through private label relationships.





The
      Company markets its Execute branded product line through a network of
      independent dealers located throughout the United States and through a multitude
      of distributors throughout the world. The Company also has a major presence
      with
      many different on-line retailers. The “Execute” brand has existed since 2002 and
      is vastly becoming one of the most respected names in the water sports market
      -
      especially amongst wakeboard and Wakeskate consumers.





Key
      to
      the extension of its brands, and the acceptance of its products in the
      marketplace is the Company’s aggressive marketing strategy which consists in
      aligning its brand with leading wakeboard and wake skate athletes. In doing
      so,
      the Company establishes brand credibility amongst its target consumer base
      and
      provides its distributors with a greater ability to push its products through
      their channels.




19





Also
      in
      August of 2007, the Company further expanded its product mix by purchasing
      Sugar
      Sand boats for $5 million in cash provided through a convertible debenture.
      In
      connection with the acquisition, the Company entered into a 10 year Agreement
      for Exclusive Right of Supply and Exclusive Sales and Marketing Agreement with
      Challenger Powerboats, Inc.





Sugar
      Sand boats have been in production for more than a decade. Built to a higher
      standard, Sugar Sand boats range in length from 16 to 23 feet and are crafted
      by
      folks who embrace quality standards, and embody a robust Midwestern work
      ethic.





Through
      our Exclusive Sales and Marketing Agreement with Challenger Powerboats, Inc.,
      the Company markets Sugar Sand boats through a dealer network comprised of
      more
      than one hundred dealers, with a footprint throughout the United States, Canada,
      Mexico, Europe, Australia, the Middle East and Japan.





During
      the year ended December 31, 2006, 1) we received proceeds of $70,000 through
      the
      sale of 200,000 shares of common stock at $0.35 that were included in our SB-2
      registration statement which was declared effective by the Securities and
      Exchange Commission on October 12, 2005; 2) we received $565,000 for secured
      promissory notes; 3) we received $100,000 through the sale of warrants to
      purchase 400,000 shares of restricted common stock to a strategic investor
      and
      business partner to the Company; 4) we received $1,900,000 upon the issuance
      of
      a convertible debenture; and 5) we exchanged 20,177,369 registered and
      unregistered shares of common stock for our acquisition of Pacific Sports Group,
      services, product, interest expense and debt repayments totaling
      $1,771,029.





During
      the year ended December 31, 2007, 1) we received proceeds of $76,168 through
      the
      sale of 1,912,205 shares of common stock at prices ranging from $.036 to $.056
      pursuant to the Investment Agreement with Dutchess Private Equities Fund, L.P.;
      2) we received $1,309,500 for secured promissory notes; 3) we received
      $5,750,000 upon the issuance of a convertible debenture; and 4) we exchanged
      46,760,466 registered and unregistered shares of common stock for services
      and
      debenture and promissory note principle and interest totaling $1,034,143.





We
      need
      additional capital to fund our operations through December 31, 2008, at which
      time we may seek to raise additional financing. We are required, under the
      terms
      of the promissory notes and convertible debentures to pay annual interest of
      4%
      to 12%. Certain promissory notes and both convertible debentures are secured
      by
      shares of our common stock as determined by formulas specific to each debenture
      and promissory note.





**** ***Critical
      Accounting Policies***





The
      Company’s discussion and analysis of its results of operations, financial
      condition and liquidity are based upon the Company’s financial statements, which
      have been prepared in accordance with accounting principles generally accepted
      in the United States. The preparation of these financial statements requires
      the
      Company to make estimates and judgments 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 period. The Company bases its estimates on historical
      experience and on various other assumptions that it believes to be reasonable
      under the circumstances. Actual results may materially differ from these
      estimates under different assumptions or conditions. On an on-going basis,
      the
      Company reviews its estimates to ensure that the estimates appropriately reflect
      changes in its business.




20





***Inventories***





Inventories
      are valued at the lower of cost or market and primarily consist of wetsuits,
      sticker kits and related accessories. Cost is determined using the average
      cost
      method. The inventory balance reflects management’s estimate of net realizable
      value. Management performs periodic assessments based on our understanding
      of
      market conditions and forecasts of future product demand to determine the
      existence of obsolete, slow moving and non-salable inventories, and records
      the
      necessary adjustment at the time of assessment directly to the statement of
      operations to reduce such inventories to their net realizable value. If the
      actual amount of obsolete inventory significantly exceeds the inventory balance,
      the Company’s costs of goods sold and gross profit and resulting net income or
      loss would be significantly adversely affected.





***Revenue
      recognition***





The
      Company recognizes revenue when the product is shipped. At that time, the title
      and risk of loss transfer to the customer, and collectability is reasonably
      assured. Collectability is evaluated on an individual customer basis taking
      into
      consideration historical payment trends, current financial position, results
      of
      independent credit evaluations and payment terms. Additionally, an estimate
      of
      product returns are recorded when revenue is recognized. Estimates are based
      on
      historical trends taking into consideration current market conditions, customer
      demands and product sell through.  If actual sales returns significantly
      exceed the recorded estimated expense, the Company’s sales would be adversely
      affected.





The
      Company recognizes revenue under the guidance provided by the SEC Staff
      Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and the Emerging
      Issues Task Force (“EITF”) Abstract No. 99-19 “Reporting Revenue Gross as a
      Principal versus Net as an Agent” (“EITF 99-19”). Pursuant to EITF 99-19, The
      Company recognizes revenue from the sale of Sugar sand boats on a gross
      basis.





***Allowance
      for doubtful accounts***





The
      Company maintains an allowance for doubtful accounts for estimated losses
      resulting from the inability of its customers to make required payments. An
      estimate of uncollectible amounts is made by management based upon historical
      bad debts, current customer receivable balances and aging, the customer’s
      financial condition and current economic conditions. If a significant number
      of
      customers with significant receivable balances in excess of the allowance fail
      to make required payments, the Company’s operating results would be
      significantly adversely affected. Based on management’s assessment, the Company
      provides for estimated uncollectible amounts through a charge to earnings and
      a
      credit to the valuation allowance. Balances that remain outstanding after the
      Company has used reasonable collection efforts are written off through a charge
      to the valuation allowance and a credit to accounts receivable. The Company
      generally does not require collateral.




21





***Product
      Warranty***





The
      Company’s Watersports products carry a ninety-day warranty. Warranty costs are
      charged against sales in the period products are sold as a reduction in the
      selling price. Historically, warranty costs have been less than 1% of sales.
      In
      estimating its warranty obligations, the Company considers various relevant
      factors, including the Company’s stated warranty policies, the historical
      frequency of claims, and the cost to replace or repair the product. If the
      actual amount of warranty claims significantly exceeds the estimated expense,
      the Company’s costs of goods sold and gross profit and resulting net income or
      loss would be significantly adversely affected.





***Income
      taxes***





On
      November 1, 2004, the Company amended its Articles of Incorporation to make
      the
      transition from an S-Corporation to a C-Corporation. Prior to this transaction,
      the S Corporation was not a tax paying entity for federal or state income tax
      purposes and thus no provision for income taxes was recognized. The Company
      accounts for income taxes using the asset and liability method. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to the differences between the financial statement carrying amounts
      of existing assets and liabilities and their respective tax bases and operating
      loss and tax credit carryforwards. Deferred tax assets and liabilities are
      measured using enacted rates recovered or settled. The effect on deferred tax
      assets and liabilities of a change in tax rates is recognized in income in
      the
      period that includes the enactment date. In assessing the realizability of
      deferred income tax assets, the Company considers whether it is more likely
      than
      not that some portion or all of the deferred income tax assets will be realized.
      The ultimate realization of deferred income tax assets is dependent upon the
      generation of future taxable income during the periods in which those temporary
      differences become deductible.  SFAS No. 109 requires a valuation allowance
      to be recorded when it is more likely than not that some or all of the deferred
      tax assets will not be realized. The Company has recorded a valuation allowance
      for the full amount of the net deferred tax asset because of uncertainties
      as to
      the amount of taxable income that would be generated in future
      years.





**Results
      of Operations**





**Twelve
      Months Ended December 31, 2007 And 2006**





***Revenue***





Net
      Sales
      for the year ended December 31, 2007 and 2006 were $1,832,011 and $2,018,468,
      respectively, representing a $186,457, or 9% decrease. The year-over-year
      decrease is due primarily to the inclusion of approximately $905,849 of revenue
      from the Academy, Eagle Rider and Kampus lines in the prior year compared to
      no
      such revenue in the current year offset by an increase of approximately $377,853
      in our watersports sales and the inclusion of $364,972 of revenue related to
      Sugar Sand boats in 2007.




22





***Gross
      Margin***





Gross
      margin for the year ended December 31, 2007 and 2006 was $700,372, or 38% of
      revenue and $195,965, or 10% of revenue, respectively. The increase in gross
      margin over the previous year was primarily due to the company ceasing sales
      of
      snowboard products and its licensed apparel program whose gross margins were
      low
      due to unforeseen problems with the manufacturing of related goods whereas
      in
      2007, the Company refocused primarily on the higher margin watersports business.





***Operating
      Expenses***





Selling,
      General and Administrative expenses for the year ended December 31, 2007 and
      2006 was $1,445,120 and $3,322,109, respectively, representing a $1,876,989
      or
      57% decrease. The year-over-year decrease was the result of significantly less
      expense across the board, including approximate decreases of $350,000 for
      selling and advertising, $570,000 for personnel costs, $302,000 of bad debt
      write-offs, $895,000 of cash and stock based professional fees offset by
      approximate increases of $78,000 in depreciation and amortization, $30,000
      in
      factoring fees and $42,000 in postage and shipping.





***Other
      Income and Expenses***





Other
      expense for the year ended December 31, 2007 and 2006 was $2,154,500 and
      $2,482,766, respectively, representing a $328,266 or 13% decrease in expense.
      Interest expense increased $489,199 from $196,422 during 2006 to $685,621 during
      2007. Debenture related costs, including amortization of the beneficial
      conversion feature, warrant discount and financing costs increased $740,625
      from
      $728,390 during 2006 to $1,469,015 during 2007. Impairment of goodwill was
      $1,288,577 in 2006 compared to no such expense in 2007. Except for interest
      expense, the Company expects other expense will decrease in the future as the
      amount of amortization related to our convertible debentures
      decreases.





***Net
      Loss***





Net
      loss
      for the year ended December 31, 2007 and 2006 was $2,671,410 and $5,608,910,
      respectively, representing an decrease in net loss of $2,937,500, or 52%. The
      year-over-year net loss decreased primarily due to no current year impairment
      of
      goodwill, significantly lower operating expenses, a gain in 2007 on the disposal
      of our Academy line of business offset by higher interest expense related to
      our
      convertible debentures and notes payable.





**FINANCIAL
      CONDITION**





From
      inception to December 31, 2007, we incurred an accumulated deficit of
      $12,826,409, and we expect to incur additional losses for the foreseeable
      future. This loss has been incurred through a combination of convertible
      debenture amortization, selling and operating expenses related to expensing
      of
      stock, support of our plans to expand sales and distribution channels,
      development of new products and higher than anticipated cost of sales relative
      to sales.




23





We
      have
      financed our operations since inception primarily through a combination of
      debt
      and equity financing. During the year ended December 31, 2007, we had a net
      increase in cash of $324,869. Total cash resources as of December 31, 2007,
      were
      $399,255, compared with $74,386 at December 31, 2006. We currently do not have
      sufficient funds to continue for the next twelve months.





Our
      available working capital and capital requirements will depend on numerous
      factors, including progress in our distribution and sales of our products,
      the
      timing and cost of expanding into new markets, the cost of developing new
      products, changes in our existing collaborative and licensing relationships,
      the
      resources that we devote to developing new products and commercializing
      capabilities, the status of our competitors, our ability to establish
      collaborative arrangements with other organizations, our ability to attract
      and
      retain key employees, our management of inventory and our need to purchase
      additional capital equipment.





***The
      Company’s Liquidity Plan***





Recent
      operating results give rise to concerns about the Company’s ability to generate
      cash flow from operations sufficient to sustain ongoing viability. During 2007
      and the latter half of 2006, the Company’s cost control strategies focused on
      managing general and administrative expenses through keeping headcount to a
      minimum, amongst other things, and maintaining a focused marketing and sales
      strategy that leverages existing channel partnerships.





The
      Company’s need to raise additional equity or debt financing and the Company’s
      ability to generate cash flow from operations will depend on its future
      performance and the Company’s ability to successfully implement business and
      growth strategies. The Company’s performance will also be affected by prevailing
      economic conditions. Many of these factors are beyond the Company’s control. If
      future cash flows and capital resources are insufficient to meet the Company’s
      commitments, the Company may be forced to reduce or delay activities and capital
      expenditures or obtain additional equity capital. In the event that the Company
      is unable to do so, the Company may be left without sufficient liquidity.





Management
      is currently in the process of seeking additional equity financing with
      potential investors. Management is also working with the holders of our
      convertible debentures to finance production and provide working capital when
      needed. There can be no assurance that such additional financing will be
      obtained. The financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





On
      April
      9, 2007, the Company issued to Dutchess Private Equities Fund, Ltd. (“Dutchess”)
      a promissory note in the face amount of $132,000 for gross proceeds of $110,000
      (the “Note”). The Note bears interest at 12% per annum and matures on April 9,
      2008 (“Maturity Date”). Pursuant to the Note, the Company is required to make
      payments to Dutchess in
      the
      amount of the greater of a) one hundred percent (100%) of each Put (as defined
      in the Investment Agreement between the Company and the Investor dated June
      28,
      2005) given to Dutchess from the Company; or b) eleven thousand seven hundred
      twenty-one dollars and 39/100 ($11,721.39) (the “Payment Amount”) until the Face
      Amount is paid in full, minus any fees due. The First Payment will be due on
      May
      1, 2007 and each subsequent Payment will be made at the Closing of each Put
      until the Note is paid in full, with a minimum amount of eleven thousand seven
      hundred twenty-one dollars and 39/100 ($11,721.39) per month. In connection
      with
      the issuance of the Note, the Company has agreed to provide Collateral to
      Dutchess in the form of thirty (30) Put Notices. The
      Put
      Notices are to be submitted to Dutchess only in the event of default as provided
      in the Note. In
      the
      event that the Company has not repaid the Face Amount by the Maturity Date
      (the
“ Residual
      Amount ”),
      then
      as liquidated damages (the “ Liquidated
      Damages ”),
      the
      face amount shall be increased by ten percent (10.0%) as an initial penalty *and* an
      additional two and one-half percent (2.5%) per month (pro rata for partial
      periods), compounded daily, for each month until the face amount is paid in
      full. Further, if a Residual Amount remains at Maturity, it shall constitute
      an
      Event of Default hereunder. Further,
      in the event of default as provided in the Note, Dutchess may elect to, among
      other things, either switch the Residual Amount (as defined in the Note) to
      a
      three-year, eighteen percent (18%) interest bearing convertible debenture at
      a
      twenty-five percent (25%) discount to the market during conversion or increase
      the Payment Amount (as defined in the Note) to fulfill the repayment of the
      Residual Amount. In the event that Dutchess elects to switch to a convertible
      debenture, the Company will be required to file within ten (10) business days
      a
      registration statement covering three hundred percent (300%) of the Residual
      Amount. The
      Company also issued to Dutchess incentive shares consisting of 600,000 shares
      of
      the Company’s restricted common stock.




24





On
      May 1,
      2007, the Company issued to Dutchess a promissory note in the face amount of
      $132,000 for gross proceeds of $110,000. The Note bears interest at 12% per
      annum and matures on May 1, 2008. Pursuant to the Note, the Company is required
      to make payments to Dutchess in the amount of the greater of a) one hundred
      percent (100%) of each Put (as defined in the Investment Agreement (See Note
      G)
      between the Company and the Investor given to Dutchess from the Company; or
      b)
      eleven thousand seven hundred twenty-one dollars and 39/100 ($11,721.39) until
      the Face Amount is paid in full, minus any fees due. In connection with the
      issuance of the Note, the Company has agreed to provide Collateral to Dutchess
      in the form of thirty (30) Put Notices. In the event that the Company has not
      repaid the Face Amount by the maturity date, then as liquidated damages, the
      face amount shall be increased by ten percent (10.0%) as an initial penalty
      and
      an additional two and one-half percent (2.5%) per month (pro rata for partial
      periods), compounded daily, for each month until the face amount is paid in
      full.





On
      August
      13, 2007, the Company Dutchess a promissory note in the face amount of $312,000
      for gross proceeds of $260,000 (the “Note”). The Note bears interest at 12% per
      annum and matures on September 13, 2008 (“Maturity Date”). Pursuant to the Note,
      the Company is required to make payments to Dutchess in
      the
      amount of one hundred percent (100%) of each Put (as defined in the Investment
      Agreement between the Company and the Investor dated June 28, 2005) given to
      Dutchess from the Company (the “Payment Amount”) until the Face Amount is paid
      in full, minus any fees due. The First Payment will be due on October 1, 2007
      and each subsequent Payment will be made at the Closing of each Put until the
      Note is paid in full. The Company may prepay the Note with penalty. In
      connection with the issuance of the Note, the Company has agreed to provide
      Collateral to Dutchess in the form of thirty (30) Put Notices. The
      Put
      Notices are to be submitted to Dutchess only in the event of default as provided
      in the Note. In
      the
      event that the Company has not repaid the Face Amount by the Maturity Date
      (the
“ Residual
      Amount ”),
      then
      as liquidated damages (the “ Liquidated
      Damages ”),
      the
      face amount shall be increased by ten percent (10.0%) as an initial penalty
      and
      an additional two and one-half percent (2.5%) per month (pro rata for partial
      periods), compounded daily, for each month until the face amount is paid in
      full. Further, if a Residual Amount remains at Maturity, it shall constitute
      an
      Event of Default hereunder. Further,
      in the event of default as provided in the Note, Dutchess may elect to, among
      other things, either switch the Residual Amount (as defined in the Note) to
      a
      three-year, eighteen percent (18%) interest bearing convertible debenture at
      a
      twenty-five percent (25%) discount to the market during conversion or increase
      the Payment Amount (as defined in the Note) to fulfill the repayment of the
      Residual Amount. In the event that Dutchess elects to switch to a convertible
      debenture, the Company will be required to file within ten (10) business days
      a
      registration statement covering three hundred percent (300%) of the Residual
      Amount. In
      the
      event the Company does not file such registration statement within such period
      of time, or such registration statement is not declared by the Commission to
      be
      effective under the Securities Act within sixty (60) business days of the
      Convertible Closing Date, then the Residual Amount shall increase by five
      thousand dollars ($5,000) per day.




25





In
      connection with the Sugar Sand boats acquisition, on August 23, 2007, the
      Company issued to Dutchess Private Equities Fund, Ltd. (“Dutchess”) a debenture
      in the face amount of $5,750,000 (the “Debenture”). The Debenture bears interest
      at 12% per annum and matures on August 23, 2012 (“Maturity Date”). Pursuant to
      the Debenture, the
      Company shall make mandatory monthly payments of interest (“Interest Payments”)
      to Dutchess in an amount equal to the interest accrued on the principal balance
      of the Debenture from the last Interest Payment until such time as the Interest
      Payment is due and payable. The Interest Payment shall commence on September
      1,
      2007 and shall continue until the Debenture is paid in full. The
      Company may repay in full the face amount of the Debenture without penalty.
      Dutchess has the right to convert any and all amounts owing under the Debenture
      into shares of the Company’s Common Stock at any time following the closing
      date. The conversion price of the Debenture shall be equal to the lesser of
      the
      following prices: (i) seventy-five percent (75%) of the lowest closing bid
      price
      of the Common Stock during the twenty (20) trading days immediately prior to
      any
      conversion notice; or (ii) 2/100 U.S. Dollars ($0.02). Moreover, the net
      proceeds from the sale of the Debenture are to be held in an escrow account
      and
      shall be distributed pursuant to instruction from the Company and
      Dutchess.





In
      connection with the issuance of the Debenture, the Company executed and
      delivered to Dutchess a Subscription Agreement and a five (5) year Warrant
      to
      purchase 5,750,000 shares of the Company’s Common Stock at 2/100 per share
      ($0.02). Moreover, the Company agreed that all obligations pursuant to the
      Debenture are to be secured pursuant to that certain Security Agreement between
      the Company and Dutchess on April 9, 2007. Certain members of Dutchess are
      members of the board of directors of Challenger.





During
      the first half of 2007, the Holders of our convertible debentures advanced
      to
      the Company $869,425 to be used specifically for production of watersports
      goods. The advances bear interest of three percent (3%) per month and mature
      within three months. The advances are secured by the Company’s assets and are
      convertible into shares of common stock of the Company at the lenders discretion
      pursuant to the Investment Agreement as described in the footnotes to our
      financial statements, Note E.




26




***Outlook
      for our Business***





Due
      to
      strong secular trends in the action sports and power sports markets, we have
      experienced significant revenue growth since 2002 and anticipate continued
      strength in revenue growth during 2008 for our water sports and Sugar Sand
      products. In the future due to our planned expansion of products, distribution
      channels and our acquisition strategy we intend to grow our product lines going
      forward primarily through the use of existing cash flow. In addition, we
      anticipate that we will raise additional capital through equity financing,
      and
      intend to use proceeds from these additional financing rounds to expand out
      product lines. We do not anticipate that significant capital resources will
      be
      required to expand our distribution channels. We believe that our existing
      relationships with athletes, vendors and manufacturers will be sufficient to
      provide opportunities to enter into new markets and add new distributors.
      However, we do intend to finance our acquisition strategy going forward through
      additional rounds of equity financing as well as through the use of our stock.
      If we fail to raise additional capital, our ability to implement additional
      businesses that are a strategic fit to our own will be negatively impacted.





Our
      revenue has grown from $337,258 in 2002 to $1,832,011 in 2007. Our revenue
      growth has been and will continue to be dependent, in part, on our ability
      to
      increase production and respond efficiently to market demand for our products.
      In addition, we believe that continued revenue growth is dependent, in part,
      on
      growing our distribution channels and retail points of presence
      overseas.





We
      expect
      the cost of Sugar Sand boats and wetsuits to be our largest expenses and will
      increase as our revenue increases. Our personnel and professional expenses
      are
      our next largest expense and consist of salaries, commissions, fees and stock
      based compensation. We intend to maintain our current level of personnel and
      decrease our professional fee related expenses.





***Off-Balance
      Sheet Arrangements***





At
      December 31, 2007 the Company had no obligations that would qualify to be
      disclosed as off-balance sheet arrangements.





***Contractual
      Obligations***





At
      December 31, 2007 the Company had no obligations that would qualify to be
      disclosed as operating lease obligations.




27





***Inflation***





Although
      at reduced levels in recent years, inflation may cause upward pressure on the
      cost of goods and services used by us. The competitive and regulatory
      environments in many markets substantially limit our ability to fully recover
      these higher costs through increased selling prices. We continually seek to
      mitigate the adverse effects of inflation through cost containment and improved
      productivity and manufacturing processes.





***Foreign
      currency fluctuations***




Most
      of
      our sales are derived the United States. A significant portion of our costs
      are
      for goods sourced from other countries other than the U.S., primarily China.
      Our
      cost of goods from our Chinese manufacturers is relatively stable given that
      the
      Yuan is pegged to the U.S. dollar. However, if the Chinese government decides
      to
      remove the U.S. dollar peg, then the cost to our manufacturers will increase
      and
      they will pass that increase on to us which could have a material adverse effect
      on our ability to compete and our financial position and results of
      operations.





**ITEM
      7. FINANCIAL STATEMENTS**





The
      information required by this Item is submitted as a separate section of this
      Form 10-KSB. See CONSOLIDATED FINANCIAL STATEMENTS AND NOTES on page
      44.





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





There
      were no reportable events of the type described in Item 304(a)(1)(iv) of
      Regulation S-B.





**ITEM
      8A. (T). CONTROLS AND PROCEDURES**





As
      of
      December 31, 2007, we conducted an evaluation, under the supervision and
      participation of our management, including the Company’s President and Chief
      Financial Officer (who is the principal accounting officer) to evaluate the
      effectiveness of the Company’s disclosure controls and procedures and manage the
      Company’s operations as of the end of the period covered by this report, as
      required by Rule 13a-15(b) under the Exchange Act,.





**MANAGEMENT'S
      REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**





The
      management of Execute Sports, Inc. is responsible for establishing and
      maintaining adequate internal control over financial reporting. Internal control
      over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated
      under the Securities Exchange Act of 1934 as a process designed by, or under
      the
      supervision of, the company's principal executive and principal financial
      officers and effected by the company's board of directors, management and other
      personnel, 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 and includes those policies and procedures that:




· Pertain
        to the maintenance of records that in reasonable detail accurately and fairly
        reflect the transactions and dispositions of the assets of the
        company;




28




· Provide
        reasonable assurance that transactions are recorded as necessary to permit
        preparation of financial statements in accordance with accounting principles
        generally accepted in the United States of America and that receipts and
        expenditures of the company are being made only in accordance with
        authorizations of management and directors of the company;
        and




· Provide
        reasonable assurance regarding prevention or timely detection of unauthorized
        acquisition, use or disposition of the company's assets that could have a
        material effect on the financial statements.


Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. 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. All internal control systems, no matter
      how well designed, have inherent limitations. Therefore, even those systems
      determined to be effective can provide only reasonable assurance with respect
      to
      financial statement preparation and presentation. Because of the inherent
      limitations of internal control, there is a risk that material misstatements
      may
      not be prevented or detected on a timely basis by internal control over
      financial reporting. However, these inherent limitations are known features
      of
      the financial reporting process. Therefore, it is possible to design into the
      process safeguards to reduce, though not eliminate, this risk.





Management
      assessed the effectiveness of the Company's internal control over financial
      reporting as of December 31, 2007. In making this assessment, management used
      the criteria set forth by the Committee of Sponsoring Organizations of the
      Treadway Commission in Internal Control-Integrated Framework.





Inherent
      in small business is the pervasive problem of segregation of duties. Given
      that
      the Company only employs two executive officer, one of which is a director,
      segregation of duties is not possible at this stage in the corporate lifecycle.





Based
      on
      its assessment, management concluded that, as of December 31, 2007, the
      Company's internal control over financial reporting is effective based on those
      criteria.





Changes
      in internal Control over Financial Reporting





Our
      President and Chief Financial Officer have indicated that there were no
      significant changes in our internal controls or other factors that could
      significantly affect such controls subsequent to the date of their evaluation,
      and there were no such control actions with regard to significant deficiencies
      and material weaknesses.




29




**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS** **AND
      ALL CONTROL PERSONS**




Our
      Board
      of Directors consists of only one class. All of the directors will serve until
      the next annual meeting of stockholders and until their successors are elected
      and qualified, or until their earlier death, retirement, resignation or removal.
      There are no family relationships among directors and executive officers. We
      also have provided a brief description of the business experience of each
      director and executive officer during the past five years and an indication
      of
      directorships held by each director in other companies subject to the reporting
      requirements under the Federal securities laws. In February 2008, Mr. Benedict
      Amendolar and Mr. Craig Washington resigned from the Board of Directors of
      the
      Company.





The
      following table sets forth the name, age and position of each of the members
      of
      our board of directors, executive officers and promoters as of March 31,
      2008:





DIRECTORS
      AND EXECUTIVE OFFICERS




Name
              
              Age
              
              PositionGeno
                  M. Apicella
              
              45
              
              CEO
                  and Principal Accounting OfficerCeleste
                  Berouty
              
              41
              
              President,
                  Secretary and DirectorTheodore
                  Smith
              
              31
              
              DirectorDouglas
                  D’Agata
              
              31
              
              Director


**EXECUTIVE
      OFFICERS AND DIRECTORS**





**Geno
      M. Apicella** is the
      founder of the Company and had been its CEO since December 2006. Mr. Apicella
      was the Executive Vice President of Sales from February 2003 to December 2006.
      He was graduated from San Francisco State University in 1983 was the Executive
      Vice President of Zak Sports from 1994 through 2001 and founded the water sports
      line in 2001. He has been employed by Execute Sports (formerly Padova
      International USA, Inc.) since 2003. Geno’s innovative designs in wetsuits and
      ski vests are currently present in the marketplace today. He is responsible
      for
      the marketing, design and production for all watersports products at the
      Company.





**Celeste
      Berouty** has been
      the President, Secretary and a Director of the Company since December 2006.
      In
      October 2006, Ms. Berouty was hired by the Company to lead its sales initiative.
      Ms. Berouty brings 19 years of experience in the watersports market as the
      former Director of Sales for Body Glove Wetsuit, Co. She has experience and
      success in selling and developing products for all avenues of watersports,
      including surf, dive, waterski, wakeboarding, paddling and fishing. ****




30





**Theodore
      Smith** has been
      a Director of the Company since February 1, 2008. Mr. Smith has been the
      director of Corporate Finance of Dutchess Private Equityies Fund since June
      1998. He graduated with a BS in marketing and finance from Boston College in
      1999.





**Douglas
      D’Agata** Has been
      a Director of the Company since February 1, 2008. Mr. D’Agata is the Director of
      Research for Dutchess Private Equities Fund since 2004. From 1998 to 2004,
      he
      was a financial advisor at Prudential Securities. Mr. D’Agata graduated from
      Hobart College with a degree in Political Science in 1993 and received a masters
      in finance from Bentley College in 2004.





**Board
      of Directors Committees**





We
      do not
      currently have a standing audit, nominating or compensation committee of the
      Board of Directors, or any committee performing similar functions. Our directors
      perform the functions of audit, nominating and compensation committees. Since
      the Board of Directors currently consists of three members, it does not believe
      that establishing a separate nominating committee is necessary for effective
      governance. When additional members of the Board of Directors are appointed
      or
      elected, we will consider creating a nominating committee.





**16(A)
      BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**





To
      our
      knowledge, no officers, directors, beneficial owners of more than ten percent
      of
      any class of our equity securities registered pursuant to section 12 of the
      Exchange Act or any other person subject to Section 16 of the Exchange Act
      with
      respect to us, failed to file on a timely basis reports required by Section
      16(a) of the Exchange Act during the most recent fiscal year, which ended
      December 31, 2007, except that Mr. Apicella and Ms. Berouty failed to timely
      file their respective Form 3.





**Indebtedness
      of Executive Officers and Directors**





No
      executive officer, director or any member of these individuals’ immediate
      families or any corporation or organization with whom any of these individuals
      is an affiliate is or has been indebted to us since the beginning of our last
      fiscal year .




**Family
      Relationships**





There
      are
      no family relationships among our executive officers and directors.





**Legal
      Proceedings**




31





As
      of the
      date of this 10-KSB, there are no material proceedings to which any of our
      directors, executive officers, affiliates or stockholders is a party adverse
      to
      us.





**Code
      of Ethics**





We
      have
      not adopted a Code of Ethics within the meaning of Item 406(b) of Regulation
      S-B
      of the Securities Exchange Act of 1934. We intend on adopting a Code of Ethics
      which applies to our chief executive officer and our senior financial officers
      in the near future.




**ITEM
      10. EXECUTIVE COMPENSATION**





The
      following table sets forth, for the last three fiscal years, the compensation
      earned for services rendered in all capacities by our chief executive officer,
      chief financial officer and the other highest-paid executive officers serving
      as
      such at the end of 2007 whose compensation for that fiscal year was in excess
      of
      $100,000. The individuals named in the table will be hereinafter referred to
      as
      the “Named Officers.” No other executive officer of Execute Sports, Inc.
      received compensation in excess of $100,000 during fiscal year
      2007.


**SUMMARY
                  COMPENSATION TABLE**Long
                  Term CompensationAnnual
                  Compensation
              
              Awards
              
              Payouts(a)
              
              (b)
              
              (c)
              
              (d)
              
              (e)
              
              (f)
              
              (g)
              
              (h)
              
              (i)Name
                  and Principle Position
              
              Year
              
              Salary
                  ($)
              
              Bonus
                  ($)
              
              Other
                  Annual Compensation ($)
              
              Restricted
                  Stock Award(s) ($)
              
              Securities
                  Underlying Options/ SARs (#)
              
              LTIP
                  Payouts ($)
              
              All
                  Other Compensation ($)Geno
              
              
              2007
              
              $
              96,000
              
              
              —
              
              
              —
              
              $
              40,213
              
              
              —
              
              
              —
              
              
              —Apicella,
              
              
              2006
              
              $
              96,000
              
              
              —
              
              
              —
              
              $
              54,428
              
              
              —
              
              
              —
              
              
              —CEO
              
              
              2005
              
              $
              72,000
              
              
              —
              
              
              —
              
              $
              550,000
              
              
              —
              
              
              —
              
              
              —Celeste
              
              
              2007
              
              $
              175,000
              
              
              —
              
              
              —
              
              $
              49,016
              
              
              —
              
              
              —
              
              
              —Berouty
              
              
              2006
              
              $
              35,417
              
              
              —
              
              
              —
              
              $
              25,000
              
              
              —
              
              
              —
              
              
              —President
              
              
              2005
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Sheryl
              
              
              2007
              
              $
              22,800
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Gardner,
              
              
              2006
              
              $
              91,200
              
              
              —
              
              
              —
              
              $
              20,000
              
              
              —
              
              
              —
              
              
              —CFO*
              
              
              2005
              
              $
              72,000
              
              
              —
              
              
              —
              
              
              **
              
              
              —
              
              
              —
              
              
              —
  Notes:  *
        No
        longer employed by the Company
  **
        2005 $100K incorrectly stated as granted award: was actually conversion of
        debt
        to stock.
  32


**OPTIONS
      AND STOCK APPRECIATION RIGHTS**





We
      currently do not have any stock option plan for executive officers in
      place.





**LONG
      TERM INCENTIVE PLAN AWARDS**





No
      long-term incentive plan awards were made to any of our executive officers
      during the last fiscal year.




**COMPENSATION
      OF DIRECTORS**





**Director
      Compensation**





The
      following table sets forth with respect to the named director, compensation
      information inclusive of equity awards and payments made in the year end
      December 31, 2007.


Name
                (a)
              
              Fees
                  Earned or Paid in Cash
                ($)
                (b)
              
              Stock
                  Awards
                ($)
                (c)
              
              Option
                Awards
                  ($)
                (d)
              
              Non-Equity
                  Incentive Plan Compensation
                ($)
                (e)
              
              Change
                  in Pension Value and Nonqualified Deferred Compensation
                  Earnings
                (f)
              
              All
                  Other Compensation
                ($)
                (g)
              
              Total
                ($)
                (h)Craig
                  Washington
              
              
              
              
              $
              55,266
              
              
              
              
              
              
              
              
              
              
              $
              16,160
              
              $
              71,426Benedict
                  Amendolara
              
              
              
              
              $
              55,266
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              55,266





During
      the year ended December 31, 2007, the Company issued an aggregate of 3,632,085
      shares of restricted stock to members of the Board of Directors and the
      Company’s CEO.





On
      January 2, 2006, the Company’s board of directors approved the 2006 Non-Employee
      Director’s Stock Incentive Plan subject to shareholder approval. The Stock
      Incentive Plan provides for the issuance of Options, Restricted Stock, and/or
      Deferred Stock to an Awardee. The total number of shares of Common Stock, which
      may be awarded under the Plan is 1,500,000. If any awarded shares are forfeited,
      they become available for future issuance. An annual aggregate limit of 300,000
      shares (including Options, Restricted Stock, and Deferred Stock) is set for
      any
      individual Director.





The
      Stock
      Incentive Plan shall have a duration of ten years commencing on January 1,
      2006.
      Awardees are defined as director to whom an award is made. An eligible director
      is any person who on the date of grant is a member of the Board of Directors
      of
      the Company and is not an employee of the Company or of any Subsidiary. Stock
      Options are non-qualified right-to-buy Options for the purchase of Common Stock
      of the Company. The term of each Option shall be ten years from the Date of
      Grant. The Option Price shall be the Fair Market Value of Execute Sports, Inc.
      Common Stock on the date the Option is granted. Under no circumstances shall
      any
      Option vest in less than one year from the date of grant. Shares purchased
      upon
      exercise of an Option must be paid for in full at the time of exercise either
      in
      cash *or
      with currently owned shares* .
      Neither
      the Committee on Directors and Governance nor the Board of Directors may
      re-price any Option that is less than the option exercise price. Restricted
      Stock is Common Stock of the Company restricted as to sale in such fashion
      as
      the Committee on Directors and Governance shall determine. Prior to the lifting
      of the restrictions, the Awardee will be entitled to receive dividends from
      and
      to vote the shares of Restricted Stock.




33





**Executives’
      Compensation Policies**





Compensation
      of our executives is intended to attract, retain and award persons who are
      essential to the corporate enterprise. The fundamental policy of our executive
      compensation program is to offer competitive compensation to executives that
      appropriately rewards the individual executive’s contribution to corporate
      performance. The board of directors utilizes subjective criteria for evaluation
      of individual performance and relies substantially on our executives in doing
      so. The Board focuses on two primary components of our executives’ compensation
      program, each of which is intended to reflect individual and corporate
      performance: base salary and long-term incentive compensation.





Executives’
      base salaries are determined primarily by reference to compensation packages
      for
      similarly situated executives of companies of similar size or in comparable
      lines of business with whom we expect to compete for executive talent and with
      reference to revenues, gross profits and other financial criteria. The Board
      also assesses subjective qualitative factors to discern a particular executive’s
      relative value to the corporate enterprise in establishing base salaries.





It
      is the
      Board’s philosophy that significant stock ownership by management creates a
      powerful incentive for executives to build long-term shareholder value.
      Accordingly, the board believes that an integral component of executive
      compensation is the award of equity-based compensation, which is intended to
      align executives’ long-term interests with those of our shareholders. The board
      believes that option grants should be considered on an annual
      basis.





*Employment
      Agreements with Executive Officers*





Execute
      Sports, Inc. has executed employment agreements with its top executive officers.
      Below is a summary of the major terms of these employment agreements.




**EMPLOYMENT
      AGREEMENTS**





Geno
      M. Apicella, Founder and CEO .
      Mr.
      Apicella’s employment with us is governed by an employment agreement dated
      January 1, 2008 with a term of three years and which provides for a base salary
      of One Hundred and Twenty Thousand ($120,000.00) dollars for the first year,
      One
      Hundred and Thirty Two Thousand ($132,000.00) dollars for the second year,
      and
      One Hundred and Fifty Thousand ($150,000.00) dollars for the third year of
      employment. The Company may also provide Mr. Apicella with bonuses in cash
      or
      other compensation.




34





Celeste
      Berouty, President/Secretary .
      Ms
      Berouty’s employment with us is governed by an employment agreement dated August
      24, 2006 with a term of three years and which provides for a base salary of
      One
      Hundred and Seventy Five Thousand ($175,000.00) dollars for the first year,
      One
      Hundred and Seventy Five Thousand ($175,000.00) dollars for the second year,
      and
      Two Hundred Thousand ($200,000.00) dollars for the third year of employment.
      The
      company may also provide Ms. Berouty with bonuses in cash or other
      compensation.




**ITEM
      11. Security Ownership of Certain Beneficial Owners and
      Management**





The
      following table sets forth certain information regarding beneficial ownership
      of
      our common stock as of December 31, 2007, by (i) each person known by us to
      be
      the beneficial ownership of more than 5 percent of the outstanding common stock,
      (ii) each director, (iii) each executive officer, and (iv) all executive
      officers and directors as a group. The number of shares beneficially owned
      is
      determined under the rules promulgated by the SEC, and the information is not
      necessarily indicative of beneficial ownership for any other purpose. Under
      those rules, beneficial ownership includes any shares as to which the individual
      has sole or shared voting power or investment power and also any shares which
      the individual has the right to acquire within 60 days of the date hereof,
      through the exercise or conversion of any stock option, convertible security,
      warrant or other right. Including those shares in the tables does not, however,
      constitute an admission that the named stockholder is a direct or indirect
      beneficial owner of those shares. Unless otherwise indicated, each person or
      entity named in the table has sole voting power and investment power (or shares
      that power with that person’s spouse) with respect to all shares of capital
      stock listed as owned by that person or entity.




35


Shares
                  Beneficially
              
              Percent
                  ofName
                  and Address of Beneficial Owner
              
              Owned
              
              ClassDirectors
                  and Executive Officers (1):c/o
                  Execute Sports, Inc.21143
                  Hawthorne BL #425Torrence,
                  CA 90503Geno
                  Apicella
              
              
              5,346,786
              
              
              *Celeste
                  Berouty
              
              
              2,758,484
              
              
              *Theodore
                  Smith
              
              
              -
              
              
              *Douglas
                  D'Agata
              
              
              -
              
              
              *Sheryl
                  Gardner1
              
              
              1,056,000
              
              
              *Craig
                  Washington2
              
              
              2,210,626
              
              
              *Benedict
                  Amendolar2
              
              
              2,150,150
              
              
              *All
                  Officers and Directors as a Group
              
              
              13,522,046
              
              
              *
 1 Ms.
        Gardner is no longer employed by the Company.


2 Resigned
      from the Company in February 2008.




*
      Represents less than 5% of the outstanding common stock.





None
      of
      the persons listed have been granted stock options, warrants or any other
      security that is exercisable or convertible into common stock.




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





We
      have
      described below transactions in the last two years between Execute Sports and
      an
      officer, director, 5% stockholder or any of their immediate family members
      that
      have been entered. For information about compensation paid in connection with
      employment or Board service for Named Officers and directors, see “Executive
      Compensation” beginning on page 32.





*Related
      Party Transactions.*





In
      2003,
      the Company issued unsecured promissory Notes (the “Notes”) bearing 2% interest
      per month to Don Dallape and Scott Swendener, two of our executive officers,
      each of whom was also one of our directors, who provided financing to our
      Company in the aggregate principle amount of $585,762.





In
      2005,
      the Company issued additional unsecured promissory Notes (the “Notes”) bearing
      2% interest per month to Don Dallape and Scott Swendener who provided financing
      to our Company in the aggregate principle amount of $92,353.




36





Later
      in
      2005, all of the Notes issued to Don Dallape and Scott Swendener were converted
      to outside, non-affiliated individuals to the Company. In February 2006, the
      Notes were renegotiated by the Company to bear 2% annual interest, and all
      unpaid back interest totaling $104,232 was converted to the Company’s common
      stock at $.25 per share, or 4 shares for each unpaid $1.00 of interest.





In
      2005,
      the Company entered into a Consulting Agreement with Todd M. Pitcher to provide
      business consulting services on an ongoing basis to the Company. Such services
      included the maintaining of corporate minutes and related administrative
      documentation, shareholder recordkeeping, debt restructuring and distribution
      of
      shareholder reports. Under the terms of the Agreement the Company paid Mr.
      Pitcher at a rate of $2,000.00 per month and a grant of 400,000 shares of the
      Company’s restricted Common Stock.





During
      the year ended December 31, 2006, 1,000,000 shares of common stock previously
      issued to the founders and president (300,000 Don Dallape, 300,000 Scott
      Swendener, 300,000 Geno Apicella and 100,000 Todd Pitcher) were voluntarily
      returned to the Company and cancelled by each shareholder in an effort to
      improve the Company’s capital structure. The shares were originally expensed as
      stock compensation expense for $0.25 per share, or $250,000 on April 1, 2005.
      The Company reclassified the par value, or $1,000 out of Common Stock and
      increased Additional-Paid-in-Capital in order to reflect the reduction in the
      legal value of the canceled shares.





During
      the year ended December 31, 2006, the Company incurred $35,622 of expenses
      paid
      on its behalf by Comprehensive Communications LLC, a company wholly owned by
      the
      Company’s former President, Todd Pitcher.





During
      the year ended December 31, 2006, the Company incurred $25,856 of expenses
      paid
      on its behalf by Geno Apicella, CEO. In addition, Geno made loans to the company
      totaling $103,636 of which the Company has repaid $57,577 as of December 31,
      2006. As of December 31, 2006, the Company was indebted to Mr. Apicella for
      $54,700.





During
      the year ended December 31, 2007, the Company paid Craig Washington, former
      Director, $16,160 for administrative services, including accounting and record
      keeping.





During
      the year ended December 31, 2007, the Company paid Geno Apicella, CEO, $54,700
      as repayment for loans made during fiscal year 2006.




37




**ITEM
      13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.**





(a)
      Exhibits


Financial
                  StatementsINDEPENDENT
                  AUDITORS REPORT
              
              F-1CONSOLIDATED
                  FINANCIAL STATEMENTSConsolidated
                  Balance Sheet
              
              F-3Consolidated
                  Statements of Operations
              
              F-4Consolidated
                  Statements of Stockholders’ Equity
              
              F-5Consolidated
                  Statements of Cash Flow
              
              F-6Notes
                  to Consolidated Financial Statements
              
              F-7




The
      following exhibits filed as part of this Form 10-KSB include both exhibits
      submitted with this Report and those incorporated by reference to other
      filings:




**Exhibit**
              **Number**
            
            **Description**
            
            **By
                Reference**
              **from
                Document**2.1
            
            Acquisition
                Agreement, dated as of January 16, 2006 by and between Execute Sports,
                Inc. and Pacific Sports Group, Inc. (Incorporated by reference with
                the
                Company’s Form 8-K filed on January 19, 2006)2.2
            
            Financial
                statements of acquired company, Pacific Sports Group, Inc. dated
                as of
                December 31, 2006 and 2005 (Incorporated by reference with the Company’s
                Form 8-K filed on March 20, 2006).2.3
            
            Trademark
                Transfer and Assignment Agreement between the Company and Duane Pacha
                and
                Jeff Baughn, dated January 31, 2007 (Incorporated by reference to
                Exhibit
                10.1 of the Company’s Current Report on Form 8-K, filed on February 5,
                2007)10.1
            
            Entry
                into binding letter of intent between Execute Sports, Inc. and Pacific
                Sports Group, Inc. (Incorporated by reference with the Company’s Form 8-K
                filed on January 3, 2006).10.2
            
            Non-Employee
                Directors Stock Incentive Plan (Incorporated by reference with the
                Company’s Form 8-K filed on January 4, 2006).10.3
            
            Private
                Equity Credit Agreement with Skiva Graphics and Screen Printing
                (Incorporated by reference with the Company’s Form 8-K filed on March 8,
                2006).




38




**Exhibit**
              **Number**
            
            **Description**
            
            **By
                Reference**
              **from
                Document**10.4
            
            10.4
                Secured Notes (Incorporated by reference with the Company’s Form 8-K filed
                on March 27, 2006).**FILE
                EXHIBIT LIST**17.1
            
            Resignation
                of Donald Dallape as President of Execute Sports, Inc. and appointment
                of
                Todd M. Pitcher as President and Secretary of Execute Sports, Inc.
                (Incorporated by reference with the Company’s Form 8-K filed on December
                21, 2005).17.2
            
            Resignation
                of Todd Hahn as Chief Executive Officer and Todd M. Pitcher as President,
                Secretary and director and appointment of Geno Apicella as the company’s
                Chief Executive Officer and Celeste Berouty as the company’s President
                (Incorporated by reference with the Company’s Form 8-K filed on December
                26, 2006).23.1
            
            Consent
                of Independent Public Accountant, dated April 13, 200631.1
            
            Certification
                of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of
                the
                Securities Exchange Act of 1934
            
            *31.2
            
            Certification
                of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of
                the
                Securities Exchange Act of 1934
            
            *32.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002
            
            *32.2
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002
            
            *




*
            Filed
                herewith




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





(1)
            Audit
                Fees





The
      aggregate fees billed for professional services rendered by Bedinger &
Company for the audit of the Registrant’s annual financial statements and review
      of the financial statements included in the Registrant’s Forms 10-QSB or
      services that are normally provided by the accountant
      in connection with statutory and regulatory filings or engagements for fiscal
      year 2007 were $38,432. Additionally, Bedinger & Company has charged $5,500
      or tax preparation services for fiscal year 2007.





(2)
            Audit
                Committee Policies and Procedures





The
      Registrant does not have an audit committee. The Board of Directors of the
      Registrant approved all of the services rendered to the Registrant by Bedinger
      & Company for fiscal years 2007 and 2006.




(3)
            Audit
                Work Attributed to Persons Other than Bedinger & Company’s Full-time,
                Permanent Employees.





39





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, as amended, the registrant has duly caused this report to be signed on
      its
      behalf by the undersigned, thereunto duly authorized.


Execute
                  Sports, Inc.Date:
              March 31, 2008
            By:
            /s/
              Geno
              M. ApicellaGeno
              M. Apicella
              Chief
                Executive Officer




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.




SIGNATURE
      TITLE DATE


/s/
                  Geno M. Apicella
              
              Chief
                  Executive Officer and Principle Accounting Officer
              
              March
                  31, 2008Geno
                  M. ApicellaBOARD
                  OF DIRECTORS/s/
                  Celeste Berouty
              
              President,
                  Secretary and Director
              
              March
                  31, 2008Celeste
                  Berouty/s/
                  Theordore Smith
              
              Director
              
              March
                  31, 2008Theodore
                  Smith/s/
                  Douglas D’Agata
              
              Director
              
              March
                  31, 2008Douglas
                  D’Agata




40




**EXECUTE
      SPORTS, INC.**





**REPORT
      ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS**





**YEARS
      ENDED DECEMBER 31, 2007 AND 2006**







CONTENTS


PAGEReport
                  of Independent Registered Public Accounting Firm
              
              F-1-2FINANCIAL
                  STATEMENTSConsolidated
                  Balance Sheet
              
              F-3Consolidated
                  Statements of Operations
              
              F-4Consolidated
                  Statement of Stockholders’ Equity
              
              F-5Consolidated
                  Statements of Cash Flows
              
              F-6Notes
                  to the Financial Statements
              
              F-7-33


REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board
      of
      Directors


Execute
      Sports, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Execute Sports, Inc.
      (the
“Company”), as of December 31, 2007 and the related consolidated statements of
      operations, stockholders’ equity (deficit), and cash flows for the years ended
      December 31, 2007 and December 31, 2006. 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. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, based on our audits, the consolidated financial statements referred
      to
      above present fairly, in all material respects, the financial position of
      Execute Sports, Inc. as of December 31, 2007 and the related consolidated
      statements of operations, stockholders’ equity (deficit), and cash flows for the
      years ended December 31, 2007 and December 31, 2006, in conformity with
      accounting principles generally accepted in the United States of
      America.




F-1





Board
      of
      Directors


Execute
      Sports, Inc.


Page
      Two




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. However, the Company has suffered recurring
      losses from operations that raises substantial doubt about its ability to
      continue as a going concern. Management plans in regards to these matters are
      also described in Note K. The financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.




/s/
                Bedinger & CompanyCertified
                Public Accountants
              Concord,
                California
              March
                31, 2008




F-2


**EXECUTE
                    SPORTS, INC.**Consolidated
                    Balance SheetAs
                    of December 31, 2007
  ASSETSCURRENT
                    ASSETSCash
                
                $
                399,255Accounts
                    receivable, net (Note A)
                
                
                27,123Inventory
                
                
                65,617Deferred
                    financing costs (Note G)
                
                
                60,377Other
                    current assets
                
                
                5,441TOTAL
                    CURRENT ASSETS
                
                
                557,813Fixed
                    assets, net (Note B)
                
                
                1,038,514Deferred
                    financing costs (Note G)
                
                
                227,145Intangible
                    assets, net (Note C)
                
                
                3,975,000Loans
                    receivable, net (Note D)
                
                
                146,128TOTAL
                    ASSETS
                
                $
                5,944,600LIABILITIES
                    AND STOCKHOLDERS' EQUITYCURRENT
                    LIABILITIESCurrent
                    portion of convertible debentures (Note E)
                
                $
                1,708,409Short
                    term borrowings (Note F)
                
                
                502,160Related
                    party notes payable (Note F)
                
                
                79,290Accounts
                    payable and accrued expenses
                
                
                72,918Interest
                    accrued on convertible debentures (Note E)
                
                
                314,490TOTAL
                    CURRENT LIABILITIES
                
                
                2,677,267Non-current
                    portion of convertible debentures (Note E)
                
                
                4,358,483TOTAL
                    LIABILITIES
                
                
                7,035,750Commitment
                
                
                -STOCKHOLDERS'
                    EQUITY (Note G)Common
                    stock, par value $.001, 100,000,000 shares authorizedauthorized;
                    issued and outstanding 87,456,541 at December 31, 2007
                
                
                87,452Additional
                    paid-in capital
                
                
                11,647,807Deficit
                    accumulatedRetained
                    earnings <deficit>
                
                
                (12,826,409
                )TOTAL
                    STOCKHOLDERS' EQUITY
                
                
                (1,091,150
                )TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                5,944,600  SEE
            NOTES
            TO FINANCIAL STATEMENTS


F-3


**EXECUTE
                SPORTS, INC.**Consolidated
                Statements of OperationsFor
                the Years Ended December 31, 2007 and 2006




Year
                EndedDecember
                31,REVENUES
                &COST OF SALES
            
            2007
            
            2006Net
                watersport sales
            
            $
            1,467,039
            
            $
            2,018,468Net
                sugar sand sales
            
            
            364,972
            
            
            -Total
                net sales
            
            
            1,832,011
            
            
            2,018,468Watersport
                cost of sales
            
            
            784,916
            
            
            -Sugar
                sand cost of sales
            
            
            346,723
            
            
            1,822,503Total
                cost of sales
            
            
            1,131,639
            
            
            1,822,503Gross
                profit
            
            
            700,372
            
            
            195,965EXPENSESGeneral
                and administrative expenses
            
            
            1,250,594
            
            
            2,858,223Selling
                and advertising
            
            
            109,406
            
            
            456,939Depreciation
                expense
            
            
            85,120
            
            
            6,947Total
                expense
            
            
            1,445,120
            
            
            3,322,109Income
                (loss) from operations
            
            
            (744,748
            )
            
            (3,126,144
            )OTHER
                INCOME AND EXPENSESInterest
                income
            
            
            4
            
            
            6,740Other
                income
            
            
            5,095
            
            
            6,705Interest
                expense
            
            
            (685,621
            )
            
            (196,422
            )Loss
                due to loan reserve
            
            
            -
            
            
            (250,000
            )Loss
                due to discount on conversion to stock
            
            
            (54,250
            )
            
            (32,822
            )Amortization
                of beneficial conversion feature of convertible
                debenture
            
            
            (1,072,281
            )
            
            (435,577
            )Amortization
                of warrant discount related to convertible debenture
            
            
            (272,780
            )
            
            (205,788
            )Amortization
                of deferred financing costs
            
            
            (123,954
            )
            
            (87,025
            )Gain
                on exchange of stock for cancellation of debt
            
            
            49,287
            
            
            -Impairment
                of goodwill
            
            
            -
            
            
            (1,288,577
            )Total
                other income and expenses
            
            
            (2,154,500
            )
            
            (2,482,766
            )Net
                loss before discontinued operations
            
            
            (2,899,248
            )
            
            (5,608,910
            )Income
                (loss) from discontinued operations
            
            
            (1,421
            )
            
            -Gain
                (loss) on disposal of discontinued operations
            
            
            229,259
            
            
            -Total
                discontinued operations
            
            
            227,838
            
            
            -NET
                INCOME (LOSS)
            
            $
            (2,671,410
            )
            $
            (5,608,910
            )Net
                (loss) per common share Basic and diluted from continuing
                operations
            
            $
            (0.046
            )
            $
            (0.244
            )Net
                (loss) per common share basic and diluted after discontinued
                operations
            
            $
            (0.042
            )
            $
            (0.244
            )Weighted
                average common shares outstanding basic and diluted
            
            
            62,901,822
            
            
            22,973,747The
                average shares listed below were not included in the
                computationper
                share because to do so would have been antidilutive for the periods
                presented:Stock
                options
            
            
            110,959
            
            
            900,000Warrants
            
            
            9,738,516
            
            
            2,222,158Debt
                collateralized with common stock
            
            
            500,492,667
            
            
            8,402,389




SEE
      NOTES
      TO FINANCIAL STATEMENTS




F-4


**EXECUTE
          SPORTS, INC.**
 Statements
          of Stockholders' Equity
 For
          the
          years ended December 31, 2007 and 2006
 Common
                  Stock
              
              Additional
              
              Retained
              
              TotalNumber
                  of
              
              
              
              Payable/
              
              Paid-in
              
              Earnings
              
              Stockholders'Shares
              
              Amount
              
              Subscribed
              
              Capital
              
              <Deficit>
              
              EquityDecember
                  31, 2005
              
              
              18,706,501
              
              $
              18,702
              
              $
              788,900
              
              $
              4,958,951
              
              $
              (4,546,089
              )
              $
              1,220,464.00Shares
                  subscriptions received
              
              
              
              
              
              
              
              
              
              
              
              5,130
              
              
              
              
              
              5,130Shares
                  issued for acquisition
              
              
              1,932,569
              
              
              1,933
              
              
              (676,400
              )
              
              674,467
              
              
              
              
              
              -Shares
                  issued for director compensation
              
              
              1,073,808
              
              
              1,073
              
              
              (7,500
              )
              
              36,533
              
              
              
              
              
              30,106Shares
                  issued for cash in connection with the SB-2 filed 6/16/05
              
              
              300,000
              
              
              300
              
              
              (105,000
              )
              
              104,700
              
              
              
              
              
              -Founders
                  shares voluntarily canceled
              
              
              (1,000,000
              )
              
              (1,000
              )
              
              
              
              
              1,000
              
              
              
              
              
              -Shares
                  issued pursuant to warrant exercises
              
              
              655,000
              
              
              655
              
              
              
              
              
              137,595
              
              
              
              
              
              138,250Shares
                  issued for cash
              
              
              200,000
              
              
              200
              
              
              
              
              
              69,800
              
              
              
              
              
              70,000Shares
                  issued pursuant to put agreement
              
              
              2,750,049
              
              
              2,750
              
              
              
              
              
              161,347
              
              
              
              
              
              164,097Shares
                  issued for services
              
              
              12,303,816
              
              
              12,304
              
              
              
              
              
              470,399
              
              
              
              
              
              482,703Shares
                  issued for notes payable
              
              
              1,862,127
              
              
              1,862
              
              
              
              
              
              368,480
              
              
              
              
              
              370,342Stock
                  options granted
              
              
              
              
              
              
              
              
              
              
              
              85,313
              
              
              
              
              
              85,313Beneficial
                  conversion feature of convertible debenture
              
              
              
              
              
              
              
              
              
              
              
              1,425,000
              
              
              
              
              
              1,425,000Warrant
                  discount to convertible debenture
              
              
              
              
              
              
              
              
              
              
              
              475,000
              
              
              
              
              
              475,000Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,608,910
              )
              
              (5,608,910
              )December
                  31, 2006
              
              
              38,783,870
              
              
              38,779
              
              
              -
              
              
              8,973,715
              
              
              (10,154,999
              )
              
              (1,142,505
              )Shares
                  issued for director compensation
              
              
              3,266,968
              
              
              3,267
              
              
              
              
              
              107,265.00
              
              
              
              
              
              110,532Shares
                  issued for services
              
              
              3,177,271
              
              
              3,177
              
              
              
              
              
              98,342.00
              
              
              
              
              
              101,519Shares
                  issued to induce creditor to make loans to the Company
              
              
              1,400,000
              
              
              1,400
              
              
              
              
              
              27,200.00
              
              
              
              
              
              28,600Shares
                  issued for notes payable
              
              
              8,933,552
              
              
              8,934
              
              
              
              
              
              177,180.00
              
              
              
              
              
              186,114Shares
                  issued pursuant to put agreement for repayment of
                  debenture
              
              
              7,679,788
              
              
              7,680
              
              
              
              
              
              263,643.00
              
              
              
              
              
              271,323Shares
                  issued pursuant to put agreement for repayment of loans
              
              
              22,302,887
              
              
              22,303
              
              
              
              
              
              313,752.00
              
              
              
              
              
              336,055Shares
                  issued pursuant to put agreement for cash
              
              
              1,912,205
              
              
              1,912
              
              
              
              
              
              74,256.00
              
              
              
              
              
              76,168Warrants
                  issued for services
              
              
              
              
              
              
              
              
              
              
              
              134,510.00
              
              
              
              
              
              134,510Beneficial
                  conversion feature of convertible debenture
              
              
              
              
              
              
              
              
              
              
              
              1,424,185.00
              
              
              
              
              
              1,424,185Warrant
                  discount to convertible debenture
              
              
              
              
              
              
              
              
              
              
              
              53,759.00
              
              
              
              
              
              53,759Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,671,410
              )
              
              (2,671,410
              )December
                  31, 2007
              
              
              87,456,541
              
              $
              87,452
              
              $
              -
              
              $
              11,647,807
              
              $
              (12,826,409
              )
              $
              (1,091,150
              )
 SEE
          NOTES
          TO FINANCIAL STATEMENTS
  F-5
  **EXECUTE
        SPORTS, INC.**
 Consolidated
          Statements of Cash Flows
 For
          the
          Years Ended December 31, 2007 and 2006
 Year
                  Ended December 31,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss from continuing operations
              
              $
              (2,671,410
              )
              $
              (5,608,910
              )Adjustments
                  to reconcile net loss to net cash used by operating
                  activities:Depreciation
                  and amortization
              
              
              85,120
              
              
              6,947Stock
                  based compensation expense
              
              
              423,856
              
              
              512,798Compensation
                  expense on options granted
              
              
              -
              
              
              85,313Loss
                  on the conversion of convertible debt
              
              
              54,250
              
              
              32,822Gain
                  on cancellation of debt
              
              
              (49,287
              )
              
              -Amortization
                  of beneficial conversion feature
              
              
              1,072,281
              
              
              435,577Amortization
                  of warrant discount related to convertible debenture
              
              
              272,780
              
              
              205,788Issuance
                  of common stock for debt principle
              
              
              (297,853
              )
              
              -Issuance
                  of common stock for accrued interest
              
              
              467,690
              
              
              131,284Increase
                  in loan receivable loss reserve
              
              
              -
              
              
              250,000Changes
                  in assets and liabilities, net of effect of acquisitions:Accounts
                  receivable
              
              
              225,814
              
              
              (109,599
              )Inventory
              
              
              (37,262
              )
              
              223,433Prepaid
                  expenses
              
              
              49,494
              
              
              315,235Other
                  current assets
              
              
              (4,441
              )
              
              (1,000
              )Accounts
                  payable and accrued expenses
              
              
              (667,365
              )
              
              49,907Debenture
                  interest payable
              
              
              258,484
              
              
              56,006Customer
                  deposits
              
              
              -
              
              
              (25,262
              )NET
                  CASH USED FOR OPERATING ACTIVITIES
              
              
              (817,849
              )
              
              (3,439,661
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Change
                  in goodwill
              
              
              -
              
              
              1,288,577Loan
                  proceeds to unaffiliated company
              
              
              -
              
              
              (158,874
              )Cash
                  issued for acquisition
              
              
              (5,000,000
              )
              
              -Acquisition
                  of furniture and equipment
              
              
              (1,058
              )
              
              (92,231
              )NET
                  CASH USED FOR INVESTING ACTIVITIES
              
              
              (5,001,058
              )
              
              1,037,472CASH
                  FLOWS FROM FINANCING ACTIVITIES:Increase
                  in deposits
              
              
              -
              
              
              5,760Issuance
                  of common stock for cash
              
              
              76,168
              
              
              213,380Proceeds
                  from convertible debenture
              
              
              5,750,000
              
              
              1,900,000Proceeds
                  from notes payable
              
              
              1,535,152
              
              
              30,000Repayment
                  of notes payable
              
              
              (948,917
              )
              
              130,435Proceeds
                  from related party notes payable
              
              
              23,944
              
              
              638,636Repayment
                  of related party notes payable
              
              
              (66,523
              )
              
              (466,496
              )Secured
                  borrowings
              
              
              (42,501
              )
              
              (242,300
              )Financing
                  related costs
              
              
              (183,547
              )
              
              (103,975
              )NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              6,143,776
              
              
              2,105,440NET
                  INCREASE <DECREASE> IN CASH
              
              
              324,869
              
              
              (296,749
              )CASH,
                  beginning of period
              
              
              74,386
              
              
              371,135CASH,
                  end of period
              
              $
              399,255
              
              $
              74,386SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATIONCASH
                  PAID DURING THE YEAR FOR:Taxes
                  paid
              
              $
              800
              
              $
              13,268Interest
                  paid
              
              $
              60,193
              
              $
              25,329Other
                  non-cash investing and financing activities:Shares
                  issued for services
              
              $
              423,856
              
              $
              512,798Shares
                  issued for debt and accrued interest
              
              $
              793,492
              
              $
              534,439




F-6


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**
  **NOTE
        A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
        POLICIES**





Organization





Execute
      Sports was founded in 2002 as Padova International USA, Inc. to produce graphics
      kits and ancillary soft goods for the motocross, enduro and ATV
      markets.





In
      2003,
      the Company launched its water sports division under the "Execute Sports" brand
      to provide wetsuits, vests, rash guards and ancillary products to the wake
      board
      and ski markets.





On
      March
      3, 2005 the Company changed its name from Padova International U.S.A., Inc.
      (DBA
      Execute Sports) to Execute Sports, Inc.





In
      January 2006, the Company expanded its product mix by consummating the
      acquisition of Pacific Sports Group, Inc. (“PSG”), which owned and operated
      Academy Snowboards, Kampus Wakesk8s, Kampus Wake Shoes and Collective
      Development Bags and Bindings. In January, 2007, the Company entered into a
      trademark transfer and assignment agreement whereby all right, title, interest
      and good will in the Academy brand were transferred to the two former owners
      of
      PSG. In connection with the transfer, all of the Company’s accounts payable and
      accounts receivable relating to the trademark were assigned as
      well.





In
      August
      2007, the Company further expanded its product mix by purchasing the right,
      title, interest and goodwill relating to the business of designing,
      manufacturing and marketing jet powered Sugar Sands boats, including the SUGAR
      SAND trade names, trademarks, service marks, and service names, including www.sugarsand.com .
      By
      acquiring the Sugar Sand brand, the Company expands our product offering without
      the added responsibilities and complexities of the manufacturing process, while
      positioning the company to capitalize on existing sales and marketing
      relationships.





Summary
      of Significant Accounting Principles





Basis
      of Presentation





The
      financial statements include the accounts of Execute Sports and its wholly
      owned
      subsidiary PSG under the accrual basis of accounting.




F-7


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Accounting
      estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





Principles
      of consolidation





The
      consolidated financial statements include the accounts of Execute Sports and
      its
      subsidiary, which is 100% consolidated in the financial statements. All material
      inter-company accounts and transactions have been eliminated.





Cash
      and cash equivalents





For
      purposes of the statement of cash flows, the Company considers all highly liquid
      debt instruments purchased with an original maturity of three months or less
      to
      be cash equivalents.





Accounts
      receivable





Accounts
      receivable are reported at the customers' outstanding balances less any
      allowance for doubtful accounts. Interest is not accrued on overdue accounts
      receivable. The Company evaluates receivables on a regular basis for potential
      reserve. During the year ended December 31, 2007, the allowance for doubtful
      accounts decreased $39,000 from $49,000 at December 31, 2006 to $10,000 at
      December 31, 2007.





The
      Company has a factoring agreement with JD Factors. Pursuant to the agreement
      JD
      Factors’ will provide account receivable financing and factoring to the Company.
      JD Factors purchases the accounts receivable and may pay a portion of the
      purchase price, or lend money to the Company based upon accounts’ receivable of
      the Company.





Inventories





Inventories
      are valued at the lower of cost or market. Cost is determined using the average
      costing method. Management performs periodic assessments to determine the
      existence of obsolete, slow moving and non-salable inventories, and records
      necessary provisions to reduce such inventories to net realizable
      value.




F-8


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Property
      and equipment





Property
      and equipment are stated at cost. Major renewals and improvements are charged
      to
      the asset accounts while replacements, maintenance and repairs, which do not
      improve or extend the lives of the respective assets, are expensed. At the
      time
      property and equipment are retired or otherwise disposed of, the asset and
      related accumulated depreciation accounts are relieved of the applicable
      amounts. Gains or losses from retirements or sales are credited or charged
      to
      income.





Depreciation
      is provided using the 200% declining balance and straight line methods. It
      is
      calculated over recovery periods as prescribed by management that range from
      5
      years for equipment to 7 years for furniture.





Goodwill
      and Other Intangible Assets





The
      Company accounts for goodwill and other intangible assets in accordance with
      SFAS No. 142, Goodwill and Other Intangible Assets. This statement requires
      that
      goodwill and other intangible assets arising from an acquisition of a business
      be periodically assessed for impairment rather than amortized on a straight-line
      basis. Accordingly, the Company annually reviews the carrying value of this
      goodwill and other intangible assets to determine whether impairment, as
      measured by fair market value, may exist. SFAS No. 142 requires that goodwill
      and other intangible assets be assessed for impairment using fair value
      measurement techniques. Specifically, goodwill and other intangible asset
      impairment is determined using a two-step process. The first step of the
      goodwill and other intangible asset impairment test is used to identify
      potential impairment by comparing the fair value of a reporting unit with its
      carrying amount. If the fair value of a reporting unit exceeds its carrying
      amount, then the goodwill and other intangible assets of the reporting unit
      are
      not considered to be impaired and the second step of the impairment test is
      unnecessary. If the carrying amount of a reporting unit exceeds its fair value,
      the second step of the impairment test is performed to measure the amount of
      impairment loss, if any. The second step of the impairment test compares the
      implied fair value of the reporting unit's goodwill and other intangible assets
      with their carrying amount. If the carrying amount of the reporting unit's
      goodwill and other intangible assets exceeds their implied fair value, then
      an
      impairment loss is recognized in an amount equal to that excess.




F-9


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Long-lived
      assets





Statement
      of Financial Accounting Standards No. 144, "Accounting for the Impairment or
      Disposal of Long-Lived Assets," requires that long-lived assets be reviewed
      for
      impairment whenever events or changes in circumstances indicate that the
      historical cost-carrying value of an asset may not be recovered. The Company
      assesses recoverability of the carrying value of an asset by estimating the
      fair
      value of the asset. If the fair value is less than the carrying value of the
      asset, an impairment loss is recorded equal to the difference between the
      asset's carrying value and fair value.





Revenue
      recognition policy





Revenue
      from the sale of water sports clothing and apparel, and Sugar Sand boats is
      recognized when the earning process is complete and the risk and rewards of
      ownership have transferred to the customer, which is generally considered to
      have occurred upon shipment to the customer.





The
      Company recognizes revenue under the guidance provided by the SEC Staff
      Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and the Emerging
      Issues Task Force (“EITF”) Abstract No. 99-19 “Reporting Revenue Gross as a
      Principal versus Net as an Agent” (“EITF 99-19”). Pursuant to EITF 99-19, The
      Company recognizes revenue from the sale of Sugar sand boats on a gross
      basis.





Shipping
      and handling costs





The
      Company's policy is to classify shipping and handling costs as selling, general
      and administrative expenses.





Advertising





The
      Company expenses all advertising costs as incurred. For the year ended December
      31, 2007 and 2006, the Company incurred approximately $14,975 and $91,538,
      respectively, in advertising expenses.




F-10


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Loss
      per common share





The
      Company adheres to Statement of Financial Accounting Standards No. 128, which
      requires reporting of both basic and diluted earnings (loss) per share. Basic
      loss per share is calculated using the weighted average number of common shares
      outstanding in the period. Diluted loss per share includes potentially dilutive
      securities such as outstanding options and warrants, using the “treasury stock”
method and convertible securities using the "if-converted" method. There were
      no
      adjustments required to net loss for the period covered in this report in the
      computation of diluted earnings per share.





Issuance
      of common stock




The
      Company accounts for stock-based compensation using the fair value method of
      Financial Accounting Standard No. 123r. Common shares issued for services
      rendered by a third party (both employees and non-employees) are recorded at
      management’s estimate of the fair value of the shares issued or services
      rendered, whichever is more readily determinable.





Comprehensive
      loss





The
      Company adopted Financial Accounting Standards Board Statement of Financial
      Standards No. 130, “Reporting Comprehensive Income,” which establishes standards
      for the reporting and display of comprehensive income and its components in
      the
      financial statements. There were no items of comprehensive income (loss)
      applicable to the Company during the periods covered in the financial statements
      included in this report.





Income
      taxes





On
      November 1, 2004, the Company amended its Articles of Incorporation to make
      the
      transition from an S-Corporation to a C-Corporation. Prior to the transition,
      the S-Corporation was not a tax paying entity for federal or state income tax
      purposes and thus no provision for income taxes was recognized. Subsequent
      to
      the change, the Company began recognizing the full valuation for deferred tax
      assets (See Note J).




F-11


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Impact
      of accounting standards





In
      February 2006, the FASB issued SFAS Statement No. 155, “Accounting for Certain
      Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140”
("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting for
      Derivative Instruments and Hedging Activities, and No. 140, Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
      This Statement resolves issues addressed in Statement 133 Implementation Issue
      No. D1, “Application of Statement 133 to Beneficial Interests in Securitized
      Financial Assets.” This Statement permits fair value re-measurement for any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation, clarifies which interest-only strips and
      principal-only strips are not subject to the requirements of Statement 133,
      establishes a requirement to evaluate interests in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring bifurcation,
      clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives and amends Statement 140 to eliminate the prohibition
      on a qualifying special-purpose entity from holding a derivative financial
      instrument that pertains to a beneficial interest other than another derivative
      financial instrument. SFAS 155 is effective for all financial instruments
      acquired or issued for the Company for fiscal year begins after September 15,
      2006. The adoption of this standard is not expected to have a material effect
      on
      the Company’s results of operations or financial position.





In
      March
      2006, the FASB issued SFAS No. 156 ("FAS 156"), "Accounting for Servicing of
      Financial Assets--An Amendment of FASB Statement No. 140." Among other
      requirements, FAS 156 requires a company to recognize a servicing asset or
      servicing liability when it undertakes an obligation to service a financial
      asset by entering into a servicing contract under certain situations. Under
      FAS
      156 an election can also be made for subsequent fair value measurement of
      servicing assets and servicing liabilities by class, thus simplifying the
      accounting and provide for income statement recognition of potential offsetting
      changes in the fair value of servicing assets, servicing liabilities and related
      derivative instruments. The Statement was effective beginning the first fiscal
      year that begins after September 15, 2006. The Company does not believe that
      this accounting pronouncement will have a material impact on its financial
      position or results of operations.





In
      June
      2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an
      interpretation of FASB No. 109. This Interpretation clarifies the accounting
      for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with FASB No. 109, “Accounting for Income Taxes”. This
      interpretation prescribes recognition of threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. This interpretation also provides guidance
      on derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This interpretation is effective for fiscal
      years beginning after December 15, 2006. Earlier application is permitted if
      the
      entity has not yet issued interim or annual financial statements for that fiscal
      year. The adoption of this standard is not expected to have a material effect
      on
      the Company’s results of operations or financial position.




F-12


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Impact
      of accounting standards (Continued)




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements.” The standard provides guidance for using fair
      value to measure assets and liabilities. Under the standard, fair value refers
      to the price that would be received to sell an asset or paid to transfer a
      liability in an orderly transaction between market participants in the market
      in
      which the reporting entity transacts. The standard clarifies the principle
      that
      fair value should be based on the assumptions market participants would use
      when
      pricing the asset or liability. In support of this principle, the standard
      establishes a fair value hierarchy that prioritizes the information used to
      develop those assumptions. The Statement is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. The Company is currently evaluating the Statement
      to
      determine what impact, if any, it will have on the Company.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R” (“SFAS 158”).
      This statement requires balance sheet recognition of the funded status, which
      is
      the difference between the fair value of plan assets and the benefit obligation,
      of pension and postretirement benefit plans as a net asset or liability, with
      an
      offsetting adjustment to accumulated other comprehensive income in shareholders’
equity. In addition, the measurement date, the date at which plan assets and
      the
      benefit obligation are measured, is required to be the company’s fiscal year
      end. The Company does not believe that this accounting pronouncement will have
      a
      material impact on its financial position or results of operations.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “The Fair Value Option for Financial Assets and Financial Liabilities”.
      This statement permits entities to choose to measure many financial instruments
      and certain other items at fair value. The objective is to improve financial
      reporting by providing entities with the opportunity to mitigate volatility
      in
      reported earnings caused by measuring related assets and liabilities differently
      without having to apply complex hedge accounting provisions. This Statement
      is
      expected to expand the use of fair value measurement, which is consistent with
      the Company’s Board of Directors long-term measurement objectives for accounting
      for financial instruments. This Statement is effective as of the beginning
      of an
      entity’s first fiscal year that begins after November 15, 2007. The Company does
      not believe that this recent accounting pronouncement will have a material
      impact on its financial position or results of operations.




F-13


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Impact
      of accounting standards (Continued)





In
      December 2007, the FASB issued SFAS 141(revised 2007), Business
      Combinations (“SFAS 141R”). SFAS 141R will significantly change the
      accounting for business combinations in a number of areas including the
      treatment of contingent consideration, contingencies, acquisition costs,
      IPR&D and restructuring costs. In addition, under SFAS 141R, changes in
      deferred tax asset valuation allowances and acquired income tax uncertainties
      in
      a business combination after the measurement period will impact income tax
      expense. SFAS 141R is effective for fiscal years beginning after
      December 15, 2008 and, as such, the Company will adopt this standard in
      fiscal 2010. The Company has not yet determined the impact, if any, of
      SFAS 141R on its consolidated financial statements.




In
      December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51
      (“SFAS 160”). SFAS 160 will change the accounting and reporting for
      minority interests, which will be recharacterized as noncontrolling interests
      (NCI) and classified as a component of equity. This new consolidation method
      will significantly change the account with minority interest holders.
      SFAS 160 is effective for fiscal years beginning after December 15,
      2008 and, as such, the Company will adopt this standard in fiscal 2010. The
      Company does not believe that this recent accounting pronouncement will have
      a
      material impact on its financial position or results of operations.





Concentrations
      of credit risk





The
      Company performs ongoing credit evaluations of its customers. As of December
      31,
      2007, three customers accounted for 93% (49%, 27% and 17%) of accounts
      receivable. As of December 31, 2006, one customer accounted for 25% of accounts
      receivable.





For
      the
      year ended December 31, 2007, three customers individually accounted for
      approximately 79% of sales (49%, 19% and 11%). For the year ended December
      31,
      2006, one customer accounted for approximately 37% of sales.




F-14


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Concentrations
      of credit risk (Continued)





For
      the
      year ended December 31, 2007 and 2006, approximately 0% and 19%, respectively,
      of the Company’s net sales were made to customers outside the United
      States.





The
      Company is dependent of third-party manufacturers and distributors for all
      of
      its supply of inventory. For the year ended December 31, 2007, three suppliers
      accounted for 99% (53%, 27% and 19%) of product purchases, respectively. For
      the
      year ended December 31, 2006, four suppliers accounted for 85% (32%, 19%, 17%
      and 17%) of product purchases, respectively.





The
      Company has maintained balances in excess of federally insured limits from
      time
      to time during the fiscal year. Management periodically reviews the adequacy
      and
      strength of the financial institutions and deems this to be an acceptable risk.





Disclosure
      about Fair Value of Financial Instruments





The
      Company estimates that the fair value of all financial instruments at December
      31, 2007, as defined in FASB 107, does not differ materially from the aggregate
      carrying values of its financial instruments recorded in the accompanying
      balance sheet. The estimated fair value amounts have been determined by the
      Company using available market information and appropriate valuation
      methodologies. Considerable judgment is required in interpreting market data
      to
      develop the estimates of fair value, and accordingly, the estimates are not
      necessarily indicative of the amounts that the Company could realize in a
      current market exchange.





**NOTE
      B - PROPERTY AND EQUIPMENT**





Property
      and equipment at December 31, 2007 consists of the following:


2007Computer
                  and office equipment
              
              $
              127,745Furniture
                  and fixtures
              
              
              2,281Machinery
                  and equipment
              
              
              11,262Boat
                  molds
              
              
              1,000,000$
              1,141,288Less:
                  Accumulated Depreciation
              
              
              (102,774
              )$
              1,038,514




F-15


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      B - PROPERTY AND EQUIPMENT (Continued)**





During
      the year ended December 31, 2007, the Company purchased $1 million of boat
      molds
      as part of the Sugar Sand Asset Purchase Agreement (See NOTE C).





Depreciation
      expense for the year ended December 31, 2007 and 2006 was $60,120 and $6,947,
      respectively.





**NOTE
      C - INTANGIBLE ASSETS**





On
      August
      29, 2007, Execute Sports, Inc. (the "Company" or "Execute Sports") entered
      into
      an Asset Purchase Agreement (the "Agreement") with Challenger Powerboats, Inc.
      ("Challenger") and its wholly owned subsidiary, IMAR Group, Inc. ("IMAR",
      together with Challenger, the "Sellers"), pursuant to which Execute Sports
      purchased from the Sellers, and Sellers sold and transferred to Execute Sports,
      all right, title, interest and goodwill in and to certain assets, properties
      and
      rights relating to, used in or held for use in IMAR's business of designing,
      manufacturing and marketing water jet powered Sugar Sands boats, including
      the
      SUGAR SAND trade names and associated trade names, trademarks, service marks
      and
      service names, and the associated logos and their goodwill, and all associated
      domain names, in particular the domain www.sugarsand.com, trades secrets and
      copyrights and their goodwill. The purchase price was $5,000,000. Execute Sports
      did not assume any obligations of IMAR in connection with the acquisition,
      other
      than the obligation to procure or maintain permits in connection with the
      post-closing operation of the Business by the Company. The following trade
      names
      were included in the purchase: Sugar Sand, Sugar Sand Sting, Sugar Sand Tango,
      Sugar Sand Mirage, Sugar Sand Calais, Sugar Sand Oasis, and Sugar Sand
      Airwave.




In
      connection with the transaction, Execute Sports and IMAR entered into an
      Agreement for Exclusive Right of Supply, pursuant to which IMAR will manufacture
      and be the exclusive supplier of the Sugar Sand line of jet boats to Execute
      Sports, for an initial term of 10 years. In addition, Execute Sports entered
      into an Exclusive Sales and Marketing Agreement with Challenger, pursuant to
      which Challenger will provide sales and marketing services related to the Sugar
      Sand boats for an initial term of 10 years.





The
      $5,000,000 purchase price was allocated $1,000,000 to boat molds, $500,000
      to
      marketing/sales infrastructure and client lists, and $3,500,000 to trademarks
      resulting in an increase of $1,000,000 to our net fixed assets and $4,000,000
      to
      intangible assets.





During
      the year ended December 31, 2007, the Company recognized $25,000 of amortization
      related to the $500,000 of marketing/sales infrastructure and client
      lists.




F-16


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      C - INTANGIBLE ASSETS (Continued)**





Pursuant
      to Statement of Financial Accounting Standards No. 142, Goodwill and Other
      Intangible Assets, the Company evaluated the Sugar Sand trademarks for
      impairment at December 31, 2007. Based on our analysis of fair value being
      in
      excess of the $3,500,000 carrying balance of trademarks, the Company did not
      record any impairment expense.





**NOTE
      D - LOANS RECEIVABLE**





During
      2005 and 2006, the Company made strategic loans totaling $396,127 for potential
      future association to an unaffiliated company that accrues interest at 2% per
      year and due 12 months from the date of draw.





As
      of
      December 31, 2007, the entire balance of the loans was in default. However,
      we
      are in the process of collections and believe a portion will be collected.
      Therefore, the Company has created a reserve of $250,000 against the
      loans.





**NOTE
      E - CONVERTIBLE DEBENTURES**





***May
      15, 2006 Debenture ($1,900,000)***





On
      May
      15, 2006, the Company completed a private placement of convertible debentures
      generating gross proceeds of $1.9 million, and the issuance of warrants to
      purchase $475,000 worth of the Company’s common stock. Third party fees totaled
      approximately $191,000, which were paid in cash.





The
      terms
      of the warrants and debentures are substantially the same. The exercise price
      of
      the warrants is calculated the same as for the conversion price of the
      convertible debentures. The warrants and debentures are immediately exercisable.
      The debentures bear interest at 12% per annum, interest payable monthly at
      the
      option of the Holder in cash or common stock. The debenture agreement payment
      schedule provides for full repayment by September 15, 2007, or sixteen (16)
      months from the closing date. However, the debenture agreement maturity date
      is
      September 30, 2011 at which time any remaining principle balance automatically
      converts to the Company’s common stock. The Company has recorded the entire
      principle balance of $1,708,409 of this debenture as a current liability due
      to
      the short term nature of the agreement payment schedule.





Prior
      to
      maturity, the debentures and warrants are convertible into the Company's common
      stock at a fixed conversion price equal to the lowest closing bid price of
      the
      common stock between the issuance date and the date of the filing the
      registration statement covering resale of the shares underlying the debenture,
      or at a conversion price of fifteen cents ($.15). Since the Company’s stock
      price did not decline below $0.15 prior to the filing of the registration
      statement, $0.15 is the fixed conversion price for this debenture and associated
      warrants.




F-17


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      E - CONVERTIBLE DEBENTURES (Continued)**





***May
      15, 2006 Debenture ($1,900,000) (Continued)***





The
      debentures provide that the Holders may only convert the debenture if the number
      of shares held by the lender or its affiliates after conversion would not exceed
      4.99% of the outstanding shares of the Company's common stock following such
      conversion.





In
      connection with the transaction, the Company entered into a Registration Rights
      Agreement. Pursuant to the terms of the Registration Rights Agreement, within
      twenty-one calendar days following the initial closing date, or June 5, 2006,
      the Company was required to file with the Securities and Exchange Commission
      a
      registration statement under the Securities Act of 1933, as amended, covering
      the resale of all of the common stock underlying the convertible debenture
      and
      issuable upon the exercise of the warrants based on a conversion price of $0.15
      per share.





The
      Registration Rights Agreement further provides that if a registration statement
      is not filed within 21 days from the initial closing date, then in addition
      to
      any other rights the Holder may have, and until the registration statement
      is
      filed, the Company would be required to pay the Holder an amount in cash, as
      liquidated damages, equal to an aggregate two percent (2%) of the purchase
      price
      of the debentures. In addition, the conversion price would decrease by 10%
      of
      the fixed conversion price for each fifteen (15) day calendar period that a
      registration statement is not filed. The Registration Rights Agreement further
      provides that if a registration statement is not declared effective within
      80
      days from the initial closing date, then the Company would be required to pay
      the Holder an amount in cash, as liquidated damages, equal to an aggregate
      two
      percent (2%) of the purchase price of the debentures until the registration
      statement becomes effective. The Company initially filed the registration
      statement on May 24, 2006 and it was declared effective on June 15, 2006, or
      30
      days from the initial close date both within the time frames set forth in the
      Registration Rights Agreement.





The
      issuance costs related to the convertible debentures of approximately $191,000
      in cash were capitalized to deferred financing costs on the balance sheet and
      are being amortized over the term of the repayment schedule which is calculated
      based upon the effective interest method. The Company recognized $103,975 and
      $87,025 during the year ended December 31, 2007 and 2006, respectively, as
      other
      expense related to the amortization of the issuance costs. The deferred
      financing costs were fully amortized as of December 31, 2007.





Pursuant
      to Paragraph 9-32 of EITF 00-19, Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in, a Company's Own Stock, the warrants
      issued in connection with the convertible debentures meet the requirements
      of
      and are accounted for as permanent equity since the filing of an effective
      registration statement within the allotted time frames negated any liquidated
      damages, settlement is by delivery of shares only and the exercise price is
      fixed. The initial value of the warrants was treated as a discount to the
      debenture and recorded as additional paid in capital. The Company calculated
      the
      initial value of the warrants on the closing date of the transaction as being
      $633,333 as determined using a Black-Scholes option pricing model with the
      following assumptions: expected term 5 years, exercise price $0.15, volatility
      7.6%, risk free rate 5.15%, and zero dividend yield. The total value of the
      warrants and the debenture was $2.53 million of which the warrants represented
      25%. Thus, the relative value of the warrants to the total value, or 25% was
      applied to the debenture value of $1.90
      million yielding a warrant discount of $475,000. The discount to the debenture
      was amortized over the term of the repayment schedule, or sixteen (16) months,
      and is calculated based upon the effective interest method. The Company
      recognized $269,212 and $205,788 during the year ended December 31, 2007 and
      2006, respectively, in non-cash amortization expense related to the warrant
      discount. The warrant discount was fully amortized as of December 31,
      2007.




F-18


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      E - CONVERTIBLE DEBENTURES (Continued)**





***May
      15, 2006 Debenture ($1,900,000) (Continued)***





The
      Company determined that the $1.90 million debenture was issued with a beneficial
      conversion feature (“BCF”) due to the conversion price ($0.15) being less than
      the closing stock price ($.32) on the date of issuance, and the conversion
      feature being in-the-money. Thus, pursuant to EITF 00-27, 27, Application of
      Issue No. 98-5 to Certain Convertible Instruments, the BCF has been determined
      based on the gross debenture amount less the portion attributable to the
      warrants described above, and recorded as a discount to reduce the carry value
      of the debenture and increase additional-paid-in-capital. The Company calculated
      the initial BCF on the closing date of the transaction to be $1,615,000 using
      the intrinsic value method. Since this amount is greater than the $1,425,000
      remaining value of the debenture after deducting for the warrant discount
      described above, the Company reduced the initial carry value of the debenture
      to
      zero effectively recording a BCF of $1,425,000 as additional-paid-in-capital.
      The BCF discount was amortized over the debenture repayment term of sixteen
      (16)
      months and calculated based upon the effective interest method. The Company
      recognized $989,423 and $435,577 during year ended December 31, 2007 and 2006,
      respectively, in non-cash amortization expense attributable to the amortization
      of the beneficial conversion feature discount. The beneficial conversion feature
      was fully amortized as of December 31, 2007.




F-19


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      E - CONVERTIBLE DEBENTURES (Continued)**





***May
      15, 2006 Debenture ($1,900,000) (Continued)***





During
      the year ended December 31, 2007, the Company issued 7,679,788 shares of common
      stock in payment of $217,073 of interest related to the May 2006
      debenture.





During
      the year ended December 31, 2007 and 2006, the Company recognized $54,250 and
      $32,822, respectively, as a non-cash loss due to the conversion discount applied
      upon the conversion of interest and principle into common stock of the Company
      pursuant to the Investment Agreement and Debenture Agreement.





During
      the year ended December 31, 2007 and 2006, the Company recognized $216,662
      and
      $142,823, respectively, in interest expense related to the May 2006
      debenture.





The
      debenture balance, including interest and principle as of December 31, 2007
      is
      $1,892,996.





***August
      23, 2007 Debenture ($5,750,000)***





On
      August
      23, 2007, the Company completed a private placement of convertible debentures
      generating gross proceeds of $5.75 million, and the issuance of warrants to
      purchase 5,750,000 shares of the Company’s common stock for $.02 per share. Fees
      totaled $307,500, which were paid in cash.





The
      warrants and debentures are immediately exercisable. The debentures bear
      interest at 12% per annum, interest payable monthly at the option of the Holder
      in cash or common stock. The debenture has a term of five (5) years and matures
      August 23, 2012. Any remaining principle balance automatically converts to
      the
      Company’s common stock. The Company is not obligated to make payments until
      maturity. Therefore, the Company has classified the entire balance of $4,358,483
      of this debenture as a non current liability.





Prior
      to
      maturity, the debentures are convertible into the Company's common stock at
      the
      lesser of (i) seventy-five percent (75%) of the lowest closing bid price of
      the
      Common Stock during the twenty (20) trading days immediately prior to a
      Conversion Notice; or (ii) 2/100 U.S. dollars ($.02).





The
      debentures provide that the Holders may only convert the debenture if the number
      of shares held by the lender or its affiliates after conversion would not exceed
      4.99% of the outstanding shares of the Company's common stock following such
      conversion.




F-20





**EXECUTE
      SPORTS, INC.**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      E - CONVERTIBLE DEBENTURES (Continued)**





***August
      23, 2007 Debenture ($5,750,000) (Continued)***





The
      issuance costs related to the convertible debentures of approximately $307,500
      in cash were capitalized to deferred financing costs on the balance sheet and
      are being amortized over the term of the debenture which is calculated based
      upon the effective interest method. The Company recognized $19,979 during the
      year ended December 31, 2007 as other expense related to the amortization of
      the
      issuance costs. The balance of deferred financing costs as of December 31,
      2007
      was $287,522.





Pursuant
      to Paragraph 9-32 of EITF 00-19, Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in, a Company's Own Stock, the warrants
      issued in connection with the convertible debentures meet the requirements
      of
      and are accounted for as permanent equity since settlement is by delivery of
      shares only and the exercise price is fixed. The initial value of the warrants
      was treated as a discount to the debenture and recorded as additional paid
      in
      capital. The Company calculated the initial value of the warrants on the closing
      date of the transaction as being $53,759 as determined using a Black-Scholes
      option pricing model with the following assumptions: expected term 5 years,
      exercise price $0.02, Strike price $.025, volatility 14.28%, risk free rate
      4.62%, and zero dividend yield. The discount to the debenture is being amortized
      over the term of the debenture and is calculated based upon the effective
      interest method. The Company recognized $3,568 during the year ended December
      31, 2007 in non-cash amortization expense related to the warrant
      discount.





The
      Company determined that the debenture was issued with a beneficial conversion
      feature (“BCF”) due to the conversion price ($0.020) being less than the closing
      stock price ($.025) on the date of issuance, and the conversion feature being
      in-the-money. Thus, pursuant to EITF 00-27, 27, Application of Issue No. 98-5
      to
      Certain Convertible Instruments, the BCF has been determined based on the gross
      debenture amount less the portion attributable to the warrants, and recorded
      as
      a discount to reduce the carry value of the debenture and increase
      additional-paid-in-capital. The Company calculated the initial BCF on the
      closing date of the transaction to be $1,424,185 using the intrinsic value
      method. The BCF discount is being amortized over the term of the debenture.
      The
      Company recognized $82,858 during the year ended December 31, 2007 in non-cash
      amortization expense attributable to the amortization of the BCF discount.





During
      the year ended December 31, 2007, the Company issued 11,610,365 shares of common
      stock in payment of $116,525 of interest related to the August 2007
      debenture.




F-21


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**




**NOTE
      E - CONVERTIBLE DEBENTURES (Continued)**





***August
      23, 2007 Debenture ($5,750,000) (Continued)***





The
      Company recognized $245,753 during the year ended December 31, 2007 in interest
      expense related to this debenture.





The
      debenture balance, including interest and principle as of December 31, 2007
      is
      $5,879,903.





As
      of
      December 31, 2007, the actual dollar amount due to the Holders of the Company’s
      May 15, 2006 ($1.9 million), and August 23, 2007 ($5.75 million) debentures
      was
      $7,772,899. The following table represents the actual balance due compared
      to
      the amount recorded on the balance sheet as of December 31, 2007:


December
                  31,2007Amount
                  borrowed under the convertible debentures
              
              
              7,650,000Accrued
                  interest
              
              
              314,490Payments
                  applied to principle
              
              
              (191,591
              )Debenture
                  balance payable
              
              
              7,772,899Unamortized
                  beneficial conversion feature
              
              
              (1,341,327
              )Unamortized
                  Warrant discount
              
              
              (50,190
              )Recorded
                  debenture balance
              
              
              6,381,382BALANCE
                  SHEET ACCOUNTSCurrent
                  portion of convertible debentures
              
              
              1,708,409Interest
                  accrued on convertible debentures
              
              
              314,490Non-current
                  portion of convertible debentures
              
              
              4,358,483Recorded
                  debenture balance
              
              
              6,381,382





***Investment
      Agreement***





In
      connection with the debenture, the Company entered into a separate Investment
      Agreement on May 15, 2006 with Dutchess Private Equities Fund, L.P.
      ("Dutchess"), which provides for the sale and issuance from time to time of
      up
      to $10,000,000 in shares of Common Stock for a period of up to 36 months from
      the date the Registration Statement is declared effective. The maximum number
      of
      shares that the Company may put to Dutchess at any one time shall be equal
      to,
      at the Company's election, either (a) 200% of the average daily volume in the
      U.S. market of the Common Stock for the ten trading days prior to the date
      the
      Company notifies Dutchess of its intent to sell shares to Dutchess, multiplied
      by the average of the three daily closing bid prices immediately preceding
      the
      date a Put Notice is delivered, or (b) a number of shares having a value of
      $100,000. The Company may not submit a Put Notice until after the completion
      of
      a previous sale under the Investment Agreement. The purchase price for the 
Common
      Stock to be sold shall be equal to 93% of the lowest closing best bid price
      of
      the Common Stock during the five-day period following the date the Company
      delivers a Put Notice. Since the price of the shares put to Dutchess are
      expected to be below market price at 93% of the market price, there is no added
      benefit to the Company. Thus, the Company has not recorded an asset related
      to
      this agreement. Upon the delivery of shares and receipt of cash related to
      this
      Investment Agreement, the Company records the increase in cash or decrease
      in
      debenture interest and principle, and an increase in common stock and additional
      paid in capital. During the year ended December 31, 2007, the Company placed
      puts with Dutchess totaling $683,546 resulting in the issuance of 31,894,880
      shares of common stock. Of the $683,546, $76,168 was received as cash, $219,530
      was applied to promissory notes made to the Company (See Note F), $54,250 was
      recognized as a loss due to the conversion discount and $333,598 was applied
      to
      accrued interest on our debentures.




F-22


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**




**NOTE
      F - NOTES PAYABLE**





***Notes
      Payable***





Non-related
      party notes payable at December 31, 2007 is as follows:


Unsecured
                  demand note payable bearing interest at 2% per year; currently
                  in
                  default.
              
              $
              9,538Unsecured
                  demand note payable to John Helms bearing interest at 4% per year;
                  matures
                  3/31/09.
              
              $
              74,351Unsecured
                  demand note payable to New Heart Ministries, bearing interest at
                  4% per
                  year; currently in default.
              
              $
              2,925Unsecured
                  demand note payable to Pacific Sports Investors LLC, bearing interest
                  at
                  15% per year; currently in default.
              
              $
              48,923Secured
                  demand note payable to Hector Peneda, bearing interest at 12% per
                  year
                  collateralized by40,000 shares of common stock; currently in
                  default.
              
              $
              8,800Secured
                  promissory note to Dutchess Private Equities Fund, Ltd., bearing
                  interest
                  at 12% per year and collateralized by however many shares are needed
                  to
                  settle the debt; matures May 1, 2008.
              
              $
              45,623Secured
                  promissory note to Dutchess Private Equities Fund, Ltd., bearing
                  interest
                  at 12% per year and collateralized by however many shares are needed
                  to
                  settle the debt; matures September 13, 2008.
              
              $
              312,000**TOTAL**
              
              $
              502,160




F-23


**EXECUTE
        SPORTS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED DECEMBER 31, 2007 AND 2006**




**NOTE
      F - NOTES PAYABLE (Continued)**





***Notes
      Payable (Continued)***





The
      interest rate offered on the 2% through 4% loans above is below market rate.
      The
      Company has determined the difference between the stated interest rate and
      the
      rate available at the date of the loan(s) would be immaterial to these financial
      statements.





On
      April
      9, 2007, the Company issued to Dutchess a promissory note in the face amount
      of
      $132,000 for gross proceeds of $110,000. The Note bears interest at 12% per
      annum and matures on April 9, 2008. Pursuant to the Note, the Company is
      required to make payments to Dutchess in
      the
      amount of the greater of a) one hundred percent (100%) of each Put (as defined
      in the Investment Agreement between the Company and the Investor given to
      Dutchess from the Company; or b) eleven thousand seven hundred twenty-one
      dollars and 39/100 ($11,721.39) until the Face Amount is paid in full, minus
      any
      fees due. In connection with the issuance of the Note, the Company has agreed
      to
      provide Collateral to Dutchess in the form of thirty (30) Put Notices. In the
      event that the Company has not repaid the Face Amount by the maturity date,
      then
      as liquidated damages, the face amount shall be increased by ten percent (10.0%)
      as an initial penalty *and* an
      additional two and one-half percent (2.5%) per month (pro rata for partial
      periods), compounded daily, for each month until the face amount is paid in
      full. As an incentive to enter into this note, the Company issued to Dutchess
      600,000 shares of the Company’s restricted common stock. During the year ended
      December 31, 2007, the Company issued 5,998,489 shares of common stock in
      repayment of the April 9, 2007 promissory note, which has been repaid in full
      as
      of December 31, 2007.





On
      May 1,
      2007, the Company issued to Dutchess a promissory note in the face amount of
      $132,000 for gross proceeds of $110,000. The Note bears interest at 12% per
      annum and matures on May 1, 2008. Pursuant to the Note, the Company is required
      to make payments to Dutchess in
      the
      amount of the greater of a) one hundred percent (100%) of each Put (as defined
      in the Investment Agreement (See Note G) between the Company and the Investor
      given to Dutchess from the Company; or b) eleven thousand seven hundred
      twenty-one dollars and 39/100 ($11,721.39) until the Face Amount is paid in
      full, minus any fees due. In connection with the issuance of the Note, the
      Company has agreed to provide Collateral to Dutchess in the form of thirty
      (30)
      Put Notices. In the event that the Company has not repaid the Face Amount by
      the
      maturity date, then as liquidated damages, the face amount shall be increased
      by
      ten percent (10.0%) as an initial penalty *and* an
      additional two and one-half percent (2.5%) per month (pro rata for partial
      periods), compounded daily, for each month until the face amount is paid in
      full.





As
      an
      incentive to enter into this note, the Company issued to Dutchess 800,000 shares
      of the Company’s restricted common stock. During the year ended December 31,
      2007, the Company issued
      4,699,033 shares of common stock in repayment of $86,377 of the May 1, 2007
      promissory note, which has a balance of $45,623 as of December 31,
      2007.




F-24


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**





**NOTE
      F - NOTES PAYABLE (Continued)**





***Notes
      Payable (Continued)***





On
      August
      13, 2007, the Company issued to Dutchess a promissory note in the face amount
      of
      $312,000 for gross proceeds of $260,000. The Note bears interest at 12% per
      annum and matures on September 13, 2008. Pursuant to the Note, the Company
      is
      required to make payments to Dutchess in
      the
      amount of one hundred percent (100%) of each Put (as defined in the Investment
      Agreement until the Face Amount is paid in full, minus any fees due. In
      connection with the issuance of the Note, the Company has agreed to provide
      Collateral to Dutchess in the form of thirty (30) Put Notices. In the event
      that
      the Company has not repaid the Face Amount by the maturity date, then as
      liquidated damages, the face amount shall be increased by ten percent (10.0%)
      as
      an initial penalty *and* an
      additional two and one-half percent (2.5%) per month (pro rata for partial
      periods), compounded daily, for each month until the face amount is paid in
      full.





In
      August
      2007, the Company repaid John Helms $75,000 ($70,606 of principle and $4,394
      of
      interest) on by converting into 3,000,000 shares of common stock. The common
      stock had a fair market value of $69,000 on the date of conversion resulting
      in
      a $6,000 gain on conversion of the debt. Then, in October 2007, the Company
      issued 743,512 shares of common stock in exchange for the reduction of Mr.
      Helms
      note by $14,870 to $74,351 as of December 31, 2007.





During
      the year ended December 31, 2007, the Company repaid $129,751 of principle
      and
      interest owed to Tom and Robert Bridges by exchanging 5,190,040 shares of common
      stock. On the date of issuance the stock’s fair market value was $102,244
      resulting in a gain on conversion of debt of $27,507.





***Related
      Party Notes Payable***





Related
      party Notes payable at December 31, 2007 is as follows:


Secured
                  demand note payable to Craig Hudson, bearing interest at 12% per
                  year
                  collateralized by 116,000shares
                  of common stock; currently in default
              
              $
              32,065Unsecured
                  demand note payable to Sheryl Gardner, former CFO, bearing interest
                  at 4%
                  per year; currently in default
              
              $
              47,225Total
              
              $
              79,290





F-25


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**




**NOTE
      F - NOTES PAYABLE (Continued)**





***Notes
      Payable and Related Party Notes Payable***





During
      the year ended December 31, 2007 and 2006, the Company recognized $152,156
      and
      $53,599 of interest expense related to the notes above.





***Purchase
      Order Financing***





During
      the year ended December 31, 2007, the Holders of our convertible debentures
      advanced to the Company $869,425 to be used specifically for production of
      watersports goods. The advances bear interest of three percent (3%) per month
      and mature within three months. The advances are secured by the Company’s assets
      and are convertible into shares of common stock of the Company at the lenders
      discretion pursuant to the Investment Agreement as described in Note E above.
      During the year ended December 31, 2007, the Company repaid $869,425 of
      principle and incurred $70,192 of interest expense related to the purchase
      order
      financing. No debt was converted into common stock.





**NOTE
      G - STOCKHOLDERS’ EQUITY**





On
      August
      18, 2004, the Company entered into a service contract valued at $100,000 in
      exchange for 400,000 shares of common stock, which represents the fair market
      value of the common stock as of that date. The contract term was 24 months.
      During year ended December 31, 2007 and 2006, the Company recognized $0 and
      $31,507, respectively, of expense in connection with this contract, which was
      fully expensed as of August 18, 2006.





On
      March
      1, 2005, the Company entered into a service contract valued at $62,500 in
      exchange for 250,000 shares of common stock, which represents the fair market
      value of the stock as of that date. The contract term was 24 months. During
      the
      year ended December 31, 2007 and 2006, the Company recognized $5,137 and
      $31,250, respectively, of expense in connection with this contract, which was
      fully expensed as of March 1, 2007.





During
      the quarter ended March 31, 2006, 1,000,000 shares of common stock previously
      issued to the founders and former president (300,000 Don Dallape, 300,000 Scott
      Swendener, 300,000 Geno Apicella and 100,000 Todd Pitcher) were retired and
      canceled by each shareholder in an effort to improve the Company’s capital
      structure.





On
      March
      8, 2006, the Company entered into a line of credit with a primary softgoods
      supplier whereby the company will issue up to 1,142,857 shares of common stock
      in exchange for $400,000 of inventory. On March 10, 2006, the Company issued
      174,031 shares of common stock pursuant to the line of credit in exchange for
      a
      reduction in accounts payable for inventory valued
      at
      $60,911. Pursuant to this agreement, the supplier was granted two warrants
      to
      purchase the Company’s common stock. The supplier exercised one warrant in full
      and received 400,000 shares of common stock in exchange for $100,000. The
      remaining warrant gives the supplier the right to purchase 500,000 shares of
      common stock for $0.35 per share and expires on March 31,
      2008.




F-26


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      G - STOCKHOLDERS’ EQUITY (Continued)**





In
      July
      of 2006, 255,000 “Debenture” Warrants were exercised at a strike price of $.15
      resulting in proceeds of $38,250 to the Company.





During
      the year ended December 31, 2006, the Company issued 12,129,785 shares of common
      stock in exchange for services and product valued on the date of each issuance
      or $430,923.





During
      the year ended December 31, 2006, the Company converted $370,342 of related
      party and non related party debt into 1,862,127 shares of common stock.





During
      the year ended December 31, 2006, the Company issued 1,073,808 shares of common
      stock valued at the closing price of the stock on the date of issuance, or
      $30,106 to two if its directors as payment in lieu of cash.





During
      the year ended December 31, 2006, the Company placed 2,750,049 shares to
      Dutchess pursuant to the Investment Agreement (See NOTE E). The total value
      of
      the shares on the dates of issuance was $164,097. Of this amount $131,275 was
      applied as a reduction of principle and interest on the Company’s debenture and
      $32,822 was recognized as a loss due to a conversion discount.





During
      the year ended December 31, 2007, the Company issued 3,266,968 shares of common
      stock valued at the closing price of the stock on the date of issuance, or
      $110,532 to two of its directors as payment in lieu of cash.





During
      the year ended December 31, 2007, the Company issued 3,177,271 shares of common
      stock valued at the closing price of the stock on the date of issuance, or
      $101,519 as payment for services rendered in lieu of cash.





During
      the year ended December 31, 2007, the Company issued 1,400,000 shares of common
      stock valued at the closing price of the stock on the date of issuance, or
      $28,600 to the Holders of our convertible debentures as an inducement to make
      short term loans to the Company for the purpose of financing production and
      working capital.




F-27


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**




**NOTE
      G - STOCKHOLDERS’ EQUITY (Continued)**





During
      the year ended December 31, 2007, the Company issued 8,933,552 shares of common
      stock in exchange for the retirement of $205,476 of principle and $14,145 of
      accrued interest. The stock was valued at the closing price of the stock on
      the
      date of issuance and resulted in an increase to shareholders equity of $186,114
      and a gain of $33,507.





During
      the year ended December 31, 2007, the Company issued 31,894,880 shares to
      Dutchess pursuant to the Investment Agreement (See NOTE E). The total value
      of
      the shares on the dates of issuance was $683,543. Of this amount $76,168 was
      received in cash, $219,530 was applied to promissory notes made to the Company
      (See Note F), $54,250 was recognized as a loss due to the conversion discount,
      $217,073 was applied to accrued interest on the May 2006 debenture and $116,525
      was applied to accrued interest on the August 2007 debenture.





**NOTE
      H - WARRANTS**





At
      December 31, 2007, the Company had 16,161,667 Warrants outstanding entitling
      the
      holder thereof the right to purchase one share of common stock for each warrant
      held as follows:




ExerciseWarrant
              
              Number
                  of
              
              Price
                  Per
              
              ExpirationClass
              
              Warrants
              
              Warrant
              
              DateA
              
              
              500,000
              
              $
              0.350
              
              
              3/31/08May
                  2006 Debenture
              
              
              2,911,667
              
              $
              0.150
              
              
              5/15/11August
                  2007 Debenture
              
              
              5,750,000
              
              $
              0.020
              
              
              8/23/12B
              
              
              5,000,000
              
              $
              0.001
              
              
              5/23/012B
              
              
              2,000,000
              
              $
              0.001
              
              
              5/23/012Total
              
              
              16,161,667




During
      the year ended December 31, 2007, the Company issued 12,750,000 warrants and
      canceled 28,571 warrants that had expired. The August 2007 debenture warrant
      for
      5,750,000 shares of common stock was issued in conjunction with the debenture
      of
      the same date and is discussed in Note E. The “B” class warrants were recorded
      to permanent equity and resulted in $134,510 of expense using the Black-Scholes
      Option Pricing Model with the following assumptions: expected term 5 years,
      exercise price $0.001, Strike price $.020, volatility 14.23%, risk free rate
      4.86%, and zero dividend yield.




F-28


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**





**NOTE
      H - WARRANTS (Continued)**





*Stock
      Warrants Issued to Third Parties*





The
      Company accounts for stock-based compensation issued to non-employees in
      accordance with the provisions of SFAS 123 and the Emerging Issues Task Force
      consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments
      that are Issued to Other Than Employees for Acquiring or in Conjunction with
      Selling, Goods or Services."





In
      addition, the Company evaluates each derivative issued to determine whether
      treatment as either equity or a liability is warranted for that derivative
      pursuant to EITF 00-19, Accounting for Derivative Financial Instruments Indexed
      to, and Potentially Settled in a Company's Own Stock of that
      derivative.





**NOTE
      I - STOCK INCENTIVE PLAN**





On
      December 13, 2005, pursuant to an Employment Agreement and in anticipation
      of
      approval of the Stock Incentive Plan, the Company awarded its then Product
      Manager, Duane Pacha a non-qualified stock option to purchase 300,000 shares
      of
      common stock of the Company at an exercise price of $.35 per share with an
      expiration date of December 12, 2015. The option vests and become exercisable
      at
      a rate of 12,500 per month over a twenty-four month period. On December 31,
      2006, the Company terminated Mr. Pacha’s position as Product Manager due to the
      disposition of the Academy business. At the time of departure from the Company,
      options to purchase 150,000 shares had vested. The remaining options to purchase
      150,000 shares were canceled due to non exercise within 90 days of separation
      from the Company.





On
      December 13, 2005, pursuant to an Employment Agreement and in anticipation
      of
      approval of the Stock Incentive Plan, the Company awarded its then Marketing
      Director, Jeff Baughn a non-qualified stock option to purchase 300,000 shares
      of
      common stock of the Company at an exercise price of $.35 per share with an
      expiration date of December 12, 2015. The option vests and become exercisable
      at
      a rate of 12,500 per month over a twenty-four month period. On December 15,
      2006, the Company terminated Jeff Baughn’s position as Marketing Director due to
      the disposition of the Academy business. At the time of departure from the
      Company, options to purchase 150,000 shares had vested. The remaining options
      to
      purchase 150,000 shares were canceled due to non exercise within 90 days of
      separation from the Company.





On
      December 15, 2005, pursuant to an Employment Agreement and in anticipation
      of
      approval of the Stock Incentive Plan, the Company awarded its President, Todd
      Pitcher a non-qualified stock option to purchase 300,000 shares of common stock
      of the Company at an exercise price of $.35 per share with an expiration date
      of
      December 14, 2015. The option vests and become exercisable at a rate of 12,500
      per month over a twenty-four month period. On December 22, 2006,
      the
      Company and Todd Pitcher mutually agreed to terminate Mr. Pitcher as President
      in order to improve operational cash flow. At the time of departure from the
      Company, options to purchase 150,000 shares had vested. The remaining options
      to
      purchase 150,000 shares were canceled due to non exercise within 90 days of
      separation from the Company.




F-29


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      I - STOCK INCENTIVE PLAN (Continued)**




The
      following table summarizes the Company's stock option activity for the year
      ended December 31, 2007:


2007Weighted
                  AverageShares
              
              Exercise
                  PriceOutstanding
                  at beginning of period
              
              
              450,000
              
              $
              0.35Granted
              
              
              -Forfeited
              
              
              (450,000
              )
              
              0.35Exercised
              
              
              -Outstanding
                  at end of period
              
              
              -
              
              $
              -Options
                  exerciseable at end of period
              
              
              -




The
      Company accounts for stock options pursuant to Financial Accounting Standards
      No. 123 (revised 2004), Share-Based Payment. The Company values each option
      grant utilizing the grant date fair value for fixed awards based on the
      Black-Scholes Option Pricing Model. Compensation cost is amortized over the
      vesting period.





During
      the year ended December 31, 2007, no compensation expense related to options
      was
      recognized. To date, the Company has recognized compensation expense of
      $85,313.





**NOTE
      J - NET OPERATING LOSS CARRY FORWARD**





In
      assessing the ability to realize deferred tax assets, management considers
      whether it is more likely than not that some portion or all of the deferred
      tax
      assets will not be realized. The ultimate realization of deferred tax assets
      is
      dependent upon the generation of future taxable income during the periods in
      which those temporary differences become deductible. Management considers the
      scheduled reversal of deferred tax liabilities, projected future taxable income
      and tax planning strategies in making this assessment.





At
      December 31, 2007, a valuation allowance for the full amount of the net deferred
      tax asset was recorded because of uncertainties as to the amount of taxable
      income that would be generated in future years.




F-30


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**





**NOTE
      J - NET OPERATING LOSS CARRY FORWARD (Continued)**





United
      States Corporation Income Taxes




Period
                of Loss
            
            Amount
            
            Expiration
                DateDecember
                31, 2007
            
            $
            2,276,281
            
            
            December
                31, 2027December
                31, 2006
            
            $
            5,089,954
            
            
            December
                31, 2026December
                31, 2005
            
            $
            574,866
            
            
            December
                31, 2025December
                31, 2004
            
            $
            420,421
            
            
            December
                31, 2024





Prior
      to
      November 2004 the Company was organized as an S-Corporation and all losses
      were
      distributed and recognized through the tax returns of the owners. The book
      loss
      for the fiscal year ended December 31, 2007, was $2,671,410. As of December
      31,
      2007, a valuation allowance for the full amount of the net deferred tax asset
      has been recognized over the period for $3,344,610, based on an anticipated
      tax
      rate of 40%.





**NOTE
      K - GOING CONCERN AND MANAGEMENT’S PLANS**





The
      Company has suffered recurring losses from operations since inception. In
      addition, the Company has yet to generate an internal cash flow from its
      business operations. These factors raise substantial doubt about its ability
      to
      continue as a going concern.





Management’s
      plans with regard to these matters encompass the following actions: 1) obtain
      funding from new investors to alleviate the Company’s working capital
      deficiency; and 2) implement a plan to generate additional sales. The Company’s
      continued existence is dependent upon its ability to resolve its liquidity
      problems and increase profitability in its current business operations. However,
      the outcome of management’s plans cannot be ascertained with any degree of
      certainty. The accompanying consolidated financial statements do not include
      any
      adjustments that might result from the outcome of these risks and
      uncertainty.





**NOTE
      L - RELATED PARTY TRANSACTIONS**





During
      the year ended December 31, 2006, 1,000,000 shares of common stock previously
      issued to the founders and president (300,000 Don Dallape, 300,000 Scott
      Swedener, 300,000 Geno Apicella and 100,000 Todd Pitcher) were voluntarily
      returned to the Company and cancelled by each shareholder in an effort to
      improve the Company’s capital structure. The shares were originally expensed as
      stock compensation expense for $0.25 per share, or $250,000 on April 1, 2005.
      The Company reclassified the par value, or $1,000 out of Common Stock and
      increased Additional-Paid-in-Capital in order to reflect the reduction in the
      legal value of the canceled shares.




F-31


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**





**NOTE
      L - RELATED PARTY TRANSACTIONS (Continued)**





During
      the year ended December 31, 2006, the Company incurred $35,622 of expenses
      paid
      on its behalf by Comprehensive Communications LLC, a company wholly owned by
      the
      Company’s former President, Todd Pitcher.





During
      the year ended December 31, 2006, the Company incurred $25,856 of expenses
      paid
      on its behalf by Geno Apicella, CEO. In addition, Geno made loans to the company
      totaling $103,636 of which the Company repaid $57,577 as of December 31, 2006.
      As of December 31, 2006, Mr. Apicella was owed $54,700 for advances made to
      the
      Company. During the three months ended March 31, 2007, the Company incurred
      $11,800 of expenses paid on its behalf by Geno Apicella, CEO. In addition,
      during the three months ended March 31, 2007, the Company repaid $62,300 to
      Mr.
      Apicella leaving a balance due to Mr. Apicella of $4,223 as of March 31, 2007.
      During the three months ended June 30, 2007, the Company repaid an additional
      $1,200 bringing the balance due Mr. Apicella’s to $3,023 which was repaid in
      full during the three months ended September 30, 2007.





During
      the year ended December 31, 2007, the Company made payments totaling $16,160
      to
      Craig Washington, former Board member for accounting services.





**NOTE
      M - DISPOSITION OF ACADEMY LINE**





On
      February 5, 2007 the Company filed a current report on Form 8-k with the United
      States Securities and Exchange Commission relating to the January 31, 2007,
      Trademark Transfer and Assignment Agreement (the “Agreement”) with Duane Pacha
      (“Duane”) and Jeff Baughn (“Jeff”, with Duane, the “Buyers”) pursuant to which
      the Company transferred all right, title, interest and good will in the ACADEMY
      SNOWBOARD CO. and ACADEMY trademarks, and the
      associated ACADEMY logo and their goodwill, and all associated domain names,
      in
      particular the domain www.academysnowboards.com, trades secrets and copyrights
      and their goodwill (collectively, the “Brand”). Moreover, as per the Agreement,
      there was no cash component relating to the transfer and assignment of the
      Brand
      and the Company shall assign to Buyers certain of the Company’s accounts payable
      and accounts receivable relating to the Brand. Specifically, the accounts
      receivable in the amount of $107,761.52 were transferred to the Buyers resulting
      in a decrease to accounts receivable. Accounts payable in the amount of
      $345,321.50 were transferred to the Buyers resulting in a decrease to
      accounts payable.




F-32


**EXECUTE
          SPORTS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEAR ENDED DECEMBER 31, 2007 AND 2006**


**NOTE
      N - CONTINGENCIES**





*Litigation*





The
      Company is involved in various legal proceedings arising in the ordinary course
      of business. The ultimate outcome of these proceedings cannot be determined
      because of the uncertainties that exist. In the opinion of management, the
      disposition of matters that are pending or asserted will not have a materially
      adverse effect on the financial position, results of operations or cash flows
      of
      the Company.





**NOTE
      O - SUBSEQUENT EVENTS**





On
      February 1, 2008, Mr. Craig Washington resigned effective immediately as a
      Director of Execute Sports, Inc. to pursue other interests.  Mr.
      Washington’s resignation letter did not reference a disagreement with the
      Company on any matter relating to the Company’s operations, policies and
      practices.





On
      February 1, 2008, the Company appointed Messrs Theodore Smith and Douglas
      D’Agata to the Company’s Board of Directors.





On
      February 8, 2008, Mr. Benjamin Amendolara resigned effective immediately as
      a
      Director of the Company to pursue other interests.  Mr. Amendola’s
      resignation letter did not reference a disagreement with the Company on any
      matter relating to the Company’s operations, policies and practices.





From
      January1, 2008 through March 7, 2008, the Company issued 2,990,249 shares of
      common stock in exchange for services valued at $27,000, a $906 reduction in
      debenture interest and $11,797 reduction in notes payable.




F-33